Patrick Lynch v. National Prescription Admin., et al

Filing

OPINION FILED - THE COURT: Lavenski R. Smith, Duane Benton and Bobby E. Shepherd AUTHORING JUDGE:Duane Benton (PUBLISHED) [4278835] [14-2078]

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 14-2078
___________________________
Patrick J. Lynch, as trustee of the Health and Welfare Fund and the Retiree Health
& Welfare Fund of the Patrolmen’s Benevolent Association of the City of New
York and on behalf of all other similarly situated Plans
lllllllllllllllllllll Plaintiff - Appellant
v.
National Prescription Administrators, Inc.; Express Scripts, Inc.; John Does, 1-25
lllllllllllllllllllll Defendants - Appellees
____________
Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
____________
Submitted: January 13, 2015
Filed: May 27, 2015
____________
Before SMITH, BENTON, and SHEPHERD, Circuit Judges.
____________
BENTON, Circuit Judge.
In 2002, Express Scripts, Inc. (ESI) acquired National Prescription
Administrators, Inc. (NPA). In 2003, two health Funds of a police union brought a
class action against ESI and NPA. In 2004, the New York Attorney General (AG)
sued ESI, resulting in a consent judgment. Based on that consent judgment, ESI

Appellate Case: 14-2078

Page: 1

Date Filed: 05/27/2015 Entry ID: 4278835

moved for summary judgment in the Funds’ suit. The district court granted ESI’s
motion, applying res judicata. The Funds appeal. Having jurisdiction under 28
U.S.C. § 1291, this court reverses and remands.
I.
The Patrolmen’s Benevolent Association of the City of New York, Inc. is a
union of active and retired New York City police officers. It created the Funds as
private trusts to provide prescription drug benefits to its members “in every state of
the United States except South Dakota.” The trustees are union officers who
administer those benefits with money gained by collective bargaining with New York
City.
NPA provided pharmacy-benefit-management services to the Funds through
July 2002. Alleging various common law and statutory claims, the Funds brought
their class action in federal court on behalf of “all current and former self-funded
non-ERISA employee benefit Plans for which NPA and/or Express Scripts serve or
have served as the Plan’s PBM.” The Funds never contracted with ESI. The action
was transferred to multi-district litigation in the Eastern District of Missouri.
In 2004, the AG sued ESI in New York state court, alleging ESI breached its
contract with the “Empire Plan,” the State’s main employee health plan. According
to the complaint’s preamble, it was brought by “The People of the State of New York,
by their attorney,” the AG. In Paragraph 27, the AG specified the bases for its suit:
Plaintiffs commence this action pursuant to: (1) Executive Law § 63(1),
under which the Attorney General is empowered to prosecute and
defend all actions and proceedings in which the State of New York is
interested; (2) Executive Law § 63(12), under which the People of the
State of New York, by the Attorney General of the State of New York,
are empowered to seek injunctive relief, restitution, damages and costs
-2-

Appellate Case: 14-2078

Page: 2

Date Filed: 05/27/2015 Entry ID: 4278835

against any person or business entity that has engaged in repeated
fraudulent or illegal acts or otherwise engaged in persistent fraud or
illegality in the conduct of a business; and (3) General Business Law
(“GBL”) Article 22-A, under which the People of the State of New
York, by the Attorney General of the State of New York, are authorized
to seek injunctive relief, restitution and civil penalties against any
person or business entity which has engaged in deceptive acts or
practices or false advertising in the conduct of business.
For relief, the AG requested: an injunction against illegal activities that “relate
to the Empire Plan, other non-ERISA health and prescription drug benefit plans of the
State and its political subdivisions, and members of such plans”; damages payable to
the Department of Civil Service (DCS), which administers the Empire Plan, and to
“the State of New York” for breach of contract, unjust enrichment, and other theories;
and, damages and restitution for “injured members of the Empire Plan and other
non-ERISA health and prescription drug benefit plans of the State and its political
subdivisions.”
In 2005, the New York state court stayed the AG’s suit until two other cases
were resolved. In a motion to vacate the stay, the AG said it sued ESI “on behalf of
the Empire Plan (by DCS, as administrator of the plan, and the State, which pays the
majority of the premiums . . .), other New York government plans, as well as Empire
Plan members.” In that motion, the AG said it sought “to protect . . . members of
other government health plans (i.e., counties and municipalities that contract with
ESI).”
In 2008, the AG and ESI entered into a consent judgment. In exchange for
injunctive relief and $27 million, the AG released ESI from certain claims and causes
of action.

