Sheet Metal Workers Local No. 20 Welfare and Benefit Fund et al v. CVS Health Corporation
Filing
180
REDACTED MEMORANDUM AND ORDER (redacted version of Sealed Memorandum and Order, ECF No. 179 in 1:16-cv-0046-WES-PAS and ECF No. 175 in 1:16-cv-00447-WES-PAS). So Ordered by District Judge William E. Smith on 5/11/2021. Associated Cases: 1:16-cv-00046-WES-PAS, 1:16-cv-00447-WES-PAS(Jackson, Ryan) Modified on 5/18/2021: corrected referred ECF numbers (Jackson, Ryan).
REDACTED
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
SHEET METAL WORKERS LOCAL NO. 20
)
WELFARE AND BENEFIT FUND, and
)
INDIANA CARPENTERS WELFARE FUND,
)
on behalf of themselves and all
)
C.A. No. 16-046 WES
others similarly situated,
)
)
Plaintiffs,
)
)
v.
)
)
CVS PHARMACY, INC., et al.,
)
)
Defendants.
)
___________________________________)
)
PLUMBERS WELFARE FUND, LOCAL 130, )
U.A., on behalf of itself and all )
others similarly situated,
)
)
C.A. No. 16-447 WES
Plaintiffs,
)
)
v.
)
)
CVS PHARMACY, INC., et al.
)
)
Defendants.
)
)
___________________________________)
MEMORANDUM AND ORDER
WILLIAM E. SMITH, District Judge.
Plaintiffs Sheet Metal Workers Local No. 20 Welfare and
Benefit Fund (“Sheet Metal Workers”), Indiana Carpenters Welfare
Fund (“Indiana Carpenters”), and Plumbers Welfare Fund Local 130
(“Plumbers”) (collectively, “Plaintiffs” or “named Plaintiffs”)
move to certify four classes of third-party payors (“TPPs”) or
health plans in two consolidated cases.
Pls.’ Mem. in Supp. of
Pls.’ Mot. for Class Certification (“Pls.’ Mot.”) 1-3, ECF No.
123; 1 see also Reply in Supp. of Pls.’ Mot. for Class Certification
(“Pls.’ Reply”) 3-4, ECF No. 145-1 (amending the class definition
for the “Omissions Consumer Protection Class”). 2
They allege that
Defendant CVS Pharmacy, Inc. (“CVS”) and five pharmacy benefit
managers
(“PBMs”)
–
Defendant
Caremark,
L.L.C.
(“Caremark”,
together with CVS, “Defendants”), Express Scripts, Inc., OptumRx,
Inc., Medco Health Solutions,
Inc., 3 and MedImpact Healthcare
Systems, Inc. – engaged in a nationwide scheme and conspiracy to
overcharge TPPs, in violation of the Racketeer Influenced and
Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq., and
various state laws.
171.
First Am. Compl. (“FAC”) 5-9, 52-84, ECF No.
Specifically, Plaintiffs allege that CVS defrauded and
overcharged the health plans in failing to treat its Health Savings
Pass (“HSP”) membership prices as its “Usual and Customary” (“U&C”)
prices when reporting U&C prices to the PBMs. Moreover, Plaintiffs
1
All docket entries refer to the docket in C.A. No. 16-046.
Defendants make much of the term “health plans” as overly
vague, but Plaintiffs clarify that it is used as a synonym for
“third-party payor” – “namely, any entity (other than the patient
or health care provider) that reimburses the patient’s health care
expenses (e.g., pharmaceutical purchases).” Pls.’ Reply 18. In
this opinion, “TPPs” and “health plans” are used interchangeably.
2
Express Scripts purchased MedCo in 2012. FAC ¶¶ 12, 111.
During the life of the HSP Program, Indiana Carpenters’ PBM was
MedCo. Id. ¶ 12.
3
2
claim that CVS and the PBMs conspired to conceal from the TPPs
that the HSP prices were not included in its U&C prices.
In addition, Caremark moves to dismiss Sheet Metal Workers’
claims against Caremark, on the basis that the parties have agreed
to arbitrate any disputes between them.
See generally Mem. in
Supp. of Caremark LLC’s Mot. under the FAA to Dismiss the Claims
of Sheet Metal Workers (“Caremark Mot. to Dismiss”) 1, ECF No.
163-1.
For the reasons that follow, Plaintiffs’ Motion for Class
Certification, ECF No. 120, is GRANTED, and Caremark’s Motion to
Dismiss, ECF No. 163, is also GRANTED.
The Court DENIES WITHOUT
PREJUDICE Plaintiffs’ Motions to Exclude the Expert Testimony of
Catherine Graeff, Michael P. Salve, Ph.D., and Brett E. Barlag,
ECF Nos. 140-42.
I.
Background 4
Retail
drugs
to
pharmacy
two
groups
chains
of
generally
consumers:
sell
their
prescription
those
with
prescription
insurance, and those without insurance, also referred to as cash
payors.
percent
FAC ¶ 29.
of
CVS’s
Customers with insurance make up well over 90
prescription
drug
business,
and
their
prescription purchases are processed and paid for (in part or in
The Court gleans the background from Plaintiffs’ First
Amended Complaint. See generally First Am. Compl. (“FAC”), ECF
No. 81-1.
4
3
full)
by
health
third-party
plans,
including
administrators,
health
health
insurance
maintenance
companies,
organizations,
self-funding health and welfare benefit plans, health plans, and
other health benefit providers (collectively referred to herein as
“health plans” or “TPPs”).
Id.
Pharmacies, including CVS, report the prices they charge cash
customers, known as the “Usual and Customary” or “U&C” price, to
PBMs and TPPs to comply with the National Council for Prescription
Drug Program’s (“NCPDP”) requirements.
Id. ¶¶ 1, 33-35.
This
arrangement (and the contracts between CVS and the PBMs), in part,
guarantees that TPPs and insured consumers do not pay more for a
prescription drug than an uninsured consumer would pay for the
same drug.
Id. ¶ 1.
Pharmacy benefit managers, or PBMs, facilitate transactions
between TPPs and pharmacies.
Id. ¶ 28.
TPPs contract with PBMs
to perform services “including the negotiation of drug prices with
drug
companies,
creation
of
formularies,
management
of
prescription billing, construction of retail pharmacy networks for
insurers, and provision of mail-order services.”
Id.
PBMs set up
how pharmacy claims are adjudicated consistent with instructions
from their TPP clients.
Id. ¶ 36.
Pursuant to PBM/TPP contracts,
TPPs pay their PBMs for generic drugs purchased by their members
based on the “lower of” three benchmark prices:
average wholesale
price (“AWP”) less a defined percentage (i.e., AWP - %); U&C; or
4
Maximum Allowable Cost (“MAC”).
Id. ¶¶ 39-41.
set and published by third parties.
Id. ¶ 40.
A drug’s AWP is
PBMs set the MAC
for each generic drug on their proprietary MAC lists.
Id. ¶ 41.
The U&C is set by the pharmacy and is typically the highest of the
three prices.
Id. ¶ 42.
PBMs also contract with pharmacies to dispense drugs to their
TPP clients.
Id. ¶ 43.
In those contracts, PBMs also typically
agree to pay pharmacies based on benchmark prices, such as AWP,
U&C, and MAC.
Id.
As the middlemen, PBMs make their profit from
charging their TPP clients more for drugs than they pay the
pharmacy for the transactions.
Id.
Thus, PBMs do not disclose
the prices they charge their TPP clients, nor what they pay
pharmacies.
Id.
It was against this backdrop that, in September 2006, “Walmart
turned the world of generic prescription drugs upside-down” by
announcing that it would charge $4 for a 30-day supply, and $10
for a 90-day supply, of hundreds of generic prescription drugs.
Id. ¶¶ 2, 52.
Target, Walgreens, Rite Aid, and other retailers
with pharmacies followed suit.
Id. ¶ 52.
Walmart and Target
(until CVS acquired Target pharmacies in 2015) reported $4 as their
U&C prices.
required
Id.
Tweaking the model a bit, Walgreens and Rite Aid
customers
to
“join”
programs to reap the benefits.
their
generic
Id. ¶ 57.
5
prescription
drug
Plaintiffs allege that CVS joined with Caremark (and later
ScriptSave), a fellow subsidiary of CVS Health Corporation, to
sketch out a discount generic drug program that shielded CVS from
reporting the discount price as its U&C to PBMs.
71-83.
Id. ¶¶ 56-57,
In March 2008, prior to launching the HSP program, CVS and
Caremark analyzed how adopting a generic discount program would
impact CVS’s revenue from TPPs.
Id. ¶ 59.
An analyst at CVS
determined that the impact to TPP revenue would be $866 million
annually if CVS included all the drugs on the Walmart list, and,
if CVS included all the drugs on the Walgreens list, the impact
would be an additional $329 million.
Id.
As a result, CVS
structured its HSP differently, citing concerns that “[m]aking the
program ‘too attractive’ creates higher risk for our 3rd party
plan pricing and profitability.”
Id. ¶ 61 (quoting CVSSM-0002427,
at 2430 (May 8, 2008 presentation given to Larry Merlo, as edited
by Bari A. Harlam at Caremark)).
Unlike Walmart and Walgreens,
CVS decided to charge consumers a $10 annual fee to join the
program.
Id. ¶ 65.
Plaintiffs allege that, in addition to
collaborating with Caremark, CVS also “enlisted the participation
of” three of the largest PBMs in the country, Express Scripts,
OptumRx, and MedImpact, to embark on a scheme to conceal from
health plans its HSP drug prices when reporting U&C prices.
