City and County of San Francisco v. Purdue Pharma L.P.

Background

The plaintiff asserted public-nuisance and California unfair-competition-law claims against Endo Pharmaceuticals Inc., Endo Health Solutions Inc., Endo International plc, Par Pharmaceutical, Inc., and Par Pharmaceutical Companies, Inc., collectively called “Endo” in the opinion. The claims rested on two theories: that the defendants made false or misleading statements about opioid safety and risks, and that they failed to create and operate effective systems for identifying suspicious opioid orders and preventing diversion.

Endo moved for summary judgment, which is a decision that claims cannot proceed because the evidence does not show a genuine dispute requiring a trial. The court ruled on several grounds.

Endo International and alter-ego liability

The court granted Endo International summary judgment on both the unfair-competition-law and public-nuisance claims. The plaintiff did not contend that Endo International itself engaged in actionable misconduct. Instead, it sought to hold the parent company responsible for its subsidiaries under an “alter ego” theory, which can allow a court to disregard separate corporate identities when the parent exercises sufficiently pervasive control and refusing to do so would cause fraud or injustice.

The court held that the plaintiff’s evidence showed, at most, Endo International’s active involvement in broad management matters. The evidence included oversight of opioid sales, general decisions about opioid promotion and sales-force structure, a company-wide code of conduct, overlapping directors and executives, and management of employee incentive plans. The court found no evidence that the subsidiaries disregarded corporate formalities, commingled funds, lacked adequate capitalization, or were subject to Endo International’s control over routine, day-to-day operations. That evidence did not establish the level of control required for alter-ego liability.

Alter-ego liability for the Par companies

Endo Pharmaceuticals Inc. and Endo Health Solutions Inc. sought summary judgment on any theory that they were liable for the Par companies’ alleged failure to maintain effective suspicious-order monitoring systems. The plaintiff did not oppose this argument. The court therefore granted Endo summary judgment on this ground.

Successor liability for Qualitest conduct

The court granted Endo summary judgment on the theory that Endo was responsible for Qualitest Pharmaceuticals’ alleged failure to maintain effective suspicious-order monitoring systems from 2007 through 2010. Endo acquired Qualitest on September 28, 2010, after a private equity fund had owned it.

Under the general successor-nonliability rule discussed by the court, a company that acquires another company’s assets ordinarily does not assume the seller’s debts and liabilities. The plaintiff relied on possible exceptions for a merger or consolidation and for a mere continuation of the earlier company. The court found insufficient evidence for either exception. The record indicated that Endo paid sufficient consideration, including $406.8 million to retire Qualitest’s outstanding debt, and the plaintiff offered no evidence of overlapping officers, directors, or stockholders between Qualitest and Endo. Endo therefore received summary judgment on claims based on Qualitest’s conduct before September 28, 2010.

False-statement theory and the Par companies

The Par companies sought summary judgment on the claims to the extent they were based on allegedly false or misleading statements about opioid safety and effectiveness. They argued that they manufactured and sold generic opioids and that there was no evidence they made marketing or promotional statements, much less false or misleading ones.

The plaintiff acknowledged that the Par companies did not make misleading claims about their generic products and argued instead that they benefited from the spillover effects of statements made by another entity. The court found that the plaintiff cited no authority allowing liability based only on that theory and held that the admission was dispositive. Without evidence that the Par companies made false or misleading statements, the plaintiff could not establish the conduct required for either the unfair-competition-law or public-nuisance claim under that theory. The court granted the Par companies summary judgment on both claims to that extent.

Remaining claims

The court otherwise denied Endo’s motion for summary judgment as to both the public-nuisance and unfair-competition-law claims. It held that genuine disputes of material fact prevented summary judgment under both the failure-to-monitor theory and the false-statement theory.

Disposition

Judge Charles R. Breyer granted in part and denied in part Endo’s motion for summary judgment. The ruling removed the specified claims and theories described above but left other parts of the public-nuisance and unfair-competition-law claims subject to factual disputes.