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Washington County Board of Education v. Mallinckrodt Ard, Inc.

United States District Court, D. Maryland

January 3, 2020

WASHINGTON COUNTY BOARD OF EDUCATION, Plaintiff
v.
MALLINCKRODT ARD, INC., et al., Defendants.

          MEMORANDUM

          JAMES K. BREDAR CHIEF JUDGE

         This dispute arises out of the pricing of a drug, Acthar. Over the course of fifteen years, Acthar's price rose from $40 per vial to $40, 000 per vial. The plaintiff in this action, the Washington County Board of Education ("Plaintiff), paid almost $3 million over a three-year period for two of its employees to receive Acthar. Plaintiff contends the entities involved in raising Acthar's price violated numerous Maryland state laws; it brings this action against Mallinckrodt[1](Acthar's manufacturer), Express Scripts[2] (Acthar's distributor), and Gregg Lapointe (a former board member of Mallinckrodt's subsidiary, Questcor) (collectively, "Defendants").

         Plaintiff alleges violations of the Maryland Consumer Protection Act ("MCPA") (Count I); negligent misrepresentation (Count II); fraud (Count III); unjust enrichment (Count IV); and conspiracy to defraud/concerted action (Count V). Plaintiff asserts all five claims against Mallinckrodt and Express Scripts, and all but the unjust enrichment claim against Lapointe.

         Now pending before the Court is Plaintiffs motion to remand the case to state court (ECF No. 34) and Defendants' motions to dismiss the amended complaint (ECF Nos. 50, 51, 56)[3]The motions are fully briefed. No. hearing is required. See Local Rule 105.6 (D. Md. 2018). The Court will deny Plaintiffs motion to remand, dismiss Lapointe from the case, and grant Mallinckrodt and Express Scripts' motions to dismiss.

         I. Factual Background

         A. The Parties

         Plaintiff employs 2, 500 people in Washington County, Maryland. (Am. Compl. ¶¶ 34-35, ECF No. 36.) Plaintiff provides its employees healthcare benefits through a contract with Cigna Health and Life Insurance Co. ("Cigna"). (Id. ¶ 36.) In the world of prescription drugs, this makes Plaintiff a private third-party payor. (Id. ¶ 225.) Two of Plaintiff s employees were prescribed Acthar in 2016 to treat their rheumatoid arthritis. (Id. ¶ 37.) Between 2016-2018, Plaintiff paid $2, 841, 747 for these employees to receive Acthar. (Id. ¶ 29.) At the time of the filing of this suit, Plaintiff continues to pay for Acthar on their behalf. (Id.)

         Mallinckrodt is an Irish public limited company with corporate headquarters in the United Kingdom. (Id. ¶ 43.) It has manufactured Acthar since 2014, when it acquired Questcor, Acthar's former manufacturer. (Id. ¶¶ 38-39.) At the time of the acquisition, Questcor became a wholly owned subsidiary of Mallinckrodt.[4] (Id. ¶ 39.)

         Express Scripts is a pharmacy benefits manager. (Id. ¶ 26.) Pharmacy benefits managers serve as intermediaries between drug manufacturers, like Mallinckrodt, and patients and third-party payors, like Plaintiff. (Id. ¶ 156.) Express Scripts and its various subsidiaries facilitate the distribution of Acthar. (Id. ¶26.)

         Gregg Lapointe was a former member of Questcor's board of directors. (Id. ¶ 13.) Lapointe is a resident of the state of Maryland. (Id. ¶ 31.) Lapointe was on Questcor's board in 2007 at the time Questcor launched a controversial "new strategy" to increase Acthar's profitability. (Id. ¶¶ 13-14.)

         B. Plaintiff's Allegations

         Plaintiff alleges that Defendants were able to raise Acthar's price to unconscionable levels through three complementary schemes that collectively reduced competition, increased profits, and deflected negative attention. These three schemes constitute the heart of Plaintiff s complaint, and the Court summarizes them below.

         1. The Distribution Scheme

         In 2001, Questcor acquired Acthar for $100, 000. (Id. ¶ 75.) At the time, Acthar was primarily used to treat Infantile Spasms ("IS"), a rare condition with a patient population of about 2, 000 children per year. (Id. ¶¶ 77-78.) At the time of the acquisition, Questor was struggling financially. (Id. ¶ 79.) In an effort to get the company on a more profitable track, Questcor's largest shareholder, Sigma Tau Finanziaria, installed one its executives, Gregg Lapointe, on Questcor's board of directors. (Id. ¶¶ 79, 85, 86.) Lapointe would become the "mastermind" of a new strategy to increase Acthar's profitability. (Id. ¶ 13.)

         Once Lapointe was on Questcor's board, the company decided to adopt an "orphan drug strategy" for Acthar, which involved centralizing the drug's distribution channels and raising its price. (Id. ¶¶ 91, 110.) Because Acthar was the only drug available to treat IS, this strategy would allow Questcor to "leverage its monopoly power" against a "fragile, powerless patient population" in a narrow market. (Id. ¶ 111.) .