¶ 3.
6
Id.
In November 2008, the HSP program went live.
Id. ¶ 64.
From
November 9, 2008 through 2010, customers paid a $10 annual fee to
join the program, which gave them access to a 90-day supply of 400
commonly
prescribed
generic
drugs
for
$9.99.
Id.
¶¶
64-65.
Starting in 2011, the annual fee went up to $15, and CVS raised
the price for HSP-listed drugs to $11.99 for a 90-day supply and
$3.99 for a 30-day supply.
Id. ¶ 65.
From November 2008 to
February 2016, CVS did not report the HSP price as the U&C price
for HSP-eligible drugs.
Id. ¶ 66.
Caremark administered the HSP
program from its inception until July 2013, when ScriptSave took
over its administration; the program was discontinued on January
31, 2016.
saga:
Id. ¶¶ 23, 70, 83.
Caremark played a dual rule in this
in addition to administering the HSP program, many TPPs
used Caremark as a PBM.
Id. ¶ 3.
Importantly, PBMs have incentive to encourage or conceal
inflated U&C prices – PBMs make more money when U&C prices are
higher.
Id. ¶ 47.
When a PBM pays a pharmacy the U&C price for
a generic drug transaction, the TPP also pays the U&C price to the
PBM.
Under those circumstances, the PBM makes no profit or
“spread” between what it pays the pharmacy and what the TPP pays
the PBM.
Id. ¶ 49.
During the HSP program, CVS’s HSP prices were
often lower than the price a TPP would have paid under a formula
using AWP or MAC as the benchmark price.
Id. ¶ 50.
Therefore, if
CVS had reported its HSP prices as U&C prices, the U&C price
7
generally would have been the lowest benchmark price.
Id.
Thus,
PBMs stood to lose “hundreds of millions of dollars in ‘spread’
opportunities” were HSP prices to be reported as U&C prices.
Id.
Plaintiffs allege that, for this reason, Caremark, Express
Scripts, OptumRx, and MedImpact not only failed to intervene and
prevent CVS’s alleged fraudulent scheme, but concealed it “by
adopting ‘policies’ that contradicted the language of their own
contracts and provider manuals . . . .”
in
its
role
as
a
PBM,
Caremark
Id. ¶ 51.
instituted
Specifically,
a
policy
that
differentiated between Walmart’s $4 generic program and “Club
Plans” – like the HSP program – that required consumers to join
and pay a membership fee.
Id. ¶ 4.
Under this policy, generic
programs without membership fees were required to report their
plan prices as U&C prices, and “Club Plans” were not. Id. Caremark
did not disclose this policy to its TPP clients, other than those
members of its Client Advisory Board.
As a result, Plaintiffs
allege, CVS and Caremark – both as HSP administrator and PBM –
concealed from TPPs that CVS was not reporting HSP prices as U&C
prices for HSP-eligible drugs.
II.
Id. ¶¶ 3-5.
Discussion
A.
Defendant Caremark’s Motion to Dismiss Sheet Metal
Workers’ Claims under the Federal Arbitration Act
Caremark moves to dismiss Sheet Metal Workers’ claims under
the Federal Arbitration Act (“FAA”), arguing that the operative
8
agreements
between
arbitration clauses.
Caremark
and
Sheet
Metal
Workers
include
See generally Caremark Mot. to Dismiss 1.
Caremark argues that Sheet Metal Workers violated the parties’ 5
agreements by initiating this suit against Caremark and by refusing
to engage in dispute-resolution negotiations.
See id.
Caremark
highlights that, under the parties’ dispute-resolution provisions,
Sheet Metal Workers agreed to do the following in advance of
litigation:
(1) give notice of any dispute; (2) designate a
dispute-resolution representative; (3) negotiate in good faith to
resolve the dispute; and (4) submit to binding arbitration in Cook
County, Illinois if negotiations did not resolve the dispute in 90
days.
Id.
On a motion to dismiss in favor of arbitration, a court
considers “whether a valid arbitration clause exists, whether the
movant is entitled to invoke the clause, whether the non-moving
party is bound by it, and whether the clause covers the claims
asserted.”
FPE Found. v. Cohen, 801 F.3d 25, 29 (1st Cir. 2015)
(citing Soto–Fonalledas
v.
Ritz–Carlton
San
Casino, 640 F.3d 471, 474 (1st Cir. 2011)).
Juan
Hotel
Spa
&
A court may then
consider whether a party has waived the right to arbitrate.
Id.
Here, Sheet Metal Workers argues only that Caremark has forfeited
its arbitration rights by sitting on its hands, and that not all
In this section, “parties” refers only to Plaintiff Sheet
Metal Workers and Defendant Caremark.
5
9
claims asserted fall within the relevant arbitration provisions.
See Resp. in Opp’n to Def. Caremark’s Mot. for Leave to File Mot.
under the FAA to Dismiss the Claims of Sheet Metal Workers (“Pls.’
Opp’n to Mot. to Dismiss”) 5, ECF No. 132; Sheet Metal Workers
Sur-Reply in Opp’n to Def. Caremark’s Mot. For Leave to File Mot.
Under FAA to Dismiss (“Sheet Metal Workers Sur-Reply”) 8-9, ECF
No. 164.
But before the Court can pass on whether Caremark waived its
right to arbitration, the Court must first address a threshold
issue: whether the Court or an arbitrator should decide whether
Caremark forfeited its right to arbitrate through litigationconduct waiver. 6
1.
Who Decides Litigation-Conduct Waiver?
Caremark argues that whether it waived its right to arbitrate
under the relevant contracts is an issue of arbitrability for an
arbitrator, not the Court, to decide. Reply in Supp. of Caremark’s
Caremark argues that Illinois law, not federal law, applies
to this dispute. Caremark Reply 8-9. While the Court need not
reach the issue, the First Circuit has signaled that litigationconduct waiver is an issue of federal law. See Rankin v. Allstate
Ins. Co., 336 F.3d 8, 12 n.3 (1st Cir. 2003) (noting that, while
not argued, “arbitration-related issues in this case are probably
governed by the” FAA and, if so, “federal law would automatically
govern waiver issues” (citation omitted)). Under either body of
law, the result here is the same. See LRN Holding, Inc. v. Windlake
Capital Advisors, LLC, 949 N.E.2d 264, 270–72 (Ill. App. 3d Dist.
2011) (noting that, under Illinois law, where a contract contains
a
choice-of-law
provision
and
incorporates
the
American
Arbitration Association rules of arbitration, federal law applies
to questions regarding arbitration).
6
10
Mot. for Leave to File Mot. under the FAA to Dismiss the Claims of
Sheet Metal Workers (“Caremark Reply”) 1, ECF No. 135.
This is
because, Caremark says, the contracts at issue here incorporate
the
commercial
(“AAA”),
which
arbitrator.
rules
of
the
delegate
the
American
issue
Arbitration
of
Association
arbitrability
to
an
Id. at 4-5 (citing Prescription Benefit Services
Agreement ¶ 13.16 (Jan. 1, 2015) (“PBSA”), ECF No. 131-32).
In Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 14-15 (1st
Cir. 2005), the First Circuit held that, even where a contract
provides that an arbitrator shall decide issues of arbitrability,
“waiver by conduct, at least where due to litigation-related
activity, is presumptively an issue for the court.”
Applying this
rule, courts in this Circuit have decided issues of litigationconduct waiver, distinct from issues of arbitrability.
See, e.g.,
In re Intuniv Antitrust Litig., No. 1:16-CV-12653-ADB, 2021 WL
517386, at *8 (D. Mass. Feb. 11, 2021) (citing Christensen v.
Barclays Bank Del., No. 18-cv-12280, 2019 WL 1921710, at *5 (D.
Mass. Apr. 30, 2019); Binienda v. Atwells Realty Corp., No. 15cv-00253, 2018 WL 1271443, at *2-3 (D.R.I. Mar. 9, 2018); Cutler
Assocs., Inc. v. Palace Constr., LLC, 132 F. Supp. 3d 191, 199–
200 (D. Mass. 2015)).
Caremark contends that after the Supreme Court’s decisions in
BG Group, PLC v. Republic of Argentina, 572 U.S. 25 (2014), and
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524
11
(2019), Marie is no longer good law, and issues of litigationconduct waiver are now consigned to an arbitrator.
3.
Caremark Reply
This argument gets no traction.
In BG Group, the Supreme Court recognized that “courts presume
that the parties intend arbitrators, not courts, to decide disputes
about
the
meaning
preconditions
for
(citation omitted).
and
the
application
use
of
of
particular
arbitration.”
572
procedural
U.S.
at
34
“These procedural matters include claims of
‘waiver, delay, or a like defense to arbitrability.’”
Id. at 35
(quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460
U.S. 1, 25 (1983)). This Court previously considered, in Binienda,
2018 WL 1271443, at *2-3, whether BG Group displaced the reasoning
in Marie, and concluded that it did not.
In
BG
Group,
the
Supreme
Court
emphasized
that
parties
typically expect a forum-based decisionmaker to decide forumspecific procedural gateway matters, including “the satisfaction
of ‘prerequisites such as time limits, notice, laches, estoppel,
and other conditions precedent to an obligation to arbitrate.’”
572 U.S. at 34-35 (quoting Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79, 84 (2002)).
Group,
does
not
include
Thus, “waiver”, as contemplated in BG
“litigation-conduct
Binienda, 2018 WL 1271443, *2.
waiver”.