-3-

Appellate Case: 14-2078

Page: 3

Date Filed: 05/27/2015 Entry ID: 4278835

ESI then moved for summary judgment in the Funds’ suit, arguing the consent
judgment “is res judicata and bars [their] claims.” The district court granted ESI’s
motion, applying res judicata. The Funds appeal.
II.
This court reviews de novo a grant of summary judgment. Torgerson v. City
of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). Summary judgment is
appropriate “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
The Full Faith and Credit Act “directs all courts to treat a state court judgment
with the same respect that it would receive in the courts of the rendering state.”
Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 373 (1996), citing 28 U.S.C.
§ 1738. This court reviews de novo the application of res judicata. Daley v. Marriott
Int’l, Inc., 415 F.3d 889, 895 (8th Cir. 2005). New York preclusion law governs this
case. See Hillary v. Trans World Airlines, Inc., 123 F.3d 1041, 1043 (8th Cir. 1997)
(“[T]he res judicata effect of the first forum’s judgment is governed by the first
forum’s law, not by the law of the second forum.” (internal quotation marks
omitted)).
“In New York, res judicata, or claim preclusion, bars successive litigation
based upon the same transaction or series of connected transactions if: (i) there is a
judgment on the merits rendered by a court of competent jurisdiction, and (ii) the
party against whom the doctrine is invoked was a party to the previous action, or in
privity with a party who was.” People ex rel. Spitzer v. Applied Card Sys., Inc., 894
N.E.2d 1, 12 (N.Y. 2008) (internal quotation marks and citation omitted). “In
properly seeking to deny a litigant two ‘days in court,’ courts must be careful not to
deprive him of one.” Reilly v. Reid, 379 N.E.2d 172, 175 (N.Y. 1978). “We remain
mindful that if applied too rigidly, res judicata has the potential to work considerable
-4-

Appellate Case: 14-2078

Page: 4

Date Filed: 05/27/2015 Entry ID: 4278835

injustice.” Landau, P.C. v. LaRossa, Mitchell & Ross, 892 N.E.2d 380, 384 (N.Y.
2008).
“Claim preclusion, like issue preclusion, is an affirmative defense.” Taylor v.
Sturgell, 553 U.S. 880, 907 (2008). “Ordinarily, it is incumbent on the defendant to
plead and prove such a defense, and we have never recognized claim preclusion as
an exception to that general rule.” Id. (citations omitted).
The consent judgment is a final judgment on the merits. See Silverman v.
Leucadia, Inc., 548 N.Y.S.2d 720, 721 (App. Div. 1989) (“[A] judgment on consent
is conclusive and has the same preclusive effect as a judgment after trial.”). ESI
argues that res judicata applies because the Funds sued on the same transactions as
the AG and because the Funds were in privity with the AG.
This court first analyzes privity. “Generally, to establish privity the connection
between the parties must be such that the interests of the nonparty can be said to have
been represented in the prior proceeding.” Green v. Santa Fe Indus., Inc., 514
N.E.2d 105, 108 (N.Y. 1987).
The district court found privity because the AG’s suit, “brought on behalf of
the People, the Plans and the members thereof, is clearly the essence of the [Funds]
. . . and sought what [the Funds] herein seek to accomplish.” ESI asks this court to
affirm because the AG “alleged claims on behalf of the” Funds.
The Funds were not parties to the AG’s suit, nor did the AG allege claims on
their behalf. The AG sought relief for three categories of entities: the Empire Plan
(and its members); DCS and the State (as Empire Plan administrator and premiumpayer, respectively); and “other New York government plans,” that is, “counties and
municipalities that contract with ESI,” and their members. Only the third category
is disputed. While the parties agree the Funds are “governmental plans” for purposes
-5-

