Intervention v. Avanir Pharmaceuticals

Filed 3/15/07 Intervention v. Avanir Pharmaceuticals CA1/4

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

A consumer class action complaint alleged false advertising by pharmaceutical companies in the marketing of a cold sore medication. The class representatives and pharmaceutical companies reached a settlement, and the trial court approved the settlement over the objections of an individual class member. The settlement commits $1 million to independent cold sore research and distributes consumer vouchers for product discounts and rebates. The objector contends that the trial court (1) erred in certifying a nationwide plaintiff class when California lacks significant contacts with class claims; and (2) abused its discretion in approving a settlement that is inadequate to remediate the harm suffered by the class. We reject the contentions and affirm the judgment.

facts

In April 2002, Intervention, Inc. filed this action on behalf of the general public to address alleged false advertising in the marketing of Abreva, an over-the-counter cold sore medication. Intervention, Inc. is no longer a party to this litigation.[1] The operative complaint is prosecuted by plaintiffs Ed Kolb, Don L. White, Blanca White, and Don W. White on behalf of themselves and a class of persons similarly situated.

Plaintiffs assert a cause of action for unfair competition upon allegations that defendants Avanir Pharmaceuticals (Avanir) and GlaxoSmithKline Consumer Healthcare, L.P. (GSK) falsely represented to the public that Abreva cuts cold sore healing time in half. (Bus. & Prof. Code,  17200.) Avanir is a California corporation that developed Abreva and conducted clinical trials of docosanol, the medications active ingredient. GSK, a Pennsylvania-based company, sells Abreva under an exclusive license agreement with Avanir. The complaint asserts that defendants misused Avanirs clinical studies to exaggerate the benefits of Abreva.

The class of persons represented by plaintiffs was ultimately defined as [a]ll persons or entities in the United States who purchased Abreva from July 2001 through February 3, 2006, who resided in the United States at the time of purchase, purchased Abreva from an authorized retailer at a location within the United States, and did not purchase Abreva for resale to others.

The case was heavily litigated. Plaintiffs pleadings were challenged by multiple demurrers and motions to strike until the operative fourth amended complaint was answered. The parties engaged in extensive discovery that included depositions of the class representatives and nine key employees of defendants, written discovery requests, and the production of over 50,000 pages of documents. The parties began settlement discussions in early 2005 and, later that year, agreed on the core terms of a settlement during a 14-hour mediation session supervised by a retired judge. A final settlement was achieved in January 2006, after several additional months of negotiation.

The settlement agreement provides $1 million for cold sore research grants and 50 million consumer vouchers combining a $3 discount coupon for Abreva and a rebate offer on the purchase price (up to $6.50) for TUMS Smooth Dissolve stomach antacid. Defendants also agreed not to oppose an award of attorney fees up to $1.2 million. In exchange, all class members would release defendants and their agents from nonpersonal injury liability on claims challenging the results of specified clinical studies conducted by Avanir or representations based on those results.

The cold sore research funded by the settlement agreement must be designed to benefit cold sore sufferers; must be unrelated to existing or future cold sore products (with the exception of a vaccine against the causative virus); and must qualify for publication in a peer-reviewed journal. A review committee composed of two authorities in the field of cold sore research, and any additional experts they select, will review research proposals and select those proposals that provide the most benefit to cold sore sufferers. Defendants will fund the selected research proposals up to $1 million, and pay honoraria to the selection committee members and other administrative costs of the selection process in an amount not to exceed $300,000.

The settlement agreement provides for dissemination of the consumer vouchers in Sunday newspapers across the country. The vouchers shall not be subject to the typical 6-month expiration limitation, but will instead be valid for 2 years from the date of issuance. The agreement limits the advertising effect of the voucher by providing that defendant GSK may not include any reference to Abrevas effect on the duration of a cold sore and may not use the phrase try Abreva or similar language oriented specifically toward new Abreva users.

In February 2006, the trial court granted preliminary approval of the settlement and ordered notice to the class. (Cal. Rules of Court, rule 3.769.) Defendants published notice of the proposed settlement in a magazine and two newspapers of national circulation. No class member opted out of the settlement. A single class member objected to the settlement: appellant Annette Scott. At the time, appellant was prosecuting her own class action against GSK. Appellants complaint, filed in a federal district court in her home state of Illinois, also challenged GSKs Abreva advertising claims of rapid cold sore healing.[2]

The final approval and fairness hearing on the settlement was held on April 26, 2006. The trial court granted appellant Scotts motion to intervene in the action and heard from her counsel on objections to the settlement. The court overruled the objections, certified the class, approved the settlement, and awarded attorney fees of $1.2 million. Judgment was filed on May 10, 2006, and Scott appealed.

discussion

Appellant contends that the trial court (1) erred in certifying a nationwide plaintiff class when California lacks significant contacts with class claims; and (2) abused its discretion in approving a settlement that is inadequate to remediate the harm suffered by the class. The court did not err. California is a proper forum to adjudicate class claims that dispute the efficacy of a product developed in California, and the veracity of advertising founded upon research conducted by a California corporation. The settlement is also fair and adequate in providing consumer vouchers and funding scientific research beneficial to the class.

