If you want to insult and annoy someone, consider suing them under the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. section 1964. That law is charmingly known as RICO, in an allusion to the big bad in the great 1931 gangster film Little Caesar, played by Edward G. Robinson at his most snarly. It’s one thing to accuse someone of fraud, but to accuse them of racketeering is a bit over the top. But there is, unfortunately, ample precedent out there supporting the abuse of RICO, extending it to ordinary business disputes. Plaintiffs dazzled by the prospects of treble damages have not been terribly shy about filing RICO claims against companies that do their best to dot all the i’s and cross all the t’s – those companies simply committed the offense of being “organizations” in a society where plaintiff lawyers know no bounds of judgment or taste. Promiscuous use of RICO is often counterproductive because, while the plaintiff lawyers are usually trolling for a settlement, good luck settling with someone who is justifiably outraged that you called them a racketeer.

RICO is yet another instance of the American system of jurisprudence taking a wild wrong turn, so it’s nice to see a court rein it in. It’s especially nice to see that the judge who did the reining in was once one of our favorite law professors in a far away place (okay – Chicago isn’t that far away) long ago. Last week the Seventh Circuit issued its opinion in Sidney Hillman Health Center v. Abbott Laboratories, 2017 WL 4544834 (7th Cir. Oct. 12, 2017), a Third Party Payor (TPP) action coming out of the Depakote MDL in N.D. Illinois. The action by the TPPs was, as is typical, completely parasitic, opportunistically seizing upon the existence or conclusion of other litigation. The TPPs filed their RICO action after a 2012 guilty plea and settlement of a False Claim Act lawsuit. Judge Easterbrook wrote the Seventh Circuit’s opinion. It is pithy and compelling and might very well make it onto our top ten list at the end of the year.

Two welfare-benefit plans that paid for some of Depakote’s off-label uses filed this suit seeking treble damages under civil RICO. The plaintiffs alleged that the off-label uses of Depakote were harmful and/or not effective. The alleged injuries were that the TPPs paid for (1) off-label uses that would not have been paid but for the company’s alleged misrepresentations, and (2) additional medical harm caused by the drug. The TPPs asked the district court to certify a class comprising all third-party payors of drug expenses. The district judge dismissed the complaint on the ground that the plaintiffs could not show proximate causation. The district judge reasoned that the allegedly improper marketing was directed, not at the plaintiffs, but at physicians, and concluded that tracing loss through the steps between promotion and payment would be too complex. We wrote about the district court’s ruling here. The Seventh Circuit affirmed the dismissal of the case, and did so without footnotes or reservations.

The headline is that Sidney Hillman rejected the type of attenuated causal chain typically asserted by TPPs: “improper representations made to physicians do not support a RICO claim by Payors, several levels removed in the causal sequence.” Sidney Hillman, 2017 WL 4544834 at *4. As the Seventh Circuit recognized, under RICO, the initially injured parties are not payors, but rather the patients, who “suffer if they take [a drug] even though it is useless to them and may be harmful.” Id. at *2. Because TPPs are not initially injured parties, determining their alleged injuries would be difficult. First, some off-label uses of Depakote may be beneficial, so how does any alleged injury arise from such uses? Second, some doctors would have prescribed the drug regardless of any off-label promotion. Third, other doctors may not have changed their prescribing practices at all, or they might have changed them but done so in response to information that the company did not influence. How can the ‘injury” caused by the off-label promotions be calculated?

The plaintiffs’ lawyers suggested that they could gin up a “regression analysis” to “determine the volume of off-label prescriptions that would have occurred in the absence” of the promotional activity. We have seen this sort of thing before. Maybe you have, too. Yes, there are travelling econometricians who can regress their way to any conclusion you might want. Luckily, the Seventh Circuit did not accept this suggestion, because the data such an analysis would require simply did not exist. The wished-for regression analysis also “would not address the question whether patients suffered medical losses or out-of-pocket costs via co-pays, or whether physicians lost business by prescribing an ineffective or harmful drug, or what to do about patients whose off-label use of Depakote made them healthier.” Id. at *3. Moreover, it would not be proper to assume that TPPs would not have paid for anything, as they likely would have paid for some drug other than Depakote, which might have been more costly. Importantly, the “absence of data leaves a serious problem in showing plausible causation, which is required even at the complaint stage.” Id. Thank you, TwIqbal.

The Seventh Circuit acknowledged that five other courts of appeals have considered the extent to which TPPs can recover under RICO for wrongs committed while marketing pharmaceuticals. The Second Circuit, in Sergeants Benevolent Ass’n Health & Welfare Fund v. Sanofi-Aventis, 806 F.3d 71 (2d Cir. 2015), held that the causal chain in TPP cases was too long to satisfy SCOTUS requirements. (Sergeants Benevolent Ass’n made our 2015 Top Ten list.) The Ninth and Eleventh Circuits agreed with the Second, “and deem this so straightforward that they have issued nonprecedential decisions.” Sidney Hillman, 2017 WL 4544834 at *3. Those are the good decisions. Spoiler alert: the Seventh Circuit agrees with them. On the not-so-good-side of the ledger, the Seventh Circuit observed that In re Avandia Marketing, Sales Practices & Product Liability Litigation, 804 F.3d 633 (3d Cir. 2015), the Third Circuit “held that recovery under RICO is possible when misrepresentations are made directly to Payors, leading them to add certain drugs to their formularies, which means that they pay more per prescription than they would otherwise.” (Honestly, despite this terrible result in Avandia, and despite the Fosamax legal-butchery that we’ve analyzed to a fare-thee-well, our hometown Circuit is usually wise and wonderful.) Finally, in the Neurontin litigation the First Circuit kind-of-sort-of had been in the same place as the Third Circuit, while implying disagreement “with the other four circuits about the possibility of Payors’ recovery for misrepresentations made to physicians.” Id. at *4. It’s not clear exactly what the First Circuit held in Neurontin, but don’t fret about it too much, because “to the extent there is a conflict the Second Circuit has this right.” Id.

And, almost needless to say, we think the Seventh Circuit has this right.

And, with a Circuit split teed up for SCOTUS, we’re willing to bet that the efforts by Second, Ninth, Eleventh, and now Seventh Circuits to cabin RICO somewhat will prevail.