Appellate Case: 14-2078

Page: 5

Date Filed: 05/27/2015 Entry ID: 4278835

of ERISA, see 29 U.S.C. § 1003(b)(1), the AG did not purport to represent all §
1003(b)(1) “governmental plans.” The AG said “other New York government plans”
means “counties and municipalities that contract with ESI.” The Funds did not
contract with ESI; and the Funds are neither a county nor a municipality. They are
private trusts. Their trustees are union officers, not city officials with whom they
bargain. These trustees, not the city, sued on the Funds’ behalf. Any recovery is the
Funds’, not the city’s.
Alternatively, ESI asserts privity because the AG sued ESI in a parens patriae
capacity. “Parens patriae is a common-law standing doctrine that permits the state
to commence an action to protect a public interest, like the safety, health or welfare
of its citizens.” People ex rel. Spitzer v. Grasso, 893 N.E.2d 105, 107 n.4 (N.Y.
2008). “To invoke the doctrine, the Attorney General must prove a quasi-sovereign
interest distinct from that of a particular party and injury to a substantial segment of
the state’s population.” Id., citing Alfred L. Snapp & Son, Inc. v. Puerto Rico ex rel.
Barez, 458 U.S. 592, 607 (1982) (noting “a State has a quasi-sovereign interest in the
health and well-being—both physical and economic—of its residents in general”).
“The State must express a quasi-sovereign interest.” Snapp & Son, 458 U.S. at 607.
Nothing in this court’s record indicates the AG invoked parens patriae
authority. See Grasso, 893 N.E.2d at 107 n.4. The words “parens” or “patriae” are
not used in the complaint, vacate-stay motion, or consent judgment. The AG did not
express a quasi-sovereign interest. See Snapp & Son, 458 U.S. at 607. The
complaint uses “sovereign” once—to identify “Plaintiff State of New York” as “the
sovereign State of New York with its principal offices” in Albany. The AG used
“quasi” once—in the vacate-stay motion, to refer to some of the AG’s claims against
ESI as “quasi-contract” (for example, its unjust-enrichment claim). The AG did not
say it represented “its residents in general.” See id. Rather, the AG claimed to
represent only the Empire Plan (and its members), DCS and the State (as
administrator and premium-payer, respectively), and “counties and municipalities that
-6-

Appellate Case: 14-2078

Page: 6

Date Filed: 05/27/2015 Entry ID: 4278835

contract with ESI.” The complaint does not discuss the substantiality of any injured
“segment of the state’s population,” although it alleged the Empire Plan covers over
one million active and retired employees. See Grasso, 893 N.E.2d at 107 n.4.
True, parens patriae power is “inherent in the supreme power of every State.”
Snapp & Son, 458 U.S. at 600, quoting Mormon Church v. United States, 136 U.S.
1, 57 (1890). But it does not follow that the AG always acts in that capacity when it
sues. To the contrary, in New York, Grasso requires an affirmative invocation: “To
invoke the doctrine, the Attorney General must prove . . . .” See Grasso, 893 N.E.2d
at 107 n.4 (emphases added). See also Snapp & Son, 458 U.S. at 607 (“The State
must express a quasi-sovereign interest.” (emphasis added)); Massachusetts v.
E.P.A., 549 U.S. 497, 538 (2007) (“[P]arens patriae actions raise an additional hurdle
for a state litigant: the articulation of a ‘quasi-sovereign interest.’” (Roberts, C.J.,
dissenting) (emphasis added) (quoting Snapp & Son, 458 U.S. at 607)).
In other cases, the New York AG’s pleadings invoking parens patriae satisfy
these precedents. For example, in People ex rel. Spitzer v. Town of Wallkill, the AG
claimed the “parens patriae authority to commence” the action, specified the State’s
“quasi-sovereign interest,” and stated that “a significant number of citizens of the
State of New York [] will be unable to vindicate their rights absent action by the
Attorney General.” Complaint at 4, People ex rel. Spitzer v. Town of Wallkill, No.
01-Civ-0364, (S.D.N.Y. Jan. 18, 2001), http://www.ag.ny.gov/sites/default/files/
press-releases/archived/wallkill_complaint.pdf.
The authority the AG invoked is in Paragraph 27 of its complaint. Instead of
invoking parens patriae authority, the AG specified three statutory bases: Executive
Law § 63(1), Executive Law § 63(12), and GBL Article 22-A. ESI cites no New
York authority that these statutes codify parens patriae. Nor does the statutes’ plain
language reference or invoke parens patriae. Cf. In re Lorazepam & Clorazepate
Antitrust Litig., 205 F.R.D. 369, 386 (D.D.C. 2002) (stating, in national summary of
-7-

