Big Johnson & Johnson Penalty Upended in Ark.

(CN) - The Arkansas Supreme Court overturned a $1.2 billion jury verdict Thrusday related to the alleged misrepresentation of the antipsychotic drug Risperdal.

Arkansas had sued Johnson & Johnson and Ortho-McNeil-Jansen Pharmaceuticals in 2007, claiming the drug giants deceived the public over the marketing of Risperdal. It said the drugmakers failed to properly advertise the medication's risks and fraudulently marketed Risperdal for off-label use.

A Pulaski County Circuit Court found that there were 238,874 Risperdal prescriptions filled or refilled between 2002 and 2006. Arkansas contended each of those prescriptions violated the state's Medicaid Fraud False Claims Act (MFFCA). The state also argued the improper marketing violated the state's Deceptive Trade Practices Act (DTPA).

After a 12-day trial in 2012, a jury found that Johnson & Johnson and Ortho-McNeil-Jansen violated the MFFCA and DTPA. The circuit court imposed the minimum $5,000 fine for each violation of the MFFCA. With 238,874 violations, the judgment came to $1,194,370,000.

The circuit court also imposed a $2,500 fine for each violation of the DTPA. The court determined there were 4,569 such violations for a total of $11,422,500.

Johnson & Johnson and Ortho-McNeil-Jansen claimed on appeal that the court erred as a matter of law when it ruled on the MFFCA and DTPA claims, that the civil penalties violated the excessive fines and due-process clauses of the Arkansas and U.S. Constitutions, and that the judgment violates their free speech rights.

The Arkansas Supreme Court found in favor of Johnson & Johnson on both the MFFCA and DTPA claims Thursday. In finding for the drug giants on their first two points, the court did not reach their constitutional claims.

The justices were unanimous in reversing and dismissing the MFFCA claims after finding that the state improperly sued under a law that applies to health care facilities, not pharmaceutical companies.

"Reading subsection (8) as one sentence, we hold that the subscription provides that a person shall be liable to the state of Arkansas, through the attorney general, for a civil penalty and restitution if he knowingly makes or causes to be made, or induces or seeks to induce the making of any false statement or representation of a material fact with respect to the conditions or operation of any institution, facility, or entity in order that such institution, facility, or entity may qualify either upon initial certification or upon re-certification as a hospital, rural primary care hospital, skilled nursing facility, nursing facility, intermediate care facility for the mentally retarded, home health agency, or other entity for which certification is required or with respect to information required pursuant to applicable federal and state laws, rules, regulations and provider agreements," the majority opinion written by Associate Justice Karen Baker states. "As is apparent from the reading, the word 'applicable' refers to the certification process and laws applicable to the process.

"Accordingly, we reverse the circuit court's order denying Janssen's motion for directed verdict and dismiss the state's claim under the MFFCA as Janssen is indisputably not a healthcare facility and applying for certification or re-certification as described in the statute."

The justices were divided, however, as to overturning and remanding the DTPA award, with the four-person majority finding that the trial court improperly allowed a warning letter issued from the FDA's Division of Drug Marketing, Advertising and Communications in 2004 to be entered as evidence.

Johnson & Johnson and Ortho-McNeil-Jansen successfully argued the letter amounted to hearsay.

"The 'Warning Letter' was part of a special investigation of a particular complaint, case, or incident and falls directly within the parameters of the prohibited hearsay ... and it is also more prejudicial than probative," Baker wrote. "Accordingly, based on our standard of review, we hold that the circuit court abused its discretion in admitting the letter and reverse and remand the DTPA claim to the circuit court."

In a partial dissent, Justice Paul Danielson disagreed that the letter constituted inadmissible hearsay. He was joined by Chief Justice Jim Hannah and Justice Donald Corbin.

Arkansas Attorney General Dustin McDaniel still believes the state Legislature intended the Medicaid fraud law to be applied as the state used it in the lawsuit.

"I am disappointed that the Court viewed the law differently," McDaniel said in a statement. "Nevertheless, I will keep working to protect consumers against fraud and the kinds of irresponsible and greedy actions shown by Johnson & Johnson and Janssen Pharmaceuticals in their marketing of the drug Risperdal."

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