See
As it did in Binienda, this Court
concludes that “[n]othing in BG Group undercuts the holding in
Marie, that the Supreme Court did not intend to alter [the]
12
traditional
rule
that
courts
litigation-conduct waiver.”
presumptively
decide
issues
of
Id. (citation omitted); see also
Rankin v. Allstate Ins. Co., 336 F.3d 8, 12 (1st Cir. 2003) (predating BG Group, but emphasizing that “an arbitration provision
has to be invoked in a timely manner or the option is lost” and,
“[u]nder federal law, such a forfeiture is an issue for the judge”
(citations omitted)).
Nor does Henry Schein come to Caremark’s aid.
In Henry
Schein, the Supreme Court held that when a contract delegates
arbitrability to an arbitrator, courts must give full meaning to
that
delegation
arbitrability.
and
refrain
from
139 S. Ct. at 529.
passing
on
any
issues
of
Here, in contrast, whether
Caremark waived its right to arbitrate through litigation conduct
in this judicial forum is a distinct issue from the underlying
arbitrability of the dispute.
See In re Intuniv Antitrust Litig.,
2021 WL 517386, at *8 (concluding that the Supreme Court’s decision
in Henry Schein did not upset Marie’s holding); see also Sabatelli
v. Baylor Scott & White Health, 832 F. App’x 843, 848 n.3 (5th
Cir. 2020) (noting that litigation-conduct waiver “is an issue for
the court, rather than the arbitrator, to decide . . . because it
‘implicates courts’ authority to control judicial procedures or to
resolve issues . . . arising from judicial conduct’” (quoting Vine
v. PLS Fin. Srvs., Inc., 689 F. App’x 800, 802–03 (5th Cir. 2017));
13
Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207, 219 (3d Cir.
2007). 7
The Court therefore concludes that litigation-conduct waiver
is presumptively an issue for the Court, not an arbitrator, to
decide.
2.
Litigation-Conduct Waiver
Next, Caremark argues that it has not waived its right to
arbitrate Sheet Metal Workers’ claims through its participation in
this litigation.
Caremark Reply 8-15.
Generally, a party may
waive its right to arbitration explicitly or through its conduct.
FPE Found., 801 F.3d at 29.
Under federal law, when deciding
whether a litigant has waived its right to compel arbitration
through litigation conduct, a court must consider several factors:
(1) whether the parties participated in a lawsuit or
took other action inconsistent with arbitration; (2)
whether the litigation machinery has been substantially
invoked and the parties [are] well into preparation of
a lawsuit by the time an intention to arbitrate [is]
communicated; (3) whether there has been a long delay
Caremark further highlights that the current version of the
AAA’s Commercial Rules states that “[n]o judicial proceeding by a
party relating to the subject matter of the arbitration shall be
deemed a waiver of the party’s right to arbitrate.” Caremark Reply
5
(quoting
American
Arbitration
Association,
Commercial
Arbitration Rules and Mediation Procedures, Rule 52(a) (2013)).
However, the AAA’s Commercial Rules contained this same language
when the First Circuit decided Marie, and thus, this argument is
not persuasive.
See In re Intuniv Antitrust Litig., 2021 WL
517386, at *8. Moreover, one could interpret the text “judicial
proceeding by a party” as denoting that a plaintiff does not waive
its right to arbitrate by filing suit. But in any event, the Rules
only govern arbitration, they have no bearing on the Court’s
determinations.
7
14
and trial is near at hand; (4) whether the party seeking
to compel arbitration has invoked the jurisdiction of
the court by filing a counterclaim; (5) whether
discovery not available in arbitration has occurred;
and, (6) whether the party asserting waiver has suffered
prejudice.
Id. (citation and quotation omitted) (alterations in original).
In weighing the factors, no one factor carries the day, but rather,
“each case is to be judged on its particular facts.”
Tyco Int’l
Ltd. v. Swartz (In re Tyco Int’l Ltd. Sec. Litig.), 422 F.3d 41,
46 (1st Cir. 2005) (citation omitted).
“‘[W]aiver is not to be
lightly inferred,’ thus reasonable doubts as to whether a party
has waived the right to arbitrate should be resolved in favor of
arbitration.”
Id. at 44 (quoting Restoration Pres. Masonry, Inc.
v. Grove Eur. Ltd., 325 F.3d 54, 61 (1st Cir. 2003)).
Here, the
question is whether Caremark invoked its arbitration right in a
timely manner consistent with its desire to arbitrate.
See id.
While Plaintiffs initiated this suit against CVS in 2016,
they did not seek leave to amend their Complaint to add Caremark
as a defendant until June 5, 2017.
File First Am. Compl., ECF No. 56.
See Pls.’ Mot. for Leave to
After being granted that leave,
on May 4, 2018, Plaintiffs filed the First Amended Complaint,
naming Caremark as a defendant.
FAC, ECF No. 81-1.
Caremark
answered on July 3, 2018, asserting that “putative class members
and at least one Plaintiff have agreed to, and failed to comply
15
with,
dispute
resolution
procedures
for
their
claims . . . .”
Caremark L.L.C.’s Answer to FAC ¶ 29, ECF No. 90.
On October 31, 2018, Caremark began the dispute-resolution
process and sent Sheet Metal Workers a Dispute Notice requesting
a response within ninety days in accordance with the arbitration
clause.
See Caremark Dispute Resolution Ltr 1, ECF No. 129-79.
In that letter, Caremark designated a representative and requested
that Sheet Metal Workers do the same.
Id. at 1-2.
Sheet Metal
Workers responded on January 22, 2019, declining to participate in
the dispute resolution process and asserting that Caremark had
forfeited its right to compel that process.
Sheet Metal Worker
Dispute Resolution Ltr 1-2, ECF No. 129-80.
Caremark responded,
denying Sheet Metal Workers’ forfeiture argument, on January 26,
2019.
Caremark Dispute Resolution Ltr, ECF No. 129-81.
The 90-
day period expired on January 29, 2019, and Sheet Metal Workers
did not respond to Caremark’s final letter.
Dismiss 3.
See Caremark Mot. to
Plaintiffs filed their Motion for Class Certification
on April 29, 2019, and on July 17, 2019, Caremark filed its Motion
for Leave to File Motion under the FAA to Dismiss the Claims of
Sheet Metal Workers, ECF No. 127.
The upshot is that Caremark was added as a defendant on May
4, 2018, engaged in the dispute-resolution process from October
31, 2018 to January 29, 2019, and sought dismissal based on
16
arbitration on July 17, 2019. 8
While the down time before and
after the dispute resolution process (May to October 2018, and
January to July 2019) remains somewhat unexplained, it was not
particularly long.
Caremark’s
Importantly, prior to its filing this Motion,
litigation-related
activity
vis-à-vis
Sheet
Workers was limited to responding to discovery requests.
Reply 12.
Metal
Caremark
Caremark further filed its Motion to Dismiss prior to
any summary judgment deadline and well in advance of (a yet-tobe-scheduled) trial.
Id. at 13.
Thus, turning to the six factors the Court must consider, the
first five factors lean in Caremark’s favor.
During the period of
delay, Caremark and Sheet Metal Workers participated very little
in the lawsuit, no substantive motions were litigated, trial was
still far off, Caremark filed no counterclaims against Sheet Metal
Workers, and Sheet Metal Workers does not claim that Caremark
secured discovery that is unavailable in arbitration. 9
See FPE
While Caremark makes much of putting Sheet Metal Workers on
notice of its intent to arbitrate by asserting it as an affirmative
defense, this Motion is the first time Caremark properly asserted
its right. See In re Citigroup, Inc., 376 F.3d 23, 27 (1st Cir.
2004) (noting that it is not sufficient to assert in an answer the
right to arbitrate as an affirmative defense).
8
The Court does understand Sheet Metal Workers to argue that
CVS conducted discovery that would not have been available at
arbitration and that CVS and Caremark have the same attorneys.
See Feb. 27, 2020 Hr’g Tr. 123-24, ECF No. 170. While the Court
is sympathetic to the realities of this situation, it is not
confident that Sheet Metal Workers would have found itself in any
different of a position had Caremark asserted its arbitration right
9
17
Found., 801 F.3d at 29.
Notably, Caremark did not, for instance,
file counterclaims against Sheet Metal Workers, serve discovery
requests on Sheet Metal Workers, file motions against Sheet Metal
Workers, or seek adjudication of any arbitrable issue involving
Sheet Metal Workers.
Caremark Reply 12.
Caremark further filed
its Motion to Dismiss well in advance of any trial date, and before
any other substantive deadlines, aside from class certification.
See FPE Found., 801 F.3d at 29; see also Creative Sols. Grp., Inc.
v. Pentzer Corp., 252 F.3d 28, 33-34 (1st Cir. 2001) (holding that
the right to arbitrate had not been waived where party moving to
compel arbitration had not invoked formal discovery).
On the last of the six factors, Sheet Metal Workers contends
that it has been prejudiced by Caremark’s dilatory effort to move
for arbitration.
In particular, it argues that if it is sent to
arbitration now, Sheet Metal Workers will be prejudiced by the
need
to
litigate
potential
defenses
related
to
statutes
of
limitations and laches (even assuming that the defenses eventually
fail).
Moreover, it contends that Caremark may argue that its
claims are barred for failure to comply with the dispute-resolution
procedures.
Pls.’ Opp’n to Mot. to Dismiss 6-7.
