In their unending quest to make a plaintiff out of everyone, some creative members from the other side of the "v." have concocted a claim that we call "fourth-party payor" liability. Regular blog readers are certainly familiar with "third-party payor" actions brought – entirely for economic losses – by insurers, pension funds, and other organizations that are under obligations to pay for their insureds'/members' health care costs. They typically claim that, for one reason or another, our prescription medical product clients charged them too much for this or that product.
Fourth-party payor litigation goes a step beyond that. In Enriquez v Johnson & Johnson, 2019 WL 5586557 (N.J. Super. Law Div. Oct. 10, 2019), the plaintiff never even claimed to have used the product, paid for the product, acquired the product, or had any interaction with the product (or its alleged manufacturers) in any way. He was simply "a [state] resident who alleges that he purchased health insurance." Id. at *1. Following the principle that "to err is human, but to really screw up the law, bring a class action," this plaintiff sued the defendant manufacturer for allegedly driving up the cost of health insurance generally:
Plaintiff asserts that as a result of the conduct of Defendants, New Jersey health insurers paid higher costs for both [the defendant's products and their alleged adverse reactions], resulting in increased costs to health insurers. Plaintiff alleges that health insurers passed these higher costs on to their insureds, causing class members to pay higher costs for health insurance.
Id. Like we just said – make everybody a plaintiff.
Fortunately, this theory of liability was a bridge too far. A claim such as this, "brought by persons claiming to have paid higher insurance costs as a consequence of misconduct by manufacturers, distributors and marketers," had never been brought before. "There are no reported decisions directly on point." Id. at *2. The Enriquez decision did its best to make sure this kind of suit is never brought again.
The liability theories were: (1) violation of New Jersey's Consumer Fraud Act ("CFA"); (2) public nuisance; (3)unjust enrichment; (4) negligent marketing; and (5) "negligent interference with prospective economic advantage." Id. at *4. All of these theories made a mockery of anything resembling traditional causation:
Plaintiff . . . he would first obtain a sample of prescriptions . . . written by physicians. Plaintiff asserts that it is unnecessary to explore each patient's medical record for his evaluation. From this statistical data, Plaintiff then would have an expert evaluate which prescriptions were appropriate and which should not have been written. Presumably, Plaintiff then would determine a percentage of prescriptions . . . that should not have been written and extrapolate from that data to calculate the total unnecessary . . . prescriptions. Plaintiff then intends to have an expert evaluate how the costs of the prescriptions they determine should not have been written impacted the amount charged to class members for health insurance.
Enriquez, 2019 WL 5586557, at *4 (emphasis added).
Consumer protection claims of fourth-party liability failed for reasons of remoteness and causation. Following one of the firearms marketing cases that Bexis was involved in years ago, Enriquez held, "alleged harm in the form of increased costs for medical expenses which were merely derivative of injuries to others was too remote to support [a CFA] claim." Id. at *7. As for causation:
A complete lack of any relationship between the defendant's unlawful conduct and the plaintiff's loss compels a finding of a lack of causation under the CFA. In cases in which the alleged misrepresentation was made to a prior purchaser and not to a plaintiff asserting the CFA claim, courts have held there was a fatal lack of proof of a causal connection between the misrepresentation and the alleged loss.
Id. at *8 (citations omitted). Such precedent controlled this case, where only indirect economic effects were alleged:
Defendants had no contact with Plaintiff, and did not make any misrepresentations or omissions to Plaintiff. Rather, the allegations are that Defendants' misrepresentations and omissions were made to doctors for the purpose of increasing the volume of prescriptions written, and to health insurers for the purpose of obtaining approval of their pharmaceuticals on the formulary list. . . . Plaintiff's causal theory, that if Defendants had not marketed [their products] aggressively to doctors and health insurers the rate paid by Plaintiffs and other proposed class members for health insurance would have been lower, is speculative and attenuated.
Id. (citations and footnote omitted). "Speculative and attenuated" – that is the takeaway from Enriquez. "There is no allegation Plaintiff was aware of Defendants' misrepresentations before he purchased health insurance, or that even if Plaintiff was aware he did not have the option to switch to a provider unaffected by Defendants' misrepresentations." Id. at *9.
