RICO suit vs. Lilly could reap billions if successful

A recently certified class of third-party payors is accusing Eli Lilly and Co. of operating as a criminal enterprise, and the U.S. Supreme Court has now twice declined to step in in ways that could have helped the company.

Lilly denies the claims, which are related to the labeling of a drug some 16 years ago, and has fought the use of so-called RICO statutes as the basis of the case.

But after this week denying Lilly’s petition seeking a review of the class-action status, the Supreme Court court has opened the door for a potential multibillion-dollar verdict against the Indianapolis-based drugmaker and Japan-based Takeda Pharmaceutical Co. for their involvement in promoting a drug linked to bladder cancer.

The plaintiffs — five patients and a third-party payor of health and welfare benefits to covered members and their families — allege that the drug companies refused to change the warning label of a diabetes drug even after learning of its risks so they could reap more profits.

They are now suing as a class under statutes originally created to fight organized crime, an approach that historically has divided federal courts.

A Lilly spokesperson said in a written statement Monday that while the company is disappointed the Supreme Court declined to hear the case, it “will continue our vigorous defense of this case in the district court.”

Brent Wisner, managing partner of Los Angeles-based Wisner Baum and an attorney for the plaintiffs, has been pushing the case for more than a decade and is preparing for more. “I’m ready to try the case,” he told The Indiana Lawyer.

Black-box drug

In 1999, Takeda developed and released Actos, a treatment for Type 2 diabetes, which brought in billions of dollars in sales over the next decade. Lilly signed an agreement with Takeda to co-promote the drug, which it did from 1999-2006.

In about 2010, studies emerged indicating that the drug was linked to higher risks of bladder cancer.

After launching an investigation, the U.S. Food and Drug Administration announced in 2011 that it would require Actos to have a black box label — the agency’s most serious warning.

Following the government’s alarm, Actos sales dropped by 80%, according to court documents, and consumers filed lawsuits against the companies.

In 2014, a Louisiana jury returned a verdict in favor of family members who sued for personal injury and wrongful death after a group of patients developed bladder cancer after taking the drug. The case was later consolidated into a multidistrict settlement. Lilly was ordered to pay 25% of the judgment, which initially included $9 billion in punitive damages but a judge later reduced to $36.8 million.

Lilly said then that “the evidence did not support his claims.”

At about the time the Louisiana court returned its verdict, attorneys representing Painters and Allied Trades District Council 82 Health Care Fund — a Minnesota-based labor union that operates as a third-party payor — and five individual patients sued Lilly and Takeda in a Louisiana court, alleging the companies knew Actos increased the rate of bladder cancer but deliberately and fraudulently concealed it from consumers and doctors to make more profits.

The new case was transferred to California, where the plaintiffs later filed for economic damages under the Racketeer Influenced and Corrupt Organizations Act, or RICO, and state consumer-fraud laws, saying they would not have purchased the drug had they known of the risks.

A criminal enterprise?

Congress passed RICO as part of the Organized Crime Control Act of 1970, and the statute has been used against many notable criminal groups, including the Hell’s Angels Motorcycle Club, the Five Families mafia of New York City and John Gotti, a Gambino family crime boss.

Because the statute was written broadly, it can also be used against other entities, not just the stereotypical gangster, as long as the petitioner can prove that the harm “qualifies as injury” to business or property and that the harm was “by reason of” the violation, according to court documents.

In 2018, the U.S. District Court for the Central District of California dismissed the case because it determined the plaintiffs “had not adequately pleaded causation,” according to court documents.

But on appeal, the U.S. Court of Appeals for the Ninth Circuit overturned the decision, saying the plaintiffs had sufficiently argued that the alleged violation — that Lilly and Takeda conducted an enterprise through a pattern of racketeering activity — was a “proximate cause” of their harm, representing a clear and foreseeable connection between the alleged fraud and the petitioner’s economic damage.

Lilly and Takeda argued that the case did not qualify under RICO because the physicians, not the drug companies, were the ones who had prescribed Actos to patients, thus breaking the chain of causation.

The 9th Circuit disagreed.

“The panel concluded that, although prescribing physicians served as intermediaries between defendants’ fraudulent omission of Actos’ risk of causing bladder cancer and plaintiffs’ payments for Actos, prescribing physicians did not constitute an intervening cause to cut off the chain of proximate causation,” Circuit Court Judge Carlos Bea wrote in the 2019 reversal order.

In making its decision, the 9th Circuit considered other appellate decisions from similar cases, which has created a divide among judges. The 2nd and 7th circuits have ruled against third-party payors for not showing sufficient proximate cause against pharmaceutical companies, while the 1st and 3rd circuits have ruled for them.