However, the
only relevant prejudice is that which is a product of a defendant’s
failure to timely invoke the arbitration procedure, not a product
earlier. Presumably CVS and Sheet Metal Workers would have engaged
in that same discovery.
18
of arbitration itself.
(1st Cir. 2004)).
that
it
may
See In re Citigroup, Inc., 376 F.3d 23, 26
For that reason, Sheet Metal Workers’ claims
face
new
defenses
in
arbitration
(statute
of
limitations, laches, and failure to comply with dispute-resolution
procedures)
fail
because
Caremark
affirmative defenses in its Answer.
already
has
alleged
those
Caremark Reply 14.
Sheet Metal Workers further argues that it is prejudiced
because it did not have the opportunity to add a substitute named
plaintiff without an arbitration clause in its relevant agreement;
this argument, however, also fails as it is not the product of any
alleged delay.
Moreover, named Plaintiffs and the putative class
suffer no prejudice because, as discussed below, the Court is not
persuaded that the absence of a named plaintiff that contracted
with a specific PBM advances Defendants’ typicality argument.
Having
considered
all
the
relevant
factors,
the
Court
concludes that Caremark has not waived its right to arbitration
through its litigation conduct.
3.
See FPE Found., 801 F.3d at 29.
Claims Subject to Arbitration
Sheet Metal Workers further argues that, even if the Court
finds no litigation-conduct waiver, Caremark is still not entitled
to arbitrate all of Sheet Metal Workers’ claims.
Sheet Metal
Workers highlights that the contracts containing the arbitration
clause do not cover the entire class period – they are dated
January 1, 2011 and January 1, 2015.
19
Sheet Metal Workers Sur-
Reply 9.
Sheet Metal Workers thus argues that Caremark has no
right
arbitrate
to
claims
arising
prior
to
January
1,
2011.
Further, Sheet Metal contends that it is unclear whether the
parties entered into the January 11, 2011 agreement.
Id.
In pertinent part, the dispute resolution provision in the
January 1, 2015 contract provides:
Dispute Resolution. In the event of a dispute between
the parties and prior to commencing any litigation or
other legal proceeding, each party shall, by giving
written notice to the other party (“Dispute Notice”),
request a meeting of authorized representatives of the
parties for the purpose of resolving the dispute.
PBSA ¶ 13.16; see also id. ¶ 13.12 (providing that the dispute
resolution clause survives termination of the agreement).
this
dispute-resolution
provision
requires
the
Whether
parties
to
arbitrate disputes arising out of contracts entered prior to or
after the January 1, 2015 contract is an issue of arbitrability.
The parties have delegated the issues relating to arbitrability to
an arbitrator, see PBSA ¶ 13.16 (incorporating the AAA rules), and
therefore, these arbitrability questions must be decided by an
arbitrator.
See Henry Schein, Inc. v. Archer and White Sales,
Inc., 139 S. Ct. 524, 529 (2019) (holding that, where “the parties’
contract delegates the arbitrability question to an arbitrator, a
court may not override the contract”, even where “the argument
20
that the arbitration agreement applies to a particular dispute is
wholly groundless”).
In conclusion, because Caremark has not waived its right to
arbitrate Sheet Metal Workers’ claims against it through its
conduct in this litigation, the Court GRANTS Caremark’s Motion to
Dismiss. 10
B.
Plaintiffs’ Motion for Class Certification
Plaintiffs
Sheet
Metal
Workers,
Indiana
Carpenters,
and
Plumbers now move to certify the following classes under Rule 23(a)
and (b)(3) of the Federal Rules of Civil Procedure:
Nationwide Class. All health plans that, at any time
between November 2008 and February 1, 2016, (1) had
Caremark, L.L.C., Express Scripts, Medco, OptumRx, or
MedImpact (or any of their predecessors) as their
pharmacy benefit managers, (2) paid for generic
prescription drugs purchased from CVS that were included
in CVS’s Health Savings Pass program, and (3) paid for
those drugs based on a formula containing Usual and
Customary price.
Unjust Enrichment Class. All health plans that, at any
time between November 2008 and February 1, 2016, (1) had
Caremark, L.L.C., Express Scripts, Medco, OptumRx, or
MedImpact (or any of their predecessors) as their
pharmacy benefit managers, (2) paid for generic
prescription drugs purchased from CVS that were included
in CVS’s Health Savings Pass program in Arkansas,
Colorado, Connecticut, District of Columbia, Hawaii,
Illinois, Indiana, Iowa, Missouri, New Mexico, New York,
Neither party argues that a stay, rather than dismissal,
is the more appropriate remedy. See Dialysis Access Ctr., LLC v.
RMS Lifeline, Inc., 638 F.3d 367, 372 (1st Cir. 2011) (noting that
a district court has the discretion to dismiss claims where one
party has a right to arbitrate all claims (citing Next Step Med.
Co. v. Johnson & Johnson Int’l, 619 F.3d 67, 71 (1st Cir. 2010))).
10
21
Oklahoma, and West Virginia, and (3) paid for those drugs
based on a formula containing Usual and Customary price.
Unfair and Deceptive Conduct Consumer Protection Class.
All health plans that, at any time between November 2008
and February 1, 2016, (1) had Caremark, L.L.C., Express
Scripts, Medco, OptumRx, or MedImpact (or any of their
predecessors) as their pharmacy benefit managers, (2)
paid for generic prescription drugs purchased from CVS
that were included in CVS’s Health Savings Pass program
in California, Florida, Illinois, Iowa, Massachusetts,
New Jersey, New York, Ohio, and Washington, and (3) paid
for those drugs based on a formula containing Usual and
Customary price.
Omissions Consumer Protection Class. All health plans
that, at any time between November 2008 and February 1,
2016, (1) had Caremark, L.L.C., Express Scripts, Medco,
OptumRx, or MedImpact (or any of their predecessors) as
their pharmacy benefit managers, (2) paid for generic
prescription drugs purchased from CVS that were included
in CVS’s Health Savings Pass program in Illinois,
Michigan, Nevada, and New Jersey, and (3) paid for those
drugs based on a formula containing Usual and Customary
price.
Pls.’ Reply 3-4.
Plaintiffs
have
proposed classes:
excluded
the
following
payors
from
the
(1) any governmental payors, including Medicare
and Medicaid; (2) any health plans that served on Caremark’s Client
Advisory Committee since January 1, 2008; (3) any health plans
that have had parent, subsidiary, or affiliate relationships with
any pharmacy benefit manager at any time since January 1, 2008;
and (4) health plans making payments processed by OptumRx after
January 29, 2015.
They further exclude:
(1) CVS, and its
management, employees, subsidiaries, and affiliates; and (2) CVS
22
Caremark and its officers and directors.
See id. (amending the
class definition).
1.
Legal Standard
In ruling on a motion for class certification, the Court must
“undertake
a
‘rigorous
analysis’”
to
determine
whether
the
putative class satisfies each of the four prerequisites set forth
in Rule 23(a) of the Federal Rules of Civil Procedure: numerosity,
commonality, typicality, and adequacy of representation.
In re
Nexium Antitrust Litig., 777 F.3d 9, 17-18 (1st Cir. 2015) (quoting
Comcast Corp. v. Behrend, 569 U.S. 27, 33 (2013)).
In addition to
the Rule 23(a) prerequisites, to be certified, a putative class
must demonstrate that it satisfies one of the requirements set
forth in Rule 23(b).
Here, Plaintiffs contend that they have
satisfied Rule 23(b)(3), that is, that “the questions of law or
fact
common
to
class
members
predominate
over
any
questions
affecting only individual members, and that a class action is
superior to other available methods for fairly and efficiently
adjudicating the controversy.”
Fed. R. Civ. P. 23(b)(3).
The Supreme Court has cautioned that Rule 23 “does not set
forth a mere pleading standard” but rather, a plaintiff “must
affirmatively
demonstrate
[its]
compliance
with”
the
Rule.
Comcast, 569 U.S. at 33 (quoting Wal–Mart Stores, Inc. v. Dukes,
564 U.S. 338, 350 (2011)).
This inquiry “frequently . . .
23
‘overlap[s] with the merits of the plaintiff’s underlying claim.’”
Id. at 33-34 (quoting Dukes, 564 U.S. at 351).
Here, Plaintiffs argue that each of the prerequisites of Rule
23 has been met and that the Court should certify the proposed
classes accordingly.
Defendants disagree, of course, arguing that
Plaintiffs fail to satisfy the requirements of Rule 23, and thus,
class certification is not appropriate.
Specifically, Defendants
argue that the named class representatives do not satisfy the
typicality and adequacy requirements, the proposed classes are not
ascertainable, and Plaintiffs have failed to demonstrate that
issues common to the classes predominate over individual issues,
as required by Rule 23(b)(3).
2.
Numerosity and Commonality
To be certified under Rule 23, the members of a class must be
“so numerous that joinder of all members is impracticable.”
R. Civ. P. 23(a)(1).
Fed.
As a general rule, if the named plaintiffs
demonstrate “that the potential number of plaintiffs exceeds 40,
the first prong of Rule 23(a) has been met.”
García-Rubiera v.
Calderón, 570 F.3d 443, 460 (1st Cir. 2009) (quoting Stewart v.
Abraham, 275 F.3d 220, 226-27 (3d Cir. 2001)). The Court concludes
that the proposed class – comprising hundreds if not thousands of
TPPs – is too numerous to render joinder practical, and thus
numerosity is established.
