Monday, October 26, 2009
S.C., Lilly reach $45 million settlement
Drug company's payout sets record for state
By GINA SMITH - email@example.com
South Carolina reached a record $45 million settlement Friday with drug maker Eli Lilly over the marketing of an anti-psychotic drug, Zyprexa.
State lawmakers will have the final say on how 84 percent - or nearly $38 million of the money - is spent. The rest goes to the attorneys who represented the state and to the state attorney general's office.
The settlement is the second largest in state's history, behind only the 1998 multibillion-dollar Tobacco Master Settlement Agreement, according to the attorney's general's office.
It's also the largest dollar amount any state has won from Eli Lilly. Connecticut is second with its $30 million settlement.
"This is a victory for South Carolina's taxpayers who were forced to bear the financial costs of Eli Lilly's unlawful conduct," Attorney General Henry McMaster said Friday.
Eli Lilly spokeswoman Marni Lemons said Friday it's time to move on.
"We think that putting the issue behind us is not only in the best of interest of Eli Lilly, but also the patients and physicians who count on Zyprexa as a life-saving drug every day," Lemons said.
South Carolina and 44 other states have brought some action against the Indianapolis-based drug maker, claiming it falsely marketed Zyprexa, a drug approved for the treatment of schizophrenia and bipolar disorder only.
In the lawsuit, South Carolina sought to recover the millions of dollars Medicaid and the state health plan paid for the drug and to treat side effects caused by off-label use of the drug. The suit alleges nearly 64,000 S.C. patients were affected from 1996 to 2007.
South Carolina and other states successfully argued Eli Lilly:
- Did not properly warn of the drug's side effects, including heart problems, diabetes, hyperglycemia and an increased risk of death in patients with dementia
- Pushed doctors to prescribe the drug to treat other illnesses, including depression, attention deficit disorder and dementia
While 84 percent of South Carolina's settlement could go to reimburse the state's Medicaid and state health plan, state lawmakers have the final say.
Under a unique retention agreement McMaster's office drafted in 2004, 15 percent, or nearly $7 million, will go to three attorneys hired by McMaster's office to represent South Carolina in the case. The attorneys' fees are the smallest in the nation, McMaster's office said.
And 1 percent, or about $647,000, will go to the attorney general's office.
Under the agreement, outside attorneys hired to do work for McMaster's office are paid between 4 percent and 23 percent of a judgment/settlement. The larger the award/settlement, the less the attorneys receive.
Then, attorneys must give 10 percent of their pay back to the attorney general's office.
"Ours is considered a model ... agreement," McMaster said, noting bills have been introduced in both the state Senate and House to require future S.C. attorneys general and solicitors to adopt the same agreement.
"We did copious research to come up with the best agreement based on what other states do," McMaster said. "It keeps complete control of the litigation with the (attorney general), who can relieve his (appointed attorneys) for any reason or no reason at all. It protects the interest of the state."
But the arrangement smells fishy to Darren McKinney of the American Tort Reform Association, a Washington D.C.-based nonprofit.
McMaster, who is running for governor, accepted campaign contributions from two of the attorneys he hired to help work on the Zyprexa case.
After being criticized by rival campaigns, McMaster returned the donations.
"If you're signing on with your buddies who agree to give you 10 percent off the top plus campaign contributions, that stinks on its face," McKinney said. "That's not in the public interest."
McMaster's office has said the appointment of the attorneys was based on their expertise with other drug cases - not friendships or promises of campaign contributions.
SEPARATION OF POWER?
Under the agreement, the attorney general's office will receive about $647,000 of the settlement.
Eli Lilly's attorneys unsuccessfully argued in court papers that only the General Assembly and the state Budget and Control Board can allocate state funds.
Attorney Dick Harpootlian, a key adviser to a rival gubernatorial candidate, said McMaster's agreement is not illegal, but is problematic.
"You want your prosecutors, your attorney general making decisions on what's best for the state of South Carolina, not what's best for their budget," Harpootlian said. "There's, in appearance, a constitutional problem with this. It almost puts a bounty on these cases. It puts him at a conflict of interest."
But McMaster's office points to various state laws that allow the office to keep the funds. McMaster said he would put the money into his general fund to be used to "prosecute more bad guys."
Reach Smith at (803) 771-8658.
Monday, October 12, 2009
At long last, here is the case brief for Ford v. Duncan. Sorry for the delay (and length...there is a lot to this case). I will circle back around and drop in citations once the case is published. In the meantime, you can find it here.
FACTUAL BACKGROUND: A fire, originating under the hood of Plaintiffs' 2000 Ford Expedition, destroyed Plaintiffs' home on March 1, 2005. Evidence was presented at trial that Ford had recalled two lines of vehicles because of under-hood fires (one in 1999, and one in 2005). Ford attributed the under-hood fires to a certain failure of the speed control deactivation switch (the "switch"), which was manufactured by Texas Instruments ("TI") and installed by Ford. One month after the 1999 recall, a group of scientists employed by Ford produced an internal document that analyzed causes of the fires and proposed solutions. Ford acknowledged in the report that it did not completely understand the cause of the fires, but the report identified a failure in the switch as a potential cause. Ford did not implement any of the report's proposed solutions and did not address the switch failure during the 1999 recall.
