DE SUPREME COURT RULES ON STATUTE OF LIMITATIONS FOR BAD FAITH CLAIMS AGAINST INSURANCE COMPANY

Delaware Supreme Court rules the three-year statute of limitations for an insurance bad-faith claim accrues when an excess judgment becomes final and is no longer appealable. 

OVERVIEW
On March 4, 2016, the Delaware Supreme Court addressed when bad-faith-failure-to-settle claims accrue in the case of Connelly v. State Farm Mutual Automobile Insur. Co., Del. Supr., No. 426, 2015 (Mar. 4. 2016). In a decision authored by Chief Justice Leo Strine, the Court held that the three-year SOL accrues when an excess judgment becomes final and no longer appealable.

REASONING 
The Court began its analysis with basic principles. It first applied the condition of “good faith and fair dealing” imposed upon all Delaware contracts. The Court explained that in the insurance context, the implied covenant historically “included a duty to settle claims within policy limits where recovery in excess of those limits is substantially likely.” The Court also drew upon reasoning from jurisprudence in the area of indemnification of directors and officers. In that context, indemnity claims do not accrue until there is a final judgment. The Court reasoned that insurance claims are also a type of indemnity because the obligation to cover an indemnified party’s costs only arises if and when a final and non-appealable excess judgment to a third-party claim arises. Applying Delaware General Corporation Law (“DGCL”) Section 145, the Court determined that in non-advancement indemnity claims, the “corporation’s obligation to indemnify its fiduciary, employee, or agent, is also conditioned on that party meeting the standard of conduct.” It further held that similarities between insurance and traditional D&O indemnity claims warrant application of the same policies of “litigative efficiency and preventing waste of judicial resources that have led Delaware courts to determine that an indemnity claim accrues when there is a final judgment.”

IMPLICATIONS 
The case is particularly interesting for its application of director and officer indemnity jurisprudence outside its typical context and because many litigators will benefit from knowing when the SOL begins to run for a claim against an insurance company for bad faith failure to settle within policy limits. Although arguing for a different rule, State Farm accepted the decision “as fair,” telling the Delaware Law Weekly through counsel that “[i]t’s fine, as long as we know what it is.” The decision does provide sound guidance and needed certainty moving forward and establishes precedent for other jurisdictions to adopt.

CONTACTS
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB will be opening its Delaware office on April 1, 2016 to better serve institutional investors and corporate clients.

GBB EXPANDS ITS TEAM WITH ADDITION OF PAUL J. ZWIER II AS OF COUNSEL

GBB has expanded its capabilities to further service clients with the addition of Paul J. Zwier II as Of Counsel.  Paul is a full professor at Emory Law School with an expertise in evidence, dispute resolution and trial advocacy.

Founding Partner Justin Brooks said: “We are delighted to welcome Paul. Paul’s expertise in trial advocacy, evidence and dispute resolution will prove invaluable both to GBB’s representations on behalf of the United States Government and individuals and as a resource for GBB’s corporate clients.”

Mr. Zwier is the director of the Advocacy Program and Program for International Advocacy and Dispute resolution at Emory Law School. He teaches evidence, torts, products liability, and an advanced international negotiation seminar. For more than two decades, Mr. Zwier has taught and designed in-house skills programs in trial advocacy, appellate advocacy, advocacy in mediation, motion practice, negotiations, legal strategy, e-discovery, supervisory and leadership skills, and expert testimony at deposition and trial,

Mr. Zwier has trained judges and lawyers for the international criminal courts, including the ICC, ICTY, ICTR, and ICT-Sierra Leone. He previously served as director of Public Education for the National Institute for Trial Advocacy (NITA) and received NITA’s Prentice Marshall Award in 1998.

Mr. Zwier holds a J.D. from Pepperdine University and an L.L.M. in Legal Education from Temple University School of Law.

DEPARTMENT OF LABOR’S WHITE COLLAR OVERTIME RULES TO TAKE EFFECT – ARE YOU PREPARED?

Final rules that dramatically expand the class of employees entitled to overtime could take effect by spring of 2016. 

The Department of Labor (DOL) sent its final rule revising the white collar overtime exemption regulations of the federal Fair Labor Standards Act (FLSA) to the White House Office of Management and Budget (OMB) on Monday March, 14, 2016.

The proposed rule was issued in July of 2015 and would dramatically expand the class of employees entitled to overtime pay. It proposes to:

  • Increase the salary level governing the FLSA’s white collar exemptions from $455 per week ($23,660 per year) to approximately $970 per week (or $50,440 per year) and implement an automatic adjustment to the salary test going forward to ensure that salary levels continue to provide an effective and useful test for the exemption;
  • Raise the minimum salary test for the highly compensated exemption from $100,000 per year to $122,148 per year and index the level to the 90th percentile of weekly full-time employee earnings so that the level stays appropriate and relevant over time; and
  • Seek additional input as to whether the DOL should alter the duties requirements for various exemptions.