24
Rule 23(a)(2) requires “questions of law or fact common to
the class.”
A common question is one that is “capable of classwide
resolution – which means that determination of its truth or falsity
will resolve an issue that is central to the validity of each one
of the claims in one stroke.”
Dukes, 564 U.S. at 350.
single [common] question will do[.]”
omitted).
“[E]ven a
Id. at 359 (quotations
The Court is satisfied that a common question exists
regarding whether Defendants engaged in a scheme to defraud TPPs
by failing to report HSP prices as U&C prices, and accordingly,
the commonality prerequisite is also met.
3.
Typicality and Adequacy of Representation
For a class to be certified under Rule 23, the proposed class
representatives
must
demonstrate
that
they
“will
fairly
and
adequately protect the interests of the class[,]” Fed. R. Civ. P.
23(a)(4), and the “claims or defenses of the representative parties
are typical of the claims or defenses of the class[.]”
Fed. R.
Civ. P. 23(a)(3).
Named Plaintiffs assert that their claims are typical of the
claims of class members because they allege a singular fraudulent
scheme:
that CVS overcharged class members for drugs by not
reporting HSP prices as the drugs’ U&C prices.
Pls.’ Reply 9.
Moreover,
are
named
Plaintiffs
assert
they
adequate
representatives with knowledge of the claims and no conflicts.
Id. at 11-14.
25
Defendants counter that named Plaintiffs are neither typical
of
the
proposed
putative
class
classes.
Plaintiffs
with
nor
Specifically,
cannot
contracted
members
adequately
PBMs
with
adequate
Defendants
represent
whom
named
to
represent the
argue
health
that
named
plans
that
Plaintiffs
had
no
relationship; named Plaintiffs are subject to additional unique
defenses; they lack familiarity with the basic elements of their
claims; and they had actual knowledge of the alleged scheme.
Mem.
in Supp. of Defs.’ Obj. to Pls.’ Mot. for Class Certification
(“Defs.’ Opp’n”) 58-64, ECF No. 133.
OptumRx and MedImpact.
of
the
named
Plaintiffs
Defendants contend that because none
contracted
with
the
PBMs
OptumRx
or
MedImpact, they are not suitable to represent putative class
members who did.
Defs.’ Opp’n 6; see also Defs.’ Sur-Reply in
Opp’n to Pls.’ Mot. for Class Certification (“Defs.’ Sur-Reply”)
22, ECF No. 166-1. 11
Defendants insist that named Plaintiffs have
no incentive to develop or present evidence that the specific
language about U&C pricing in OptumRx’s and MedImpact’s contracts
support the absent class members’ claims.
These arguments ring hollow.
Defs.’ Opp’n 60-61.
Named Plaintiffs, represented by a
reputable, national plaintiffs-side firm, have every incentive to
Defendants also advance this argument as to Caremark in
pressing its Motion to Dismiss. See Feb. 27, 2020 Hr’g Tr. 110:20111:2, ECF No. 170. The argument fails for the same reasons it
fails as to OptumRx and MedImpact.
11
26
develop the claims of those health plans that did contract with
OptumRx and MedImpact in order to establish the strongest trial
and/or settlement position as a class.
See, e.g., In re Loestrin
24 Fe Antitrust Litig., No. 1:13-MD-2472, 2019 WL 3214257, at *12
(D.R.I. July 2, 2019) (noting that the plaintiffs, represented by
the same law firm as the TPPs here, were “in blunt, strategic
terms” motivated to pursue the full extent of absent class members’
claims “[b]ecause the bigger the claim, the bigger the leverage on
[the defendants] and hopefully the bigger the settlement”).
Moreover, Defendants’ theory of the case on the merits is
that “all of the U&C definitions should be interpreted, in light
of the uniform industry understanding, to mean that membership
program prices like HSP are not U&C prices.”
Defs.’ Opp’n 30.
This focus on industry understanding provides ample motivation for
named
Plaintiffs
to
pursue
evidence
regarding
MedImpact, as well as all PBMs more generally.
OptumRx
and
Thus, the Court is
confident that the named Plaintiffs have the incentive to address
contract language or other evidence unique to health plans that
contracted with these two PBMs.
Any purported conflict arising
from different U&C contract terms is merely speculative.
See
Matamoros v. Starbucks Corp., 699 F.3d 129, 138 (1st Cir. 2012)
(holding that only fundamental conflicts that “go to the heart of
the litigation prevent a plaintiff from meeting the Rule 23(a)(4)
adequacy requirement” (citation and quotation omitted)).
27
Additional Unique Defenses.
Defendants argue that named
Plaintiffs are subject to additional defenses – rendering them
atypical – because they have sued in the name of trusts, rather
than in the name of their trustees.
Defs.’ Opp’n 6.
Whether
named-Plaintiff trusts have the capacity to sue under state law
presents
an
interesting
legal
question
–
but
not
one
that
undermines their ability to serve as adequate and typical class
representatives.
The
trusts
First
are
Amended
“employee
Complaint
welfare
alleges
benefit
that
plan[s]”
named-Plaintiff
and
“employee
benefit plan[s]” as defined in the Employee Retirement Income
Security Act (“ERISA”).
FAC ¶¶ 9, 11, 13.
Named Plaintiffs have
staked out the position that they are not traditional trusts, but
rather
Voluntary
Employees
Beneficiary
Association
Plans
(“VEBAs”), which are welfare benefit plans under Section 501(c)(9)
of the Internal Revenue Code.
See Ltr from E. Fagen to K. Hoover
1 (May 4, 2018), ECF No. 144-12.
aspects
of
ERISA,
retirement plan.”
but
is
not
“A VEBA is subject to some
considered
to
be
a
qualified
Id.
It is not clear at this juncture whether ERISA conveys to
named Plaintiffs, as VEBAs, the capacity to sue as discussed below.
That
said,
were
Defendants
to
convince
the
Court
on
summary
judgment that named Plaintiffs do not have the capacity to sue as
trusts, it would not undermine named Plaintiffs’ ability to serve
28
as adequate and typical class representatives.
those circumstances,
First
Circuit
authority
As a remedy in
favors
directing
plaintiff-trusts to substitute their trustees as plaintiffs, not
dismissal of the claims.
See Yan v. Rewalk Robotics Ltd., 973
F.3d 22, 37 (1st Cir. 2020) (stating that Rule 17 “expressly
anticipates the possibility that a complaint might be brought by
someone who turns out not to be the party in interest” and
“expressly admonishes that ‘[t]he court may not dismiss an action
for failure to prosecute in the name of the real party in interest
until, after an objection, a reasonable time has been allowed for
the real party in interest to ratify, join, or be substituted into
the action’” (quoting Fed. R. Civ. P. 17(a)(3))).
To the extent an employee benefit plan is subject to ERISA,
courts have concluded that ERISA provides it with the capacity to
sue under state law.
See Int’l Union of Bricklayers & Allied
Craftsmen, Local No. 1 of Rhode Island v. Menard & Co. Masonry
Bldg. Contractors, 619 F. Supp. 1457, 1462 (D.R.I. 1985) (Selya,
J.) (construing 29 U.S.C. § 1132(d)(1) as providing employee
benefit plans with the “right . . . to sue and be sued like
corporations
artificial
and
state
other
law
legal
entities,
capacity-to-sue
thereby
barriers
and
eliminating
authorizing
suits brought by funds in situations where there would properly be
jurisdiction” (citing Pressroom Unions-Printers League Income Sec.
Fund v. Cont’l Assurance Co., 700 F.2d 889, 893 (2d Cir. 1983)));
29
see also Local 159, 342, 343 & 444 v. Nor-Cal Plumbing, Inc., 185
F.3d 978, 984 (9th Cir. 1999) (holding that § 1132(d)(1) gives
ERISA plans the capacity to sue where the court otherwise has
jurisdiction); Labul v. XPO Logistics, Inc., No. 3:18-CV-2062
(VLB), 2019 WL 1450271, at *6 (D. Conn. Apr. 2, 2019) (rejecting
a similar challenge to pension funds’ appointment as lead plaintiff
in a class action, holding that the funds had capacity to sue under
§ 1132(d)(1)); 29 U.S.C. § 1132(d)(1) (“An employee benefit plan
may sue or be sued under this subchapter as an entity.”).
The Second Circuit in Pressroom and then-District Judge Selya
in Menard specifically spoke to the capacity of ERISA trusts to
bring state law claims in federal court, noting that
“if a fund became involved in a contract dispute, and
wished to pursue a state law contract claim, § 1132(d)(1)
would allow the fund to bring such an action in its own
name.”
. . .
And, insofar as § 1132(d)(1) does cede to trust funds
capacity to sue as entities in their own behalf, it
satisfies an obvious need. Conferral of entity status
on an [employee benefit plan] eliminates an artificial
impediment to the prosecution of actions by such a fund
. . . and thereby enhances an important purpose of ERISA:
furtherance of the stability and integrity of [employee
benefit plans].
Menard, 619 F. Supp. at 1462 (quoting Pressroom, 700 F.2d at 893).
Thus, to the extent named Plaintiffs are subject to ERISA, they
would have capacity to sue.
Moreover, Rule 17(b)(3)(A) of the
Federal Rules of Civil Procedure provides that an unincorporated
association “may sue or be sued in its common name to enforce a
30
substantive right existing under the United States Constitution or
laws”, and therefore, named Plaintiffs have capacity to pursue
their federal RICO claims.