         To carry out this strategy's first step-centralizing the distribution channels-Questcor made Express Scripts Acthar's exclusive distributor.[5] (Id. ¶ 90.) The companies publicly announced the exclusive relationship in July 2007. (Id.) Moving forward, Questcor explained at the time, patients and doctors would need to submit all Acthar prescriptions though the Acthar Support & Access Program ("ASAP"). (Id.) Through the coordination of various Express Scripts subsidiaries, the ASAP would serve as a hub for the distribution and payment of Acthar. (Id. ¶ 166.) Patients and their doctors could initiate the distribution process by submitting the Acthar Start Form, which contained the requisite patient information and permissions. (Id. ¶¶ 166, 403.)

         Initially, there was some pushback within Questcor about the new strategy; several board . members and one executive departed shortly after the announcement of the exclusive relationship with Express Scripts. (Id. ¶¶ 101-02.) Lapointe also departed shortly after the announcement. (Id. ¶ 103.)- But Questcor's COO made clear in an email to senior staff that Lapointe's departure was not due to his disagreement with the strategy; to the contrary, Lapointe was "a big supporter of the pricing strategy from the very beginning."[6] (Id. ¶ 104.)

         2. The Pricing Scheme

         Once the exclusive distribution scheme was in place, Questcor began "aggressively" raising Acthar's price. (Id. ¶¶ 100, 183.) When Questcor acquired Acthar in 2001, Acthar's average wholesale price ("AWP")-the price third-party payors like Plaintiff paid for the drug- was $40.00 per vial. (Id. ¶¶ 179, 213.) Over the next six years, Questcor gradually raised Acthar's AWP, but it was not until the launch of the new strategy in the summer of 2007 that Questcor made its most aggressive price hikes: it raised Acthar's AWP from $2, 062.79 to $29, 086.25. (Id. ¶¶ 181-83.) Questcor continued to raise Acthar's AWP in the ensuing years, and by December 2014, it had raised Acthar's AWP to $40, 325.00. (Id. ¶ 208.)

         Express Scripts reviewed and approved each of these price increases in writing. (Id. ¶ 187.) But when asked about the price increases, Express Scripts laid the blame with Questcor. (Id. ¶¶ 232-35.) For example, in a conference call with investors in May 2017, an Express Scripts senior vice president denied Express Scripts was involved in setting Acthar's price. (Id. ¶ 228 ("I think everybody in our company would agree, that [Acthar] is vastly overpriced for the value. We don't set the price.")) In a television interview, Express Scripts' CMO also criticized Acthar's high price without disclosing that Express Scripts had approved Acthar's price increases. (Id. ¶ 251.)

         Questcor never disclosed the reasons for the price increases. (Id. ¶ 215.) But on June 29, 2018, in response to the filing of litigation relating to Acthar, the company issued a press release stating the price of Acthar was not as high as was being reported because both public and private payors received discounts. (Id. ¶ 212.) Plaintiff and other private payors, however, did not receive any discounts. (Id. ¶ 213.)

         3. The Marketing Scheme

         In 2011, Questcor decided to move beyond the "captive" IS market, and it began marketing Acthar as a treatment for other conditions, including rheumatoid arthritis. (Id. ¶ 298.) Although the FDA had approved Acthar to treat "acute exacerbations" of conditions like rheumatoid arthritis, the FDA had never approved it as a "long-term treatment" for the disease. (Id. ¶ 318.) In fact, Questcor did not have a clear understanding of how the drug treated diseases other than IS; Acthar's "mechanism of action" was unknown to Questcor. (Id. ¶ 122.)

         To overcome the lack of clinical data demonstrating Acthar's ability to effectively treat rheumatoid arthritis, Questcor hired Medical Science Liaisons ("MSLs") to encourage doctors to prescribe the drug for "unapproved uses and doses." (Id. ¶ 264.) Questcor also engaged doctors, known as Key Opinion Leaders ("KOLs"), to promote the use of Acthar. (Id. ¶¶ 270-71.) Questcor paid these KOLs "handsomely" to promote Acthar for "off-label" uses, such as the long-term treatment of rheumatoid arthritis. (Id. ¶¶ 114, 302.) Some of the KOLs delivered "false, misleading, and deceptive promotional messages about the safety, efficacy and value" of the drug. (Id. ¶ 23.) The payments, however, proved effective at incentivizing doctors to prescribe Acthar: a study published in JAMA Network Open concluded that "most nephrologists, neurologists, and rheumatologists who frequently prescribe[d] Acthar received Acthar-related payments." (Id. ¶¶ 285, 322.)

         The growth in Acthar sales, however, also brought a potential for increased pushback from patients who struggled to afford the drug's high co-pays. Initially, Questcor sought to minimize pushback by working with the National Organization for Rare Diseases ("NORD"), an organization that provided free Acthar to patients who could not afford it. (Id. ¶ 92.) Lapointe was a member of NORD's Corporate Council. (Id.) Later, Questcor created a Patient Assistance Program ("PAP"), which subsidized patient co-pays with tens of millions of dollars. (Id. ¶ 18.) The PAP, however, did nothing to subsidize the payments third-party payors like Plaintiff had to pay for Acthar.[7] (Id.¶113.)