A. Certification of a nationwide class

A state court may assert personal jurisdiction over nonresident plaintiff class members and apply its forums law provided the class members are notified of their right to exclusion from the class, and the forum has a significant contact or significant aggregation of contacts to the claims asserted by each member of the plaintiff class. (Phillips Petroleum Co. v. Shutts (1985) 472 U.S. 797, 814, 821.) In Shutts, a company produced natural gas from leased land located in 11 states. (Id. at p. 799.) A class of royalty owners on the leases sued the gas company in Kansas state court to recover interest on delayed royalty payments, despite the fact that over 99 percent of the gas leases and some 97 percent of the plaintiffs had no connection to Kansas. (Id. at pp. 799, 814-815.) The United States Supreme Court held that application of Kansas law to every claim in the case was arbitrary and unfair, given the states lack of any significant contact to the class claims. (Id. at pp. 821-22.)

Sufficient contact with California supporting application of our law to the claims of a nationwide class has been found where a class of long distance telephone subscribers alleged fraudulent misrepresentations emanating from California. (Clothesrigger, Inc. v. GTE Corp. (1987) 191 Cal.App.3d 605, 612-616.) In Clothesrigger, Inc., 1) the defendant did business in California, 2) the defendants principal offices were located in California, 3) a significant number of class members were located in California, and 4) the defendants agents who prepared the promotional and advertising literature at issue in the litigation did so in California. (Wershba v. Apple Computer, Inc. (2001) 91 Cal.App.4th 224, 241-242, citing Clothesrigger, Inc., supra, at p. 613.)

Certification of a nationwide class was also approved where the class sued a California computer company for rescinding its policy of providing free technical telephone support to its customers. (Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at pp. 230, 241-243.) Sufficient contact with California was established by the facts that the defendant company was incorporated and headquartered in California, brochures promising free technical support were prepared in and distributed from California, substantial numbers of class members were located in California, and the disputed business decision rescinding technical support was made in California. (Id. at p. 242.)

The facts here also warrant certification of a nationwide class in California. Defendant Avanir is incorporated in California and has its office here. Avanir developed Abreva and initiated clinical trials on the efficacy of its active ingredient, docosanol. Defendants Avanir and GSK used the results of those clinical trials to make the allegedly false representations about Abrevas healing time. Many of those representations, which are the centerpiece of the class claims of false advertising, emanated from California. Avanir issued press releases in California claiming that Abreva cut in half the healing time for cold sores, and presented a paper at a professional seminar in California making the same representation.

Appellant does not deny defendant Avanirs California connections but instead argues that those connections are extraneous because Pennsylvania-based GSK is the primary wrongdoer. Appellants selective focus upon GSK disregards the nature of the class claims. The operative complaint names both Avanir and GSK as defendants, and makes substantial allegations of wrongdoing against each of them. It was Avanir that developed the challenged cold sore medication and Avanir that conducted clinical studies later used to substantiate claims of rapid healing time. The complaint alleges that Avanir and GSK jointly agreed upon a marketing plan promoting Abreva as a cold sore remedy that cuts healing time in half, and jointly agreed upon press releases making that representation. Appellants effort to erase Avanir from the class claims is unavailing.

B. Settlement approval

The settlement of a class action requires court approval to prevent fraud, collusion, or unfairness to the class. (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1800.) The court must determine the settlement is fair, adequate, and reasonable. (Id. at p. 1801.) The trial court is vested with a broad discretion in making this determination. [Citation.] In exercising its discretion, that court should consider relevant factors, which may include, but are not limited to the strength of the plaintiffs case, the risk, expense, complexity and duration of further litigation as a class action, the amount offered in settlement, the extent of discovery completed and the stage of the proceedings, the experience and views of counsel, the presence of a governmental participant, and the reaction of class members to the proposed settlement. At the same time, the trial court should give due regard . . . to what is otherwise a private consensual agreement between the parties.  (In re Microsoft I-V Cases (2006) 135 Cal.App.4th 706, 723.)  [A] presumption of fairness exists where: (1) the settlement is reached through arms-length bargaining; (2) investigation and discovery are sufficient to allow counsel and the court to act intelligently; (3) counsel is experienced in similar litigation; and (4) the percentage of objectors is small.  (7-Eleven Owners for Fair Franchising v. Southland Corp. (2000) 85 Cal.App.4th 1135, 1146.) As a reviewing court, our task is limited to a review of the trial courts settlement approval for a clear abuse of discretion. (Id. at p. 1145.)