OMB review is the last step in the regulatory process before revised regulations take effect and are published in the Federal Register. The OMB is allotted 90 days to review proposed regulations, but it usually reviews and publishes proposed regulations in far less time. Accordingly, a final rule revamping the white collar overtime exemption regulations could be published as early as this spring.

IMPLICATIONS FOR EMPLOYERS
Larger and more sophisticated employers have been well aware that these changes are coming. Given the likely rollout date, it is time to start planning for them. Large and small employers can and should plan ahead to ensure they will be in compliance with the proposed salary requirements. Although potential changes to the duties test remain unclear, employers may also benefit from considering the nature and sophistication of their workforce and revisiting their staffing needs. As for employees, employees should take a hard look at their pay stubs and consider their job duties and consult a qualified attorney if they feel they are being improperly compensated.

CONTACTS
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB assists employers in navigating the complexities of employment law and assists employees in adjudicating their rights.

 

 

FDA AND AMARIN REACH SETTLEMENT ON OFF-LABEL STATEMENTS IMPLICATING FIRST AMENDMENT ISSUES

Settling claims that drug maker Amarin promoted its fish-oil pills for unapproved uses, the FDA stresses the settlement does not signify a position on the First Amendment and commercial speech. It refused to acknowledge that the First Amendment allows a pharmaceutical manufacturer to promote off-label if the promotion is truthful. 

OVERVIEW
On March 8, 2016, the United States District Court for the Southern District of New York approved a settlement between the Food and Drug Administration (“FDA”) and drug company Amarin Pharma, Inc. in connection with Amarin Pharma, Inc., et al. v. U.S. Food & Drug Admin., et al. The case focused on a legal dispute concerning Amarin’s promotion of off-label claims for its fish oil product Vascepa®.[1]

In a prior decision, the district court had applied a 2012 decision by the U.S. Court of Appeals for the Second Circuit in the case of United States v. Caronia finding that pharmaceutical and medical device companies have a constitutionally protected right to provide truthful and non-misleading information regarding off-label uses of their products.[2] The previous Amarin decision, in a limited preliminary injunction context, ruled against the FDA and upheld the rights of Amarin to make truthful and non-misleading statements regarding off-label uses of its FDA-approved drug, including the right to make those promotional statements to healthcare providers through sales representatives. The court also held that truthful and non-misleading promotional statements do not alone form the basis of a prosecution for misbranding in violation of the Food, Drug and Cosmetics Act.

TERMS OF THE AMARIN SETTLEMENT AGREEMENT
Under the settlement agreement, the FDA agreed to be bound by the District Court’s preliminary injunction decision that Amarin may engage in truthful, non-misleading speech promoting off-label use of Vascepa® to treat patients with persistently high triglycerides. The FDA also agreed that the materials that provided a basis for the court’s preliminary decision, including disclosures and scientific information (as modified by court order) were truthful and non-misleading.

The settlement makes Amarin responsible for assuring that future communications to doctors regarding off-label use of Vascepa® are truthful and not misleading. The settlement also allows Amarin, at its discretion, to provide up to two communications regarding the off-label use of Vascepa® per year to FDA for comment and identification of objections. This may assist but cannot reasonably be said to guarantee that all of Amarin’s future off-label communications will be truthful and not misleading. The settlement agreement imposes time requirements on FDA to provide feedback to Amarin on its off-label communications and a set period for Amarin to respond to this feedback. It also allows the parties to submit a motion to the District Court to hear disputes as to whether particular off-label statements are misleading. The court review process will remain in place until 2020. The FDA insists the case is narrow and specific, involving a single drug and single company. In an agency statement, the FDA expressly stated “[t]his settlement is specific to this particular case and situation,” and “does not signify a position on the First Amendment and commercial speech.”[3]

IMPLICATIONS AND KEY TAKEAWAYS
Putting aside the merits of whether truthful off-label promotion should be permissible and enjoy First Amendment protection, the Amarin case and its predecessor Caronia inject substantial uncertainty into False Claims Act jurisprudence and liability for criminal misbranding. Since 2004, there have been at least 31 settlements by pharmaceutical companies to resolve allegations of off-label promotion of drugs. Many of these settlements involved significant civil damages under the False Claims Act and often involved guilty pleas to criminal misbranding in violation of the Federal Food, Drug and Cosmetic Act. Individual settlements have run into hundreds of millions, and in some cases, billions of dollars. Billion dollar settlements post-date Caronia.[4] In what was the largest pharmaceutical settlement in U.S. history at the time, Pfizer reached a $2.3 billion settlement with the Department of Justice to resolve criminal charges and civil claims under the False Claims Act for the alleged off-label promotion of Bextra, Geodon, Zyvox, and Lyrica. The Second Circuit is the only appellate court to currently hold that off-label promotion of drugs enjoys constitutional protection, and lower courts in other jurisdictions have sharply cabined Caronia, in some cases outright rejecting the decision and its reasoning regarding free speech.[5] Moreover, all courts to confront the issue have agreed that false or misleading off-label promotion does not enjoy constitutional protection, a position the Caronia court itself reiterated.