Appellate Case: 14-2078

Page: 7

Date Filed: 05/27/2015 Entry ID: 4278835

state-attorneys-general power, that § 63(12) provides New York with “express
statutory authority to represent consumers in a capacity which is the functional
equivalent of parens patriae”) (not cited for this proposition by any New York court).
Under § 63(1), the AG must “[p]rosecute and defend all actions and proceedings in
which the state is interested.” Section 63(12) permits the AG to sue “in the name of
the people of the state of New York” for “repeated fraudulent or illegal acts.”
Similarly, § 349(b) of Article 22-A permits the AG to sue “on behalf of the people of
the state of New York” for deceptive acts or practices. Exercising statutory authority
to sue “in the name” and “on behalf of the people of the state of New York” does not
necessarily prove or express a quasi-sovereign interest. See Grasso, 893 N.E.2d at
107 n.4; Snapp & Son, 458 U.S. at 607.
On appeal, the Funds make various arguments about parens patriae authority,
but they have not responded specifically to ESI’s claim that the AG acted as parens
patriae when suing ESI.1 At oral argument, the Funds said the AG “sue[d] on behalf
of, quote, the State of New York and the people of New York. When you do that, you
are suing under parens patriae.” ESI argues the Funds have conceded that the AG
acted as parens patriae.
Res judicata is ESI’s affirmative defense, and “it is incumbent on [ESI] to . .
. prove such a defense.” See Taylor, 553 U.S. at 907. The Funds’ (mistaken) position
on parens patriae does not prove ESI’s defense. See Gander v. Livoti, 250 F.3d 606,
609 (8th Cir. 2001) (“The law is clear that stipulations of law are not binding on the
court.”).
1

The district court did not expressly reach ESI’s parens patriae argument. But
the court apparently considered it, based on ESI’s quotation of the “statutory bases”
in its motion for summary judgment. The court, which excerpted § 63(1) and §
349(b), found “the AG represented the People of the State of New York” and found
ESI “established that the [AG] was vested with the authority to act on [the Funds’]
behalf.”
-8-

Appellate Case: 14-2078

Page: 8

Date Filed: 05/27/2015 Entry ID: 4278835

This court is “mindful” that res judicata can “work considerable injustice,”
Landau, 892 N.E.2d at 384, and is “careful not to deprive” the Funds of their day in
court, Reilly, 379 N.E.2d at 175. Accordingly, this court holds ESI to its burden of
proving that the AG sued ESI as parens patriae. On this record, ESI has not met its
burden.
Because ESI has not shown privity between the Funds and the AG, this court
need not analyze the transactions underlying the two suits. The district court erred
in applying res judicata.
III.
The parties dispute whether the release language bars the Funds’ claims. The
district court did not reach this issue. Generally, “a federal appellate court does not
consider an issue not passed upon below.” Singleton v. Wulff, 428 U.S. 106, 120
(1976). “Certainly there are circumstances in which a federal appellate court is
justified in resolving an issue not passed on below, as where the proper resolution is
beyond any doubt or where injustice might otherwise result.” Ames v. Nationwide
Mut. Ins. Co., 760 F.3d 763, 770 (8th Cir. 2014), quoting Singleton, 428 U.S. at 121.
Neither party argues for any exception to the waiver rule. This court declines to
decide whether the release language bars the Funds’ claims.
*******
The judgment is reversed, and the case remanded for proceedings consistent
with this opinion.
______________________________

-9-

Appellate Case: 14-2078

Page: 9

Date Filed: 05/27/2015 Entry ID: 4278835