Public nuisance also failed under New Jersey precedent from the firearms marketing cases. Preclusion of fourth-party payor liability was a fortiori from that litigation . "Public nuisance claims are typically restricted to those connected with real property or the infringement of public rights. . . . [N]o New Jersey court has ever allowed a public nuisance claim to proceed against manufacturers for lawful products that are lawfully placed in the stream of commerce." Enriquez, 2019 WL 5586557, at *10 (quoting and following Camden County Board of Chosen Freeholders v. Beretta, U.S.A. Corp., 273 F.3d 536, 539-40 (3d Cir. 2001)). Enriquez also followed (at *11) In re Lead Paint Litigation, in which the New Jersey Supreme Court noted, as to public nuisance: "Whether these plaintiffs . . . are authorized to sue for damages, instead of seeking abatement, is debatable." 924 A.2d 484, 502 n.10 (N.J. 2007). Thus:
Typically, a suit involving a public nuisance is sustainable only by a suit brought by a governmental entity or an individual who sustains some special damage over and above that suffered by the general public. Here, the allegations of the Complaint do not demonstrate or allege the type of special injury which would allow an individual as opposed to a public entity to bring an action seeking monetary damages resulting from an alleged public nuisance.
Enriquez, 2019 WL 5586557, at *11 (citation omitted).
Unjust enrichment simply had nothing to do with fourth-party liability – since the plaintiff never paid anything to the defendant manufacturers. Once again,
Unjust enrichment is not an independent theory of liability. . . . Plaintiff can point to no direct benefit received by any Defendant from Plaintiff. Rather, any benefit Plaintiff conferred was directed to his health insurer. The facts presented are far too remote to permit a cause of action based upon unjust enrichment to proceed.
Id. at *12 (citations omitted).
The fourth-party aspects of negligent marketing also foundered on the rocks of remoteness. A product marketer's duty of care has never extended to persons with no need for the product, and to whom no marketing was directed.
Plaintiff's Complaint alleges that Defendants had a duty to exercise reasonable care in manufacturing and distributing [their] medications in the State of New Jersey. The critical issue presented here however is how far that duty extends. There is no doubt that this duty extends to individuals likely to purchase [those products]. Conceivably, that duty could extend to a non-patient purchasing the [products] who is not a consumer. Consumers of health insurance however are simply far too remote from the conduct of Defendants to find a duty to exist as a matter of law. The nature of the risk to consumers of health insurance is too far removed, and any risk too attenuated, to find as a matter of fairness that a duty should extend to such outer limits.
Enriquez, 2019 WL 5586557, at *13 (emphasis added).
Finally, "tortious interference with prospective economic advantage" is a claim we've never seen raised before in product liability litigation. Opportunity costs – to the extent that's even "a thing" in product liability – have been addressed by pre-judgment interest. In New Jersey, that cause of action was not viable. "No reported decision has recognized a cause of action for negligent interference with prospective economic advantage." Id. at *13. The closest thing in New Jersey law was for "tortious interference with a prospective business relation." Id. That was obviously not an issue in Enriquez. "While Plaintiff alleges that the conduct of Defendants impacted the price which they paid for health insurance, health insurance was not the business of Plaintiff." Id.
Having rejected each of the plaintiff's causes of action, Enriquez then bounced the rubble by holding that plaintiff also failed to allege proximate cause. "It is not enough to show a fraud on the marketplace." Id. at *16. But general, overarching allegations of fraud untethered to any particular plaintiff were all that fourth-party payor liability offered – or could offer:
Plaintiff cannot establish an ascertainable loss through statistical data as proposed. This is essentially a fraud on the market theory which has been rejected as a basis to establish an ascertainable loss in a claim based upon the CFA. . . . Plaintiff's proposal to prove the increased costs of [these products and their alleged adverse effects] through statistical data, and then further establishing its impact on the cost of health insurance with statistical data, essentially constitutes a fraud on the market theory to prove damages which has been rejected in this state.
Enriquez, 2019 WL 5586557, at *16 (citation omitted).
Finally, Enriquez inspired us to name this bogus cause of action with its observation that "[t]his case is most similar to, although one step further removed from, third party payor actions which have been routinely dismissed by courts as failing to establish sufficient causation." Id. at *19. What's "one step" beyond "third party payor" actions? Fourth-party payor liability. Tort liability such as this is simply not a way to fix the rising cost of healthcare:
There are a myriad of reasons . . . which have an impact on insurance costs. Some costs may be borne by insurers resulting in lower profits, some may be paid by employers and some may be passed on to the purchasers of health insurance. These costs may also be subject to higher co-pays, deductibles or limitations of coverage, Plaintiffs argument that statistical data can be used to determine what increases were the direct cause of Defendants’ actions, and what increases are attributable to other factors, is inadequate to establish the facts required.
Id. at *20. Thus, "this particular proposed class are simply not the appropriate vehicle to vindicate the rights of those who have been impacted by the alleged conduct of Defendants. The alleged harm to Plaintiff is far too attenuated and remote." Id.
Fourth-party payor liability is to the law what the fourth dimension is to daily life. It doesn't exist, and even if it did, it would too remote to for the law (or daily life) to address.
This article is presented for informational purposes only and is not intended to constitute legal advice.