Drug ad fraud claims remanded to state court

Pennsylvania Employees Benefit Trust Fund v. Eli Lilly & Co., 2007 WL 2916195 (E.D. Pa.)

The Pennsylvania Employees Benefit Trust Fund operates a prescription benefit plan for state employees and dependents. The Fund alleges that the defendant drug companies promoted their respective drugs for non-medically necessary uses, causing beneficiaries to improperly submit reimbursement claims for unnecessary prescriptions and to seek Fund-paid treatment for side effects of/reactions to the unnecessary drugs. The Fund sued in the Philadelphia County Court of Common Pleas for violation of state consumer protection law and various common-law claims, including fraud. The defendants removed; the plaintiffs successfully moved for remand.

None of the Fund’s claims were brought under federal law. Defendants argued, however, that the claims implicated the FDCA. A case arises under federal law for purposes of removal jurisdiction if “a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff’s right to relief necessarily depends on resolution of a substantial question of federal law.” But the mere presence of a federal issue in a state cause of action doesn’t confer federal question jurisdiction. The issue must be disputed and substantial, and jurisdiction must be consistent with the federal/state court balance, resolving doubts in favor of remand.

The court concluded that the federal issue here was not sufficiently substantial and disputed and that remand would better implement the federalist balance. The central question was whether the defendants’ advertising violated state tort law, not what is or is not a medically accepted indication or medically necessary use.

The defendants argued that the FDA’s extensive regulation of drugs meant that the plaintiffs’ claims would require interpretation of federal law, since even promotional material or ads must be consistent with approved labeling. But what the labeling allows doesn’t define the scope of permissible conduct under state law; a false or fraudulent claim could be submitted for a medically accepted indication. Moreover, the failure to warn claims aren’t based on federal labeling standards. And finally, the federal issues were affirmative defenses, which are insufficient to create subject matter jurisdiction. There is no complete preemption by the FDCA, because the FDCA doesn’t provide any private remedies, and if Congress intends both to preclude state jurisdiction and preclude federal remedies, it needs to make that unusual intention clear; otherwise the lack of a federal remedy is an indication that the issue isn’t sufficiently substantial to mandate federal jurisdiction.

The court also sustained the joinder of defendants destroying complete diversity. The case was thus remanded.