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International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co.

September 6, 2007

INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL NO. 68 WELFARE FUND, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-RESPONDENT,
v.
MERCK & CO., INC., DEFENDANT-APPELLANT.



On appeal from the Superior Court, Appellate Division, whose opinion is reported at 384 N.J. Super. 275 (2006).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

In this appeal, the Court considers the propriety of an order certifying a nationwide class of third-party payors that paid for the purchase of the prescription drug, Vioxx.

The International Union of Operating Engineers Local No. 68 Welfare Fund (Welfare Fund) is a joint union-employer Taft-Hartley trust fund which is organized and operates pursuant to the laws of New Jersey. As a part of its services, the Trust Fund acts as a sponsor of health benefit plans that provide prescription drug coverage for its members and their beneficiaries. It is therefore a third-party payor, meaning it makes payments to pharmaceutical companies for prescription medications for those members.

The Trust Fund asserts that as a third-party payor it made payments and incurred costs for Vioxx, the prescription drug manufactured and marketed by defendant, Merck. The Trust Fund further asserts that it was induced by Merck's fraudulent marketing scheme to pay a higher price than that charged for similar medications. In addition, the Trust Fund claims that Merck was aware that its product was neither more effective nor safer than other available products, and that Merck engaged in extensive efforts to conceal or minimize information that there were significant health and safety risks associated with the continued use of Vioxx.

The Trust Fund also asserts that Merck's marketing intentionally targeted third-party payors that oversee and make payments for the vast majority of prescription medications. Third-party payors rely on Prescription Benefit Managers (PBMs) that select drugs to be included on the payor's approved purchase listing, known as a formulary. The Trust Fund's expert contends that there is an agreed-upon set of principles and guidelines governing the practices of third-party payors and PBMs in establishing the terms under which the third-party payor agrees to be responsible for the costs of members' prescriptions. As a result, the Fund claims it can fairly represent the interests of a variety of third-party payors, including funds like itself, as well as such diverse entities as corporate health insurers, health maintenance organizations and self-insured employers. Merck's expert asserts that the way in which PBMs operate in evaluating drugs for formulary purposes varies greatly. The expert's research showed that different managed care plans accorded Vioxx widely different formulary treatment. Merck's expert asserts that there are such divergences among class members and in how they analyzed Merck's information on Vioxx that class certification is inappropriate.

Central to the Trust Fund's assertions is its argument that if Merck had disclosed the adverse information about which it was aware, the Trust Fund and other class members would have taken action to discourage consumers from purchasing Vioxx, thereby reducing the amounts paid to reimburse members for the drug's cost. Merck contends that this argument amounts to nothing more than a "fraud on the market" theory that cannot be sustained in accordance with this State's law.

HELD: Certification of a nationwide class is not appropriate because common questions of fact or law do not predominate and a class action is not superior to other available mechanisms for redress.

1. Class action certification is governed by Rule 4:32-1. The provision that is at issue here is Rule 4:32-1(b)(3), which this Court recently addressed in Iliadis v. Wal Mart Stores, Inc., Per curiam.

Argued March 19, 2007

JUSTICES LONG, LaVECCHIA, WALLACE, RIVERA-SOTO, and HOENS join in this opinion. JUSTICE ALBIN did not participate.

In July 2005, a Law Division judge granted the motion of plaintiff International Union of Operating Engineers Local #68 Welfare Fund "to certify a nationwide class of third-party[,] non-government payors who . . . paid any person or entity for the purchase of a prescription anti-inflammatory arthritis and acute pain medication marketed by defendant Merck & Company, Inc. . . . under the brand name Vioxx." The Appellate Division affirmed that decision and defendant moved for leave to appeal to this Court.

We granted that motion for leave to appeal, agreeing to consider the propriety of the order certifying a nationwide class. Because we conclude that the court erred in finding that common questions of fact or law predominate and that a class action would be superior to other mechanisms for adjudicating the claims, we reverse.

I.

We accept as true all of the allegations in the complaint in light of the fact that we are considering the issues in the context of a challenge to class certification. See Riley v. New Rapids Carpet Ctr., 61 N.J. 218, 223 (1972); see also Delgozzo v. Kenny, 266 N.J. Super. 169, 180-81 (App. Div. 1993) (citing Blackie v. Barrack, 524 F.2d 891, 901 n.17 (9th Cir. 1975), cert. denied, 429 U.S. 816, 97 S.Ct. 57, 50 L.Ed. 2d 75 (1976)). For purposes of our analysis, we derive the essential facts from plaintiff's complaint and the record developed in connection with the motion for class certification.