         Questcor's final step in its efforts to promote Acthar was to eliminate the competition. In 2013, Questcor acquired the rights to another drug, Synachten, from Novartis. (Id. ¶¶ 255-56.) Synachthen was a synthetic alternative to Acthar that was used internationally but had not yet been approved by the FDA for use in the United States. (Id. ¶ 254.) After acquiring the rights to Synacthen, Questcor shelved the drug and never brought it to market. (Id. ¶ 259.) The goal of the acquisition had been to "eliminate the nascent competitive threat," so that Questcor would continue to raise Acthar's price. (Id. ¶¶ 256-57.) Express Scripts, as the largest pharmacy benefits manager in the United States, had leverage to force Questcor to bring Synacthen to market, but took no steps to do so. (Id. ¶¶ 261-62.)

         In 2014, Mallinckrodt acquired Questcor, making it a wholly owned subsidiary. (Id. ¶¶ 38-39.)

         II. Motion to Remand

         Plaintiff initially filed this suit in the Circuit Court of Washington County, Maryland. (Not. Removal at 1, ECF No. 1.) Defendants promptly removed it to federal court on the basis of diversity. (Id. at 2.) Although Defendants concede that both Plaintiff and Lapointe are residents of the state of Maryland, Defendants contend Lapointe's citizenship should be disregarded for the purpose of jurisdiction because Lapointe was fraudulently joined. (Id. at 3.) Specifically, Defendants assert the sole reason Plaintiff joined Lapointe was to defeat complete diversity and avoid a potential MDL.[8] (Opp'n Mot. Remand at 1, ECF No. 52.) .

         To support their contention that Lapointe was fraudulently joined, Defendants point to Lapointe's departure from Questcor's board in 2007, years before most of the conduct described in the complaint occurred. (Id. at 6.) Defendants also point to the initial decision by Plaintiffs counsel not to name Lapointe as a defendant in the other Acthar-related lawsuits it has filed.[9] (Id. at 1-3.) Plaintiff counters that its claims against Lapointe are viable and it has every intention of recovering against him, as Lapointe was the "mastermind" behind the distribution scheme, pricing scheme, and marketing scheme, which collectively constitute the heart of the complaint. (Am. Compl. ¶¶ 13, 105; Mot. Remand at 2, ECF No. 34.)

         A. Fraudulent Joinder Standard

         Under the doctrine of fraudulent joinder, a district court may "disregard, for jurisdictional purposes, the citizenship of certain nondiverse defendants, assume jurisdiction over a case, dismiss the nondiverse defendants, and thereby retain jurisdiction." Mayes v. Rapoport, 198 F.3d 457, 461 (4th Cir. 1999). The doctrine is an exceptional one, applying only where a removing party can show either, "'outright fraud in the plaintiffs pleading of jurisdictional facts' or that 'there is no possibility that the plaintiff would be able to establish a cause of action against the [non-diverse] defendant in state court."' Johnson v. Am. Towers, LLC, 781 F.3d 693, 704 (4th Cir. 2015) (quoting Hartley v. CSX Transp, Inc., 187 F.3d 422, 424 (4th Cir. 1999)). Mere doubts about the strength of a claim are insufficient. Riverdale Baptist Church v. Certainteed Corp., 349 F.Supp.2d 943, 948 (D. Md. 2004). Rather, to establish fraudulent joinder, it must be clear that, "the facts asserted by the plaintiff... could not possibly create ... liability[, ] [such] that the assertion of the cause of action is as a matter, of local law plainly a sham and frivolous." Id. (quoting Parks v. N.Y.Times Co., 308 F.2d 474, 477 (5th Cir. 1962)).

         "The party alleging fraudulent joinder bears a heavy burden-it must show that the plaintiff cannot establish a claim even after resolving all issues of law and fact in the plaintiffs favor." Johnson, 781 F.3d at 704 (quoting Hartley, 187 F.3d at 424). The standard "heavily favors" plaintiffs, who must show only a "glimmer of hope" of succeeding. Id. (quoting Mayes, 198 F.3d at 466). The standard for assessing fraudulent joinder is "even more favorable to the plaintiff than the standard for assessing a motion to dismiss. Id. (quoting Hartley, 187 F.3d at 424).

         B. Analysis

         Because Defendants do not assert that Plaintiff committed outright fraud in its pleading of jurisdictional facts, the issue here is whether Plaintiff has any "glimmer of hope" of recovering against Lapointe under the claims alleged.[10] See Mayes, 198 F.3d at 466. For the reasons explained in`Part III, each of Plaintiffs claims is legally deficient and leaves Plaintiff without a "glimmer of hope" of recovering against any of the Defendants, including Lapointe. Although these legal deficiencies are a sufficient basis on which, to conclude Plaintiff has no hope of recovering against Lapointe, the Court will also review the factual allegations against Lapointe given the exceptional nature of fraudulent joinder. See Johnson, 781 F.3d at 704.

         Using Plaintiffs preferred framework for evaluating Defendants' conduct, the Court discerns the following ...


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