At issue is whether pharmaceutical companies’ allegedly misleading drug labels that providers rely upon when prescribing drugs to patients, which plaintiffs classify as mail and wire fraud, are the proximate causes of third-party payors (TPPs) overpaying for medication, or enduring a financial injury, such that the TPPs fulfill RICO standing under 18 U.S.C. § 1964(c). Included in this issue are questions about whether the alleged RICO violations directly caused the TPPs’ financial injuries such that plaintiffs meet the proximate cause requirements under § 1964(c) to state a valid claim. Presently, the First, Third, and Ninth Circuits agree that allegations of misleading drug labels fulfill the proximate cause requirement of a civil RICO claim. The Second and Seventh Circuits disagree, explaining that it is too difficult to distinguish between doctors’ independent prescribing practices and the degree to which they were influenced by a drug label to consider an allegedly misleading label a proximate cause. In other words, the Seventh and Second Circuits hold that an allegedly misleading label is too attenuated from the plaintiff’s injury to form a direct relationship required for standing under § 1964(c). This Note illustrates the main tensions and opportunities for factual variations in these cases, and those to come, that could influence a court’s proximate cause analysis. If civil RICO plaintiffs satisfy proximate cause and meet the remaining elements of standing under § 1964(c), they can move to the next stage of their lawsuits. And these lawsuits have billions of dollars—treble billions—at stake.
This Note argues that future courts should determine whether plaintiffs properly allege proximate cause in similar cases with the following two-step inquiry. First, courts should determine whether the pharmaceutical company’s actions and the TPP’s injury meet the directness “separation” requirement as set forth in Hemi Group, LLC v. City of New York (Hemi). Second, if the allegations fail the Hemi separation test, the inquiry ends. If they meet it, courts should then ensure that imposing liability aligns with the policy reasons that Holmes v. Securities Investor Protection Corp. (Holmes) gives for establishing a directness requirement in a proximate cause inquiry. When a court ensures that liability aligns with Holmes’s policy reasons, it confirms that the liability aligns with the goals of civil RICO claims. It also uncovers any sources of intervening cause or attenuation not recognized in the Hemi separation test. If plaintiffs properly allege directness and a court determines that imposing liability is proper under Holmes, they satisfy proximate cause. So far, the Second Circuit’s reasoning most relies on Hemi’s separation test in the way this Note suggests courts should. But that court’s outcome also relies on various elements of proximate cause that this Note argues should not weigh into the analysis until first establishing directness.
Part I of this Note discusses the background of civil RICO claims and the requirements of statutory standing under § 1964(c). Part II then examines the origin of the Supreme Court’s “directness” perspective of proximate cause and the Court’s application of direct-ness in recent cases. It will also propose the following process for courts to evaluate proximate cause in the current split, based on the Supreme Court’s precedent. First, courts should conduct a Hemi separation test to satisfy directness. Second, they should check that outcome against the Holmes policy reasons for instituting a directness requirement. Part III surveys the relationships between payors and players—pharmaceutical companies, TPPs, insurers, physicians, and patients—in the instant split, analyzes the circuits’ reasonings and outcomes, and explains why the Second Circuit’s reasoning most closely follows this Note’s proposed inquiry. Finally, Part IV applies the proposed inquiry framework to hypothetical examples of proximate cause analyses that future courts might encounter.
Elisabeth F. Crusey,
Payors, Players, and Proximate Cause,
Notre Dame L. Rev.
Available at: https://scholarship.law.nd.edu/ndlr/vol97/iss5/12