Fed. R. Civ. P. 17(b)(3)(A)).
For these reasons, Defendants’ capacity-based argument does
not undermine Plaintiffs’ ability to serve as adequate and typical
class representatives.
Class
Representatives’
Elements of their Claims.
Lack
of
Familiarity
with
Basic
Defendants next argue that the named
Plaintiffs are inadequate class representatives because they are
unfamiliar with the basic elements of their claims.
6.
Defendants
say
that,
during
Defs.’ Opp’n
depositions,
the
funds’
representatives did not know basic facts about the suit and could
not speak to the veracity of the allegations.
record
belies
this
argument.
Id. at 64-65.
Plaintiffs’
proposed
The
class
representatives have “the minimal degree of knowledge” necessary
to satisfy the Rule 23 adequacy requirement.
See In re Pharm.
Indus. Average Wholesale Price Litig., 277 F.R.D. 52, 60 (D. Mass.
2011) (“[I]n a complex [pharmaceutical] case such as this, a
plaintiff need not have expert knowledge of all aspects of the
case to qualify as a class representative, and a great deal of
reliance
upon
the
expertise
of
counsel
is
to
be
expected.”
(citation and quotation omitted)); In re Advance Auto Parts, Inc.,
Sec. Litig., No. CV 18-212-RGA, 2020 WL 6544637, at *6 (D. Del.
Nov. 6, 2020) (“It is well-settled that a class representative
31
need only possess a minimal degree of knowledge necessary to meet
the adequacy standard.” (quoting Roofer’s Pension Fund v. Papa,
333 F.R.D. 66, 77 (D.N.J. 2019)).
representative
provided
a
Each named Plaintiffs’ 30(b)(6)
brief
and
broad
overview
of
his
understanding of the case and testified that he relied on the
advice of counsel.
See, e.g., Sheet Metal Workers Trustee Scott
Parks Dep. 40:16-19, ECF No. 144-5 (“My understanding is CVS
Caremark inflated their pricing by not incorporating their drug
program, and it was not factored into the usual and customary
pricing.”); Indiana Carpenters Trustee Michael Joseph Lauer Dep.
141:8-11,
ECF
No.
144-13
(confirming
that
the
representative
understood from the Complaint that Carpenters was “suing CVS in
this case for not reporting its HSP prices as its U&C prices”);
Plumbers
Trustee
(describing
the
Joseph
pending
Ohm
Dep.
claims
as
14:21-25,
ECF
No.
144-14
addressing
“various
retail
generic drug programs offered at the retail level by various
pharmacies”).
Actual Knowledge.
As explained in more detail below, the
Court disagrees that any purported actual knowledge of the HSP
pricing scheme on the part of the named Plaintiffs renders them
inadequate
or
atypical
class
representatives.
The
Court
prepared to manage any such knowledge issues with subclasses.
32
is
For these reasons, the Court concludes that named Plaintiffs
are adequate and typical class representatives for the proposed
classes.
See Fed. R. Civ. P. 23(a)(3) & (a)(4).
4.
Ascertainability
To meet their burden on a motion for class certification,
named Plaintiffs must demonstrate, “by a preponderance of the
evidence, that the class is currently and readily ascertainable
based on objective criteria.”
Carrera
v.
Bayer
Corp.,
727
Nexium, 777 F.3d at 19 (quoting
F.3d
300,
306
(3d
Cir.
2013)).
Defendants argue that the proposed classes in the instant case are
not ascertainable.
a.
Whether Plaintiffs’ Class Definition is Too
Vague
Defendants argue that Plaintiffs have used overly vague terms
to define the proposed classes of “health plans” and the class
exclusions (namely, “governmental payor” and “affiliates”) and
that Plaintiffs have not provided a reliable methodology for
identifying the universe of health plans from electronic claims
data.
Defs.’ Sur-Reply 4; see also Defs.’ Opp’n 3, 26-27.
The
Court disagrees.
The
Court
identifiable
in
is
an
satisfied
that
administratively
the
universe
feasible
of
manner
TPPs
is
through
requests for production to Caremark and subpoenas to third-party
PBMs.
See Pls.’ Reply 16 n.75.
At this juncture, the Court need
33
only be satisfied that Plaintiffs can execute their plan; they do
not need to have the information in hand.
Antitrust
Litig.,
907
determine
whether
a
F.3d
class
42,
58
(1st
certified
for
See In re Asacol
Cir.
2018)
litigation
(“And
to
will
be
manageable, the district court must at the time of certification
offer a reasonable and workable plan . . . .”).
Plaintiffs’ expert, Dr. Rena Conti, 12 has detailed her method
for excluding pharmacy claims paid by government payors, and, in
response to input from Mr. Brett Barlag, Defendants’ expert, she
updated her CVS Condor Codes (i.e., the CVS data field used to
identify the PBM associated with each claim) for identifying and
excluding government payors to be more inclusive.
See Expert
Report of Rena Conti, (“Conti Report”) ¶ 71, ECF No. 123-6; see
also Reply Report of Rena Conti, (“Conti Reply”) ¶ 47, ECF No.
145-2; In re Loestrin 24 FE Antitrust Litigation, 410 F. Supp. 3d
352, 386, 394, 401 (D.R.I. 2019) (approving a similar methodology
for removing governmental payors from the proposed class).
Dr. Conti is an Associate Research Director of Biopharma &
Public Policy for the Boston University Institute for Health System
Innovation & Policy, an Associate Professor at the Boston
University Questrom School of Business, Department of Markets,
Public Policy and Law, and an Academic Affiliate of Greylock
McKinnon Associates. Expert Report of Rena Conti, ¶ 1, ECF No.
123-6. She received a B.A. from Kenyon College and a Ph.D. in
Health Policy (Economics Track) from Harvard University. Id. ¶ 5.
Defendants do not dispute her qualifications to offer expert
opinion. They do, however, offer counter expert opinion.
12
34
Moreover, Dr. Conti has set forth a method for excluding
Caremark’s Client Advisory Committee and those health plans with
affiliate relationships with PBMs once discovery is completed.
See Conti Report 5 n.11; see also Conti Reply ¶ 39 (detailing plans
to exclude Caremark’s Client Advisory Committee once CVS provides
the pertinent data).
It strains credulity for Defendants to
suggest they do not have access to data on their own Client
Advisory Committee and affiliates, and indeed, they have every
incentive to come forward with data on Plaintiffs’ exclusions, as
Mr. Barlag’s expert report plainly demonstrates.
Thus, the Court
is satisfied by a preponderance of the evidence that Plaintiffs
have the tools – and Defendants the motivation to sharpen those
tools
–
to
precisely
identify
class
members
and
apply
class
exclusions.
Plaintiffs have thus established by a preponderance of the
evidence that they can identify the universe of TPPs, as well as
apply
the
class
definition
and
class
exclusions
in
an
administratively feasible way on a class-wide basis.
b.
Identifying TPPs
Pricing Terms 13
that
Contracted
for
U&C
To the extent Plaintiffs assert that (challenged)
testimonial affidavits and declarations from class members may be
used to establish class membership, Pls.’ Reply 15 (citing In re
Dial Complete Mktg. and Sales Practices Litig., 312 F.R.D. 36, 50
(D.N.H. 2015)), they are incorrect. See In re Asacol Antitrust
Litig., 907 F.3d 42, 52-53 (1st Cir. 2018) (rejecting rebutted,
testimonial affidavits as proof of injury at class certification).
13
35
but not other[s] . . . .”
Feb. 27, 2020 Hr’g Tr. 43:16-19.
The
parties forecast that there may be upward of 40,000 TPP contracts.
Id. at 49-50.
Seizing on this, Defendants next argue that there is no
manageable way to identify which health plans or TPPs paid for HSP
drugs based on a formula that incorporates U&C as a pricing metric.
Defs.’
Sur-Reply
1.
Instead,
they
say,
to
determine
class
membership, one would need to review thousands of contracts.
Defs.’ Opp’n 3. To do so, Defendants’ expert, Brett Barlag, states
that “one would likely need to (1) link the individual prescription
transactions
to
the
individual
TPP
associated
with
that
transaction and (2) review the contract between the PBM and that
TPP to determine whether the contract entitled the TPP to U&C
pricing – and, if so, for what time periods.”
Decl. of Brett E.
Barlag (“Barlag Decl.”) ¶ 119, ECF No. 131-1.
Plaintiffs counter that the process doesn’t need to be that
complicated.
They say that class members can be identified from
the PBM/TPP contracts and existing PBM data.
Pls.’ Reply 15-16
(citing Defs.’ Opp’n 3; Conti Reply ¶¶ 10-17); see also Conti Reply
¶ 11 (stating that “PBMs maintain electronic claims data for each
TPP and electronically store generic price algorithms” that could
be used to “identify whether a TPP’s generic pricing algorithm
contained the U&C price as a term”).
Plaintiffs would develop and
deploy a computer program to identify whether a TPP’s generic
37
pricing algorithm contained the U&C price as a term, and if it
did, to determine whether that TPP had paid for any HSP drugs at
CVS during the class periods.
Conti Reply ¶ 11.
According to
Plaintiffs, any TPPs that satisfy these two conditions and do not
fall into a class exclusion are properly included in the putative
classes.
Id.
If their classes are certified, Plaintiffs will
seek the information through requests for production to Caremark
and document subpoenas to the third-party PBMs.