At trial, Ford's expert, Mark Hoffman, testified that Ford did not incorporate the proposed solutions because it determined the switch failure and subsequent fires were caused by manufacturing problems at TI. Mr. Hoffman testified that Ford ensured that TI resolved its manufacturing issues, and it replaced any switches that deviated from its specifications. Plaintiffs' expert Jeff Morrill testified that (1) the switch in Plaintiffs' vehicle was the same type of switch that was in the line of vehicles recalled in 1999, (2) the fire was caused by the same failure in the switch as the one that caused the failure in the 1999 recall, and (3) Ford knew of the switch failure before manufacturing Plaintiffs' vehicle, as evidenced by the 1999 recall and the internal report. Plaintiffs' then called their engineering expert Kendrick Richardson, who testified that Ford breached the engineering standard of care. Plaintiffs also offered a report by economist Oliver Wood relating to Ford's net worth and ability to pay a punitive damages award.
PROCEDURE: Plaintiffs brought suit against Defendant Ford. The jury returned a verdict in Plaintiffs' favor, awarding them $620,759.79 in actual damages, reduced to $589,721.80 in proportion to Plaintiffs' comparative fault, and $3 million in punitive damages. Ford appealed the verdict.
ISSUES: Ford's arguments on appeal related to the trial court's admission of certain evidence and the jury's award of punitive damages.
- With regard to the admission of evidence, Ford argued that the trial court (1) erred by allowing Plaintiffs' expert Jeff Morrill to present design opinions; (2) erred by allowing Plaintiffs to ask Plaintiffs' expert Kendrick Richardson whether Ford breached its engineering standard of care based on Mr. Morrill's conclusions; (3) erred by preventing Ford from asking Plaintiffs' experts, Morrill and Richards, who manufactured the switch and why Ford decided to recall the line of vehicles in 1999; (4) erred by admitting the 19999 recall of the line of vehicles into evidence; (5) erred by submitting Plaintiff Anna Duncan's claim for emotional distress to the jury in the absence of expert testimon; and (6) abused its discretion by not admitting Jack Threadgill's appraisal of the Plaintiffs home into evidence because it qualified as a business record.
- Ford contended that the jury's award of punitive damages should be reversed because (1) Ford's conduct did not rise to the level of reckless, willful, or wanton conduct, and (2) the trial court should have instructed the jury not to consider conduct occurring outside of South Carolina or harm to non-parties when deciding whether to award punitive damages, (3) the trial court should not have allowed economist Oliver Wood to testify because his testimony invited the jury to return an award of punitive damages against it based solely on its financial well-being, and (4) Ford's conduct satisfied the guideposts set forth in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996).
RULES AND OPINION: With regard to Ford's evidentiary arguments, the South Carolina Court of Appeals found as follows:
(1) Plaintiffs' expert Jeff Morrill testified within his area of expertise (i.e., the cause and origin of the fire), and he never offered any design opinions. Morrill's testimony about the switch failure was not that it was defectively designed, but that it was the cause of the fire. Furthermore, he relied on the internal report to provide this opinion, and therefore he could testify about it (despite not having firsthand knowledge of the report, and despite not having worked at Ford).
(2) The trial court did not abuse its discretion by allowing Plaintiffs' expert Kendrick Richardson to respond to the hypothetical question of whether Ford breached its engineering standard of care, based on Morrill's conclusions. As stated before, Morrill was qualified to offer his testimony. Plaintiffs' posing of this question to Richardson at trial was not misleading--even though it omitted the manufacturing problems at TI--because it was based on Morrill's testimony and the internal report, neither of which referred to manufacturing issues at TI.
(3) The trial court did not err in preventing Ford from asking Morrill and Richardson who manufactured the switch and why Ford decided to recall the line of vehicles in 1999. "A manufacturer who incorporates into his product a component made by another has a responsibility to test and inspect such components, and his negligent failure to properly perform such duty renders him liable for injuries proximately caused as a consequence." (citing Nelson v. Coleman Co., 249 S.C. 652, 657, 155 S.E.2d 917, 920 (1967)). Because Ford incorporated the switch manufactured by TI, it was legally responsible for it in the event that it failed and caused damage. For this reason, the fact that TI made the switch was irrelevant. In addition, Ford produced no evidence that its 1999 recall was prompted by manufacturing problems at TI. Even if the trial court committed error in precluding this line of questioning, Ford was not prejudiced.
(4) The trial court did not abuse its discretion by allowing the 1999 recall into evidence. The evidence indicated that the under-hood fires that prompted the 1999 recall of the other line of Ford vehicles were substantially similar to the under-hood fires in the Plaintiffs' Expedition. (Citing Whaley v. CSX Transp., Inc. 362 S.C. 356, 483, 609 S.E.2d 286, 300 (2005) (noting other incidents must be substantially similar to be relevant and admissible in a products liability action)).