A.

According to the complaint, plaintiff "is a joint union-employer Taft-Hartley trust fund,"*fn1 which is organized and operates pursuant to the laws of New Jersey. As a part of its services, plaintiff acts as a party to benefit contracts, a policy issuer, and a sponsor of health benefit plans that provide prescription drug coverage for its members and beneficiaries. It is therefore a third-party payor, meaning that it makes payments to pharmaceutical companies for prescription medications for those for whom its benefit plans afford coverage.

Plaintiff asserts that as a third-party payor it made payments, and therefore incurred costs, for Vioxx, a prescription drug manufactured and marketed by defendant. More specifically, plaintiff asserts that it was induced to make those payments and incur those costs in response to defendant's wide-ranging fraudulent marketing scheme. In essence, the complaint alleges that defendant marketed its product as a safer and more effective alternative to other traditional pain medications, thus driving the price of its product substantially higher than the price charged for similar medications.

More to the point, however, plaintiff asserts that defendant did so through an aggressive marketing campaign undertaken at a time when defendant was aware that its product was neither more effective nor safer than other available products. Pointing in particular to three separate warning letters issued to defendant by the Food and Drug Administration (FDA), plaintiff asserts that defendant engaged in extensive efforts to conceal or otherwise minimize information coming to its attention to the effect that its product was not as safe as available alternatives.

At the same time, plaintiff contends that defendant was aware, through its ongoing clinical studies, that there were significant health and safety risks associated with continued use of its product and that defendant also either minimized or actively concealed those studies from the FDA, the public, and third-party payors. In particular, plaintiff asserts that beginning in 1998, defendant's clinical studies and internal analyses of the use of Vioxx demonstrated a link between the medication and adverse cardiovascular side effects. In spite of that discovery, however, defendant continued its marketing and promotional campaign and concealed those adverse findings until the product was withdrawn from the market in September 2004.

B.

Plaintiff also asserts that the defendant intentionally targeted third-party payors that oversee, and make payments for, the vast majority of purchases of prescription medications. Although the specific allegations about defendant's marketing campaign are not important to our analysis, plaintiff asserts, as part of its class action allegations, that defendant engaged in a uniform series of fraudulent activities in its dealings with all members of the proposed nationwide class. As such, plaintiff asserts that it can fairly represent the interests of a variety of third-party payors, including other Taft-Hartley funds like itself, as well as such diverse entities as corporate health insurers, health maintenance organizations, private employers, self-insured employers, and multi-employer union benefit organizations.

The parties do not dispute the manner in which this plaintiff or other third-party payors operate in making decisions about payments for particular medications. Whenever a plan member receives a prescription and takes it to be filled, the plan member must first demonstrate that he or she is covered by a third-party payor plan. In general, the plan member submits membership information, such as a prescription insurance card, to the dispensing pharmacy for verification and approval by the third-party payor. Once the plan member has done so, the dispensing pharmacy verifies that the prescribed medication is one that the third-party payor has authorized for purchase. The drugs that each third-party payor has authorized are included within that third-party payor's approved purchase listing, known as a formulary.

Third-party payors do not independently select medications for inclusion in their formularies. Instead, each third-party payor relies on Prescription Benefit Managers (PBMs) whose functions include placing prescription drugs on the individual third-party payors' formularies. PBMs, in turn, utilize specialized committees of pharmacists, physicians, and healthcare professionals, which are known as Pharmacy and Therapeutics Committees (P&T Committees), to develop and maintain the formularies. The P&T Committees do so by conducting their own evaluation of the effectiveness, safety, and cost of each available medication.

In performing their function, P&T Committees evaluate a wide variety of available material bearing on the question of each drug's efficacy and safety. In general, according to plaintiff's expert, P&T Committees focus on materials referred to as "primary information." That includes published materials reporting on the results of randomized clinical trials; observational or epidemiological data; meta-analysis, which is a method of combining results of several studies in order to synthesize and evaluate data; ...


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