A presumption of fairness operated here. The settlement was reached after arms-length negotiations assisted by a mediator and extensive discovery was conducted; class counsel was experienced in class action litigation, and there was only one objector in a nationwide class of consumers estimated to exceed one million members. The trial court explored a number of additional factors in confirming the fairness of the settlement. In reviewing the terms of the settlement, the court observed that the discount coupon and rebate vouchers provided a benefit to class members who would be difficult to identify and reach with any other compensatory means. The court also found that the $1 million research fund is a significant benefit that is directly related to benefiting the class here, given the recurrent nature of cold sores suffered by class members. The absence of injunctive relief was noted by the court, and found unobjectionable because defendants have ceased using the claimed inappropriate advertising and have for some years.

Appellant challenges the trial courts conclusion that the settlement adequately addresses the harm suffered by class members. Appellant insists that injunctive relief is a necessary component of any settlement to insure reformation of defendants advertising practices. Appellant grudgingly acknowledges that defendants are not presently advertising that Abreva cuts healing time in half, but argues that there is nothing to stop them from doing so in the future. In fact, an Avanir executive officer declared that defendants stopped using the cuts healing time in half claim around October 2002, over four years ago. As the trial court rightly observed, there is no reasonable basis for believing that defendants would resuscitate an old advertising campaign, especially one that is founded on a decade-old clinical study that has been publicly criticized in litigation. Injunctive relief is not authorized in the absence of a threat that an unlawful act will occur in the future. (Madrid v. Perot Systems Corp. (2005) 130 Cal.App.4th 440, 464.)

Appellant also argues that direct restitution should have been provided to class members instead of consumer vouchers. Appellant ignores the difficulty of locating the roughly one million Abreva consumers in the class and reimbursing them for their purchases. Abreva sells for less than $20 a tube, making it unlikely that consumers kept records of purchases dating back to 2001. Also, the amount of any individual class members recovery would be small compared to the cost of administering restitution. [W]hen potential recovery to the individual is small and when substantial time and expense would be consumed in distribution, the purported class member is unlikely to receive any appreciable benefit. (Blue Chip Stamps v. Superior Court (1976) 18 Cal.3d 381, 386.) While discount coupons and rebates may provide only a modest benefit to class members, they distribute that benefit with a minimum of time and expense and thus provide an economically feasible alternative to restitution. (See Wershba v. Apple Computer, Inc., supra, 91 Cal.App.4th at pp. 246-247 [approving class action settlement with product coupon component].)

Appellant argues that the coupon and rebate vouchers do nothing more than launch a new marketing program for GSK. It is true that coupon settlements in class action cases may benefit defendants by inducing additional product purchases. (Dunk v. Ford Motor, Co., supra, 48 Cal.App.4th at p. 1805.) However, this consequence does not warrant disapproval of a proposed settlement. (Id. at p. 1805, fn. 14)  Win-win settlements are not per se unreasonable. (Ibid.) Here, the settlement sought to minimize the promotional effect of the vouchers by providing that GSK may not include any reference to Abrevas effect on the duration of a cold sore and may not use the phrase try Abreva or similar language oriented specifically toward new Abreva users.

Moreover, the settlement was not limited to the issuance of consumer vouchers but included a $1 million research fund designed to benefit cold sore sufferers. As the trial court observed, this component of the settlement provides a significant benefit to a class composed of cold sore sufferers. Appellant denigrates this aspect of the settlement because the research fund will not address the advertising harm at the center of the litigation. Appellant notes that the damage in this case was caused not by cold sore outbreaks generally, but by Defendants misrepresentations specifically. However, the nature of those alleged misrepresentations was the use of purportedly flawed scientific research, and the exaggeration of the results of that research. The commissioning of independent cold sore research is thus directly related to the class claims.

Appellant maintains that the research fund provides more benefit to defendant GSK than to the class because the fund administrators have professional associations with GSK. The existence and extent of those associations are disputed. The important point, however, is that any benefit to the fund administrators does not diminish the benefit to the class. Defendants agreed to pay for fund administration, including honoraria to the fund administrators, in an amount additional and apart from the $1 million research grants. Those grants can be awarded only to independent researchers without connection to defendants. The research fund thus provides, as the trial court found, a significant benefit to the class.

Disposition

The judgment is affirmed.

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Sepulveda, J.

We concur:

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Ruvolo, P.J.

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Reardon, J.

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[1] The trial court ordered retention of the original plaintiffs name in the case caption to maintain consistency in the courts files.

[2] Appellant Scotts federal class action was dismissed after she filed her objection to the settlement of this action and before the final approval hearing. Appellant represented in her September 2006 opening brief on appeal that she was awaiting a ruling on her motion to amend judgment and to file an amended complaint in the federal class action. Appellants subsequent briefing has not advised us of the status of the federal action but indicated that she intends to pursue this appeal regardless of that cases resolution.