“It seems the central dispute between the 2nd and 7th Circuits and the 1st and 3rd Circuits is whether the decisions of prescribing physicians and pharmacy benefit managers constitute intervening causes that sever the chain of proximate cause between the drug manufacturer and [third-party payors],” Bea wrote. “We think the 1st and 3rd Circuits have it right because their reasoning is more consistent with the Supreme Court’s direct relation requirement,” which Bea explained as a direct relationship between a defendant’s wrongful conduct and a plaintiff’s alleged injury.

Bea also said that if the 9th Circuit were to rule like the 2nd and 7th circuits, then drug manufacturers would be “insulated from liability for their fraudulent marketing schemes, as they could continuously hide behind prescribing physicians and pharmacy benefit managers.”

By siding with the 1st and 3rd circuits, the 9th Circuit revived the case under RICO, which also means the damages are treble — tripled under statutes that permit a court to impose additional damages for particularly egregious cases.

According to Wisner, the plaintiffs’ attorney, the damages under RICO could fall between $7 billion and $8 billion, compared with the standard $2.5 billion. Wisner told The Indiana Lawyer that damages could reach the tens of billions if the court considers accrued interest.

Lilly and Takeda filed a writ of certiorari in 2020 with the Supreme Court following the circuit court’s ruling, but the Supreme Court declined to hear the matter.

Drugs as stocks

After convincing the court to reverse the dismissal, the plaintiffs also succeeded in obtaining a class certification of all third-party payors that purchased all or any portion of the price for Actos and its sister versions for five or more prescriptions between July 1, 1999, and Sept. 17, 2010, for purposes other than resale.

Lilly and Takeda appealed the certification, but a panel of 9th Circuit judges affirmed the lower court’s ruling in a 2-1 decision last year, making the case the first non-settlement national RICO class action lawsuit against Big Pharma, according to Wisner Baum.

For Wisner, the most difficult issue in the case has been reliance: showing the causal connection between the companies’ conduct and the drug’s sales without asking what each class member did or thought.

“That has been, I think, really where we’ve sort of had to get not only creative, but we’ve had to sort of bring in tried-and-true other types of law, like antitrust in consumer fraud cases and using regression analysis to show the effects, even security litigation stuff,” Wisner said.

In the dissenting opinion for the 9th Circuit’s 2025 order granting a class of third-party payors, Judge Molly Dwyer explained that an essential element of any fraud claim is reliance on the defendant’s allegedly fraudulent statements.

More specifically, reliance is normally established with evidence particular to each plaintiff. This means it is much more difficult to pursue fraud claims through class actions, which involve many plaintiffs.

In a securities context, though, this can be accomplished under the fraud-on-the-market theory. Fraud-on-the-market is a type of securities lawsuit in which investors sue a company for making false public statements that artificially inflate or deflate the price of its stock, Dwyer noted. In fraud-on-the-market cases, courts can presume that the stock price changes for everyone, not just one individual.

In securities regulation, false statements tend to influence the price of securities, said Nicholas Georgakopoulos, a business law professor at Indiana University Robert H. McKinney School of Law. If a petitioner can show that certain information influenced the price of securities — which caused investors to trade at the wrong price — then investors have a claim to pursue.

But drug pricing is much more “opaque” than stocks, Georgakopoulos said: “It’s extremely difficult to figure out how a false statement influences a drug price.”

Billions on the line

Lilly and Takeda again took the matter before the Supreme Court in November 2025, this time questioning whether a federal court may certify a class when some members are not injured.

“The Ninth Circuit’s opinion created two untenable outcomes at odds with other circuit courts: it certified a class including uninjured plaintiffs, without requiring any way of figuring out who those uninjured plaintiffs are, and it allowed a generalized model about likelihood of harm to take the place of individualized proof that each class member was injured,” a Lilly spokesperson said in an email Monday.

According to court documents, based on expert testimony, each proposed class member has at most a 1.5% chance of being uninjured. For a majority of the court, that was sufficient enough to proceed. Dwyer saw things differently.

“The district court certified a sprawling class action based on millions of prescribing decisions by thousands of individual physicians,” Dwyer wrote. “Some of those decisions may have been influenced by the defendants’ alleged fraud. Many others surely were not.”

In an amicus brief in support of Lilly and Takeda’s writ of certiorari, the U.S. Chamber of Commerce stated that the 9th Circuit’s permissive approach “exacerbates the problem of courts turning a blind eye to class-action abuse.”

Wisner disagreed. “While there is a path to succeed in a civil RICO case involving a pharmaceutical company, it is a very, very difficult one,” Wisner said. “Just bringing the case requires an incredible amount of facts and evidence to even survive a motion to dismiss, and the only reason why we have it in this case is because it was born from a different litigation where we had access to all that.”

Although he does not think a decision in this case would “open the floodgates” of tort litigation, Wisner does believe it would provide another tool to “balance the books.”

“I think that this is a really important case, because it forces drug companies when they’re deciding whether or not they want to conceal risks — or, you know, whatever — that there is a world where it can come back to bite them,” he said.

For now, the case will remain pending. Wisner said he expects a trial could be scheduled for the first quarter of 2027.•