Pls.’ Reply 16
n.75; see also Conti Reply ¶¶ 12-13 (confirming a data field in
the Caremark/Sheet Metal Workers data containing a variable that
can
be
used
to
identify
price
basis
by
which
a
claim
is
adjudicated, such as U&C price); Expert Report of Catherine Graeff
2, ECF No. 129-2 (noting that the NCPDP developed the Universal
Claim Form in 1980 in an effort to standardize pharmacy benefit
claims and that pharmacies and TPPs contract for which data fields
on the UCF shall be filled out for claims adjudication).
As a fallback position, if the PBMs fail to produce the
requisite
data,
Plaintiffs
also
offer
to
review
each
of the
contracts – estimated to number upwards of 40,000 – for lower-of
U&C pricing provisions.
Tr. 19-20.
See Conti Reply ¶ 14; Feb. 27, 2020 Hr’g
Under this method, Plaintiffs would identify PBM/TPP
contracts with the U&C price included in the generic pricing
formula.
Once identified, Plaintiffs would review the PBM claims
data to confirm that the TPP paid for an HSP drug purchased at CVS
38
during the class period.
Conti Reply ¶ 15.
Dr. Conti’s team
reviewed the 450 contracts in its possession from Caremark, Express
Scripts, MedImpact, and OptumRx to test this method, and confirmed
they could determine whether each contract indicated “presumptive
class membership.”
Id. ¶ 16.
After carefully reviewing the expert reports and considering
Plaintiffs’ proposed methodology, the Court is satisfied that
Plaintiffs have demonstrated an administratively feasible method
by which to determine which TPPs were entitled to lower-of U&C
pricing during the class period.
At bottom, whether a health plan
or
proposed
TPP
is
a
member
of
the
class
is
objectively
ascertainable from either documents (i.e., contracts) or datasets.
This
case
is
clearly
distinguishable
from,
for
landmark case of In re Asacol, 907 F.3d at 51-53.
example,
the
In Asacol, class
membership depended on brand loyalty, which was only knowable by
questioning a putative class member. Id. Here, in contrast, class
membership can be determined either from “identify[ing] whether a
TPP’s generic pricing algorithm contained the U&C price as a term,”
Conti
Reply
¶
11,
or
an
objective
contract
review. 15
Thus,
The Court is not convinced that any differences in the
contracts’
U&C
pricing
provisions
render
this
exercise
unmanageable. To the extent the parties need to litigate whether
certain TPPs’ contract language entitled them to U&C pricing,
Defs.’ Opp’n 23 & n.6, this can be done in subclasses.
If
Defendants have actual proof that some contracts are ambiguous
(which the Court understands to not be Defendants’ primary merits
position) the Court will proceed to develop subclasses to litigate
15
39
Plaintiffs’ proffered methodology presents a workable plan to
ascertain class membership from objective criteria.
See Matamoros
v. Starbucks Corp., 699 F.3d 129, 139 (1st Cir. 2012) (“For a class
to be sufficiently defined, the court must be able to resolve the
question of whether class members are included or excluded from
the class by reference to objective criteria.” (quoting 5 James
Wm. Moore et al., Moore’s Federal Practice § 23.21[3][a] (3d ed.
2012))); see also Asacol, 907 F.3d at 52; Byrd v. Aaron’s Inc.,
784 F.3d 154, 171 (3d Cir. 2015), as amended (Apr. 28, 2015)
(stating that “‘the size of a potential class and the need to
review individual files to identify its members are not reasons to
deny class certification’” because “[t]o hold otherwise would
seriously
undermine
aggregate
and
the
purpose
vindicate
of
meritorious
a
Rule
23(b)(3)
individual
class
claims
in
to
an
efficient manner” (quoting Young v. Nationwide Mut. Ins. Co., 693
F.3d 532, 539–40 (6th Cir. 2012))).
The cases cited by Defendants do not convince this Court
otherwise.
In Skelaxin, the district court concluded that the
class was not ascertainable where class member identification
required “individual inquiry into contracts covering millions of
[prescription]
purchases”
and
the
putative
class
had
“not
individual issues. The Court always has the option of decertifying
a class where such an inquiry proves overwhelming; that said, at
this point, Plaintiffs have met their burden in establishing that
the classes are ascertainable.
40
identified what in each transaction would be required to determine”
class membership.
In re Skelaxin (Metaxalone) Antitrust Litig.,
299 F.R.D. 555, 570, 572 (E.D. Tenn. 2014).
here.
That is not the case
As recited in detail above, Plaintiffs have demonstrated
that they can employ either an algorithm or contract review to
determine whether a TPP paid for drugs during the class period
using U&C pricing.
In Manson, the second case Defendants rely upon, the court
held that the putative class was not ascertainable because the
public records proposed by the plaintiffs established only “the
possibility that a particular homeowner might fall within the
class.”
Manson v. GMAC Mortg., LLC, 283 F.R.D. 30, 38 n.26 (D.
Mass. 2012).
Here, Plaintiffs’ proposed methodology will be able
to identify class members with a far greater degree of certainty.
Thus,
the
Court
concludes
that
Plaintiffs
have
set
forth
an
administratively feasible plan for ascertaining the contours of
their proposed class.
5.
Predominance
Under Rule 23(b)(3), a putative class must demonstrate that
common issues predominate over individual issues.
Asacol, 907
F.3d at 51 (citing Amgen, Inc. v. Connecticut Ret. Plans & Tr.
Funds, 568 U.S. 455, 469 (2013)).
depend upon a common contention.”
Class members’ “claims must
Dukes, 564 U.S. at 350.
“That
common contention, moreover, must be of such a nature that it is
41
capable of classwide resolution — which means that determination
of its truth or falsity will resolve an issue that is central to
the validity of each one of the claims in one stroke.”
Supreme
Court
emphasized
that
“[w]hat
matters
Id.
to
The
class
certification . . . is not the raising of common ‘questions’ —
even
in
droves
—
but
rather,
the
capacity
of
a
class-wide
proceeding to generate common answers apt to drive the resolution
of the litigation.”
Id. (quoting Richard A. Nagareda, Class
Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97,
132 (2009)).
Pervasive “[d]issimilarities within the proposed
class” may serve to prevent “the generation of common answers.”
Id. (quoting Nagareda, 84 N.Y.U. L. Rev. at 132).
To find
predominance, the district court must determine that it can dispose
of any differences among class members’ claims “in a manner that
is not ‘inefficient or unfair.’”
Asacol, 907 F.3d at 51 (quoting
Amgen, 568 U.S. at 469).
In Asacol, the First Circuit described inefficiency “as a
line of thousands of class members waiting their turn to offer
testimony and evidence on individual issues.”
Id.
The flip side
of this inefficiency is unfairness, illustrated well as “an attempt
to eliminate inefficiency by presuming to do away with the rights
a party would customarily have to raise plausible individual
challenges on those issues.”
Id. at 51-52.
Thus, where a putative
class action raises individual issues for adjudication, a class
42
may be certified only if “the proposed adjudication will be both
‘administratively feasible’ and ‘protective of defendants’ Seventh
Amendment and due process rights.’”
Id. at 52 (quoting Nexium,
777 F.3d at 19).
To this end, and before certifying a class, a district court
must “offer a reasonable and workable plan for how that opportunity
will be provided in a manner that is protective of the defendant’s
constitutional rights and does not cause individual inquiries to
overwhelm common issues.”
Id. at 58; see also In re New Motor
Vehicles Canadian Export Antitrust Litig., 522 F.3d 6, 20 (1st
Cir. 2008) (“Under the predominance inquiry, ‘a district court
must formulate some prediction as to how specific issues will play
out in order to determine whether common or individual issues
predominate in a given case.’” (quoting Waste Mgmt. Holdings, Inc.
v. Mowbray, 208 F.3d 288, 298 (1st Cir. 2000))).
Defendants
argue
that
common
issues
do
not
predominate
because the differences between class members – in their contracts,
their purported knowledge of the alleged fraud, and their payment
structures – would render a class action “inefficient” and/or
“unfair.”
Defs.’ Opp’n 27-28 (quoting Asacol, 907 F.3d at 51).
Here, the Court is satisfied that the common issues to be
tested by the proposed classes – namely, whether CVS fraudulently
failed to include its HSP prices in its U&C pricing – will provide
common answers.
See Dukes, 564 U.S. at 350 (emphasizing that a
43
Rule 23(b)(3) action must have the capacity to produce common
answers); see also Corcoran v. CVS Health Corp., 779 F. App’x 431,
433
(9th
Cir.
2019)
(holding,
in
consumer
suit
with
similar
allegations against CVS, that there existed triable issue of fact
as
to
whether
contract
language
supported
finding
that
PBM
contracts required CVS to include HSP prices as U&C prices in
consumer class action).
Thus, after careful consideration, the
Court concludes that common issues predominate, and as discussed
further below, any issues relating to subsets of classes – in
particular, those relating to contract interpretation, knowledge,
statute of limitations, and arbitration issues – can be adjudicated
in
an
administratively
feasible
manner
with
the
use
of
that
several
subclasses. 16
a.
With
respect
Injury
to
injury,
Defendants
contend
issues must be litigated individually, and thus individual issues
predominate over common ones.
i.
The Court takes them up seriatim.
Contract Interpretation
Defendants contend that common issues do not predominate
because there are too many issues requiring individual contract
Indeed, Defendants themselves compiled a chart purporting
to reflect the individual issues at play in 39 MedImpact contracts
proposed in this case. See Defs.’ App’x B, ECF No. 133-1. In
doing so, they also demonstrate that each of these issues is
capable of resolution before trial.