(5) The court did not find error with regard to submission of Plaintiff Anna Duncan's claim for emotional distress to the jury in the absence of expert testimony. The jury verdict of $620,759.79 was less than the evidence of actual damages presented at trial (exclusive of the claim for emotional distress), and therefore the verdict should not be disturbed on appeal. (Citing Burns v. Universal Health Servs., Inc., 361 S.C. 221, 232, 603 S.E.2d 605, 611 (Ct. App. 2004)).
(6) The trial court did not abuse its discretion by excluding Jack Threadgill's appraisal of Plaintiffs' home from evidence. Ford sought to introduce the document to show the value Threadgill assigned to Plaintiff's home, and the business records exception does not allow subjective opinions within documents to be introduced into evidence. (Citing S.C. R. Evid. 803(6)). Threadgill's appraisal was a subjective opinion.
With regard to Ford's punitive damages arguments, the South Carolina Court of Appeals found as follows:
(1) The court upheld that clear and convincing evidence concerning Ford's conduct supported the jury's award of punitive damages. As stated by the court:
Under South Carolina law, punitive damages may be awarded to punish torfeasors who have acted in a "reckless, willful, or wanton" manner. The plaintiff must prove punitive damages by clear and convincing evidence. Clear and convincing evidence is: "that degree of proof which will produce in the mind of the trier of facts a firm belief as to the allegations sought to be established." The clear and convincing standard is the highest burden of proof known to civil law.(Citations omitted). Based on this standard, the court found that Ford knew that the switch it installed could fail and that the failures were causing fires before its manufacture of Plaintiffs' vehicle. Ford's knowledge and failure to make any changes to the switch rose to the level of reckless, willful, and wanton conduct.
(2) The court did not believe that the evidence or the arguments in the case required that the trial court charge the jury "not to consider conduct occurring outside of South Carolina or harm to non-parties when decideing whether to award punitive damages." The Due Process Clause requires this charge only when there is a risk that a jury may award punitives for conduct occurring outside the state for harm to non-parties. The recalls introduced into evidence by the plaintiffs were introduced for notice and to show that a prior recall was due to the same type of failure. Plaintiffs introduced evidence to show the reprehensible nature of Ford's conduct, and not to show the number of vehicles recalled or the number of under-hood fires.
(3) The court disagreed that Oliver Wood's expert testimony about Ford's general wealth and ability to pay a punitive damages award was inadmissible. The court cited to prior authority in which testimony beyond a defendant's mere net worth was allowed to establish the defendant's ability to pay a punitive damages award. The court also stated that Dr. Wood's testimony allowed the jury to follow the court's instructions and "punish the defendant but not effect bankruptcy."
(4) The court reviewed the procedural and substantive constitutional limitations on the award of punitive damages as set forth in BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 562 (1996). With regard to reprehensibility of conduct, the court noted that the damage was economic (destruction of the house), as opposed to physical, which weighed in Ford's favor. However, in spite of this, the court found that Ford's conduct was reprehensible because:
In short, Ford installed a switch into the [Plaintiffs'] Expedition that it knew could cause fires. This conduct clearly amounts to a reckless disregard for the health and safety of others. . . . While Ford's conduct did not rise to the level of intentional malice, trickery, or deceit, Ford's act of installing a switch in the [Plaintiffs'] Expedition that it knew could cause fires amounts to affirmative misconduct.
The court also found the award to be reasonable (with regard to Gore's second factor). The economic harm, combined with the threat of serious physical injury, made the punitive damages award that was 5.087 times the actual damages reasonable. Finally, in examining Gore's third factor regarding comparable civil fines, the court found that the jury's award of three million dollars in punitive damages was not unconstitutionally excessive.
Thursday, October 8, 2009
Settlement reportedly reached in Lilly case
Drug maker Eli Lilly & Co. has agreed to settle a lawsuit brought by state Attorney General Henry McMaster on behalf of South Carolina.
Sources close to the case say a settlement has been reached but the details, including how much money South Carolina will receive, are not yet available.
South Carolina sued Eli Lilly in 2007, alleging the company marketed its anti-psychotic medication, Zyprexa, for off-label purposes and failed to disclose side effects including weight gain.
The drug is only approved to treat schizophrenia and bipolar disorder.
South Carolina had hoped to recoup $200 million in its lawsuit that it said was wrongfully spent on Zyprexa prescriptions and millions of dollars more in fines.
The company has already agreed to pay more than $360 million to more than 30 states following a U.S. Justice Department investigation into its marketing practices.
The lawsuit has also brought some controversy to S.C. Attorney General Henry McMaster who is also seeking the Republican nomination in next year's gubernatorial race. McMaster accepted campaign donations from the two private attorneys he hired to represent South Carolina in the Lilly case.
McMaster has since returned nearly $33,000 in donations he has received during his time in office from attorneys he has hired to work on cases for the state.
- Gina Smith