Pharmaceutical companies should view the Amarin decision and settlement with caution and should not view Caronia or its successors as providing free license to promote off-label. Companies face the risk that a court in another jurisdiction will reject the rationale of the Caronia majority, perhaps adopting the rationale set forth in the Caronia dissent, authored by Judge Debra Ann Livingston, which would have upheld bans on truthful off-label promotion as constitutionally viable. Along the lines of Judge Livingston’s dissent, the United States government could be expected – in another case – to argue that an outright prohibition on off-label promotion is the only reasonable means of achieving FDA goals because off-label promotion, by its nature, so inherently strays into being misleading that the concept of truthful off-label promotion is not possible to apply. Drug and device manufacturers also run the risk that promotion they view as being truthful could be found by a fact-finder to be false or misleading on the grounds that it overstates product efficacy, minimizes safety concerns, lacks fair balance, or for a myriad of other reasons. Nevertheless, Caronia and Amarin do provide one avenue for pharmaceutical companies accused of off-label promotion to avoid liability if they can convince a court to accept Caronia and Amarin‘s rationale and establish that the promotion at issue was truthful.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact Justin Brooks at jbrooks@gbblegal.com.

GBB’s experienced team of attorneys assist qui tam relators and the United States government in prosecuting fraud and provide compliance counseling to companies wishing to avoid legal liability under the False Claims Act and other federal and state statutes.

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[1] Stipulation and Order of Settlement, Amarin Pharma, Inc., et al. v. U.S. Food & Drug Admin., et al., No. 15 Civ. 3588 (S.D.N.Y. Mar. 8, 2016).

[2] Amarin Pharma, Inc., et al. v. U.S. Food & Drug Admin., et al., 119 F. Supp. 3d 196 (S.D.N.Y., 2015) (applying U.S. v. Caronia, No. 09-5006 (2d Cir. Dec. 3, 2012).

[3] See https://www.washingtonpost.com/national/health-science/fda-settles-with-drug-company-on-promotion-of-fish-oil-pill-for-unapproved-uses/2016/03/08/0403a5ea-e57d-11e5-bc08-3e03a5b41910_story.html?postshare=7361457531156927&tid=ss_mail

[4] For example, in November 2013, Johnson & Johnson reached a $1.391 billion settlement to resolve false claims resulting from its off-label promotion of Risperdal, Invega, and Natrecor. Companies also entered into settlements in the hundreds of millions of dollars after the Second Circuit decided Caronia. In July 2013, Wyeth agreed to pay $257.4 million to resolve claims involving off-label promotion of the immunosuprressant drug Rapamune. In February 2014, Endo Pharmaceuticals agreed to pay $171.9 million to resolve civil liability under the False Claims Act for its off-label promotion of Lidoderm.

[5] E.g. Hawkins v. Medtronic, Inc., No. 13-00499, 62 F. Supp. 3d 1144 (E.D. Cal. Feb. 15, 2016); Beavers-Gabriel v. Medtronic, Inc., 15 F. Supp. 3d 1021 (D. Haw. 2014); McDonald-Lerner v. Neurocare Assocs., P.A., No. 373859-V, 2012 Md. Cir. Ct. (Md. Cir. Ct. Aug. 29, 2013).

 

GBB files amicus on behalf of law professors in FCA case before Supreme Court

Congress intended the False Claims Act to apply broadly and reach all fraudulent attempts to cause the United States Government to pay out money. In Universal Health Services, Inc. v. United States ex rel. Escobar, a key case pending before the United States Supreme Court, the Petitioner has urged a counter-textual interpretation that would vitiate the False Claims Act and compromise Congress’ intent.  On behalf of a distinguished group of law professors, Guttman, Buschner & Brooks PLLC has filed an amicus brief in the matter.

The amicus brief proposes a comprehensive model, the application of which will ensure the Act continues to effectuate Congress’ intent.  As the brief explains, the starting point for determining whether conduct is fraudulent and should be captured by the Act begins by looking to principles of common law fraud. However, Congress expanded upon the liability available under the False Claims Act, specifically by eliminating traditional reliance and scienter requirements of common law. Application of the Act’s statutory provisions expanding liability, coupled with use of limiting principles of materiality – routinely applied to other fraud statutes to ensure minor violations are not cognizable – balances concerns of the Act’s over-expansion with its stated purpose to broadly reach all fraudulent or deceitful acts that cause the Government to pay out money.

The full amicus brief is available here: Universal Health Services Inc v US and Massachusetts, ex rel Escobar and Correa – Brief of Law Professors as Amici.