First Circuit: Letting judges dish out charity not a good idea

John O'Brien Apr. 25, 2012, 10:18am


BOSTON (Legal Newsline) - A federal appeals court, in upholding an $11 million donation to a cancer research center at Harvard University, says it is uneasy with the idea of federal judges choosing how to dole out settlement funds.

The U.S. Court of Appeals for the First Circuit ruled Tuesday against a group of plaintiffs who objected to an $11.4 million payment to the Dana Farber/Harvard Cancer Center. U.S. District Judge Richard Stearns was tasked with donating $11.4 million that were unclaimed from a $40 million settlement involving TAP Pharmaceuticals' cancer drug Lupron.

The settlement stipulated that any unclaimed funds would be given to charity, known as a cy pres award.

"It is one thing for the district court to exercise its traditional judicial function to approve class action settlement agreements," Judge Sandra Lynch wrote.

"It is quite another for the parties to abandon the task of agreement over the assignment of residual funds and just hand that task to the court."

Having the court distribute funds is not a traditional judicial function, Lynch added.

"Moreover, having judges decide how to distribute cy pres awards both taxes judicial resources and risks creating the appearance of judicial impropriety," she wrote.

The lawsuit alleged TAP improperly billed Medicare for free samples of Lupron. The company also encouraged physicians to bill Medicare at an inflated Average Wholesale Price, it was alleged.

TAP pled guilty to charges brought in 2001 by the Department of Justice, agreeing to a criminal fine of $290 million and civil restitution of nearly $600 million to Medicare and Medicaid. Another $25.5 million was divided among the 50 states.

Nine class actions followed, brought by consumers, health care plans and insurers. In 2004, the parties reached a $150 settlement for all groups of plaintiffs, with $40 million going to consumers.

Consumers, based on the advice of experts who calculated how much they were harmed, received 30 percent of their total out-of-pocket payments for Lupron or $100, whichever was greater. The settlement stipulated a surplus of funds would be donated to a charity of the court's choosing.

A group of plaintiffs led by Valerie Samsell and represented by the Philadelphia firm Haviland Hughes, said it would pursue an appeal unless the settlement fund was tapped. In response, the settlement was adjusted for consumers, who would now receive 167 percent of the damages it was determined by the district court they suffered.

The Samsell plaintiffs appealed Stearns' 2010 decision to donate the funds anyway.

"The Samsell plaintiffs frame some of their challenges as attacks on the underlying consent decree, but they gave up that challenge to the agreement when they executed the implementation agreement," Lynch wrote.

"They have waived any right to object to the agreement on appeal; indeed they received consideration for that waiver. After extended negotiations resulting in a 67 percent increase in their full damages awards, the Samsell plaintiffs entered into the implementation agreement in which they agreed to be bound by all terms and provisions of the settlement agreement and agreed not to appeal from a final judgment.

"They also agreed to accept the roughly 167% of their damages as 'fair and reasonable' compensation."

Retired U.S. Supreme Court Justice David Souter, who earned his law degree from Harvard, participated in the decision. He and Lynch were joined by Judge Kermit Lipez.

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