16
44
interpretation.
For a TPP to have sustained injury under the
alleged scheme at issue, it must have paid an overcharge when CVS
failed to include HSP prices in its U&C prices.
In Defendants’
view, that determination is dependent on the drug-pricing formula
dictated by individual contracts, including generic effective rate
discounts (“GERs”).
To sort this out, they contend, one must
review thousands of individual contracts between CVS and PBMs, as
well as between the five PBMs at issue and the putative class
members.
What is more, some putative class members had multiple
PBMs and/or multiple contracts with a single PBM during the class
period.
Defs.’ Opp’n 36.
Assuming that the parties do not convince this Court on
summary judgment that either all TPPs or no TPPs were entitled to
receive HSP prices as U&C prices, the contract language will make
a difference.
See Corcoran, 779 F. App’x at 433 (holding that
there existed a triable issue of fact as to whether the contract
language supported a finding that the PBM contracts required CVS
to include HSP prices as their U&C prices in a consumer class
action).
The parties have forecasted that each will argue at
summary judgment that industry standard dictates the result here:
Defendants
will
argue
definitions . . . are
that
“when
interpreted
the
in
varying
light
U&C
of
price
industry
understanding, the only conclusion is that the U&C definitions do
not
include
membership
program
45
prices”,
Defs.’
Sur-Reply
9
(emphasis omitted), and Plaintiffs will argue that HSP prices were
– without exception – U&C prices per industry standard, see Pls.’
Reply 1.
While this merits question is not before the Court now,
contract review – by human or computer – appears inescapable.
First, some TPPs have no colorable claim to being entitled to
lower-of U&C pricing, and thus must be removed from any putative
classes, as discussed above. Second, those TPPs entitled to lowerof U&C pricing for some or all of the class period may or may not
have been entitled to receive the HSP price as its U&C price.
Some
contracts expressly exclude membership programs from U&C prices,
some are silent, and still others may expressly include or exclude
discounts.
If Defendants do not prevail on summary judgment, some
or all of these differences in contract language will likely
present fact issues for trial.
See Corcoran, 779 F. App’x at 433.
There may be upwards of 40,000 contracts, and while the
relevant language in each contract must be isolated to ensure that
Defendants are afforded the opportunity to litigate the merits as
it pertains to the various TPPs, see Asacol, 907 F.3d at 53, there
will be a small universe of answers to the common question posed.
In the Court’s view the contract language can be sorted into
various buckets and litigated group by group.
See Byrd v. Aaron’s
Inc., 784 F.3d 154, 171 (3d Cir. 2015), as amended (Apr. 28, 2015)
(“[T]he size of a potential class and the need to review individual
46
files to identify its members are not reasons to deny class
certification . . . .” (quoting Young v. Nationwide Mut. Ins. Co.,
693 F.3d 532, 539–540 (6th Cir. 2012))); cf. Asacol, 907 F.3d at
53 (denying class certification to a putative class that included
brand loyal consumers, in part because the plaintiffs had not been
“provided any basis from which [the court] could conclude that the
number of affidavits to which the defendants will be able to mount
a genuine challenge is so small that it will be administratively
feasible”).
In sum, Plaintiffs have demonstrated through their expert
that they are capable of using algorithms, or undertaking contractby-contract review, to identify the universe of lower-of U&C
pricing.
Plaintiffs have further demonstrated that they can
organize the relevant contract language into various buckets or
subclasses for the jury to consider.
It is not fathomable (or
supported by evidence) that the putative class TPPs and the atissue PBMs drafted 40,000 contracts with 40,000 distinct lowerof-U&C pricing provisions.
Cf. Corcoran, 779 F. App’x at 434
(noting, in addressing typicality, that there was no “meaningful
differences
in
the
PBM
agreements
that
would
result
in
the
interests of the class representatives being misaligned with those
of the absent class members”).
Instead, the record evidence
suggests that some of the U&C language expressly included discount
programs, and other language was silent on discount programs.
47
Assuming the case proceeds to trial, a jury may find that
some, none, or all of the class TPPs’ contracts entitled them to
HSP pricing, but this factual determination is not as overwhelming
as Defendants have suggested.
See Asacol, 907 F.3d at 61 (Barron,
J., concurring) (stating that Rule 23(b)(3) “‘does not require a
plaintiff seeking class certification to prove that each element
of her claim is susceptible to classwide proof’ but only to show
that there is no ‘reason to think that [individualized] questions
will
overwhelm
common
ones
and
render
class
certification
inappropriate’” (quoting Nexium, 777 F.3d at 21)).
ii.
Actual Knowledge
Defendants next argue that individualized issues of knowledge
defeat
class
certification
because
Plaintiffs’
claims
are
undermined where class members were aware that U&C pricing did not
include HSP prices.
Defs.’ Opp’n 41.
They argue that some health
plans knew they were not receiving HSP prices, pointing to evidence
purporting
plaintiffs.
to
demonstrate
Defs.’
Opp’n
this
for
two
of
4.
Defendants
the
argue
three
named
that
actual
knowledge both undermines injury for each claim in the Complaint
and provides an affirmative defense.
To mount this defense,
Defendants say, requires an individualized review of class-member
communications and other class-member-specific evidence.
Opp’n 39; Defs.’ Sur-Reply 11.
Alongside most of Defendants’
arguments, the road leads back to Asacol:
48
Defs.’
if some members of the
putative class were uninjured because they had actual knowledge of
the underlying fraud, Defendants must have the opportunity to
challenge
and
remove
those
uninjured
class
administratively feasible and efficient fashion.
members
in
an
Defs.’ Sur-Reply
12-13 (citing Asacol, 907 F.3d at 53-54).
While this argument is compelling at first blush, upon closer
review, Defendants have not put forth evidence of actual knowledge
as
to
the
named
Plaintiffs,
nor
the
broader
putative
class,
sufficient to block Plaintiffs’ bid for class certification.
First, the evidence presented as to the named Plaintiffs is
notably thin.
With respect to Sheet Metal Workers, Defendants
offer a June 2009 email chain between Dan Tibus, a Caremark account
executive,
and
consultants
prices.”
Sheet
“regarding
Metal
Workers’
prescription
prescription
benefits,
benefits
including
drug
Decl. of Daniel Tibus ¶ 4, ECF No. 131-9; Email from
Daniel Tibus to Rick Gerasta (June 23, 2009) (“Tibus Email”), at
CAREMARKSM_0006154, ECF No. 131-43.
In this email, the account
manager explained to the outside consultants that the HSP “does
not integrate with the RX benefit. . . . This retail program was
initially
launched
as
a
benefit
for
uninsured
customers.
Naturally, consumers with insurance use it as a substitute if the
Health Savings Pass provides a richer benefit than their employer
plan.” Tibus Email at CAREMARKSM_0006154. In addition, Defendants
point to evidence that one of the Sheet Metal Workers trustees
49
signed up for HSP for himself.
That trustee’s deposition makes
plain that he did not recall signing up for the HSP, did not recall
whether it required a membership fee, and did not recall the
pricing under the program.
See Michael Jones Dep. 83:3-12, ECF
No. 129-21 (“I couldn’t even tell you if I signed up, but I think
I did.”).
It is not clear at all to the Court that this is sufficient
to conjure an issue of material fact on the issue of knowledge.
Defendants offer nothing to suggest that the knowledge of Sheet
Metal Workers’ outside consultants is imputable to the health plan,
nor is there any mention in the email chain of U&C price or CVS’s
failure to report its HSP price as its U&C price.
What is more,
there is nothing in this record suggesting that a reasonable juror
could conclude from this sole HSP-enrolled trustee’s deposition
that he had knowledge of the alleged fraudulent scheme simply
because he signed up for the HSP program.
See Corcoran v. CVS
Healthcare Corp., Case No. 15-cv-03504-YGR, 2017 WL 3873709, at *7
(N.D. Cal. Sept. 5, 2017), rev’d on other grounds Corcoran v. CVS
Health Corp, 779 Fed. App’x 431 (9th Cir. 2019) (“[T]he evidence
proffered by defendants does not sufficiently demonstrate that
potential [consumer] class members, even those who were members of
HSP, knew of the allegedly deceptive practices. . . . Putative
class members likely did not understand the relationship between
50
the pharmacy’s U&C and what the pharmacy charges them, which may
be at times less than or more than the HSP program prices.”).
The same is true of Indiana Carpenters.
In support of its
contention that Indiana Carpenters had actual knowledge of the
alleged
fraud,
Defendants
offer
a
single
email
from
Indiana
Carpenters’ MedCo account executive to Indiana Carpenters’ client
services manager.
The email contains broad talking points about
generic prescription drug programs (“such as Walmart & Kmart”),
and a notice providing more detail.
See Email from Bart Gerber to
Irene Newman (Apr. 2, 2010), ECF No. 129-64.
In that notice, MedCo
account executive, Bart Gerber, never once mentions CVS or the HSP
program specifically; instead, the notice states:
Medco has found that the low cost generic programs vary
from retailer to retailer; some programs are offered
free of charge to patients whereby the low cost generic
price can be submitted via the U&C field through Medco’s
TelePAID system (for example, the $4 Wal*Mart generic
program), other programs include membership fees to gain
access to a member-only price that differs from the
pharmacy’s U&C price (for example the program offered by
Walgreens)[.]
Id.
The client services manager did not understand from the email
that CVS was not reporting the HSP price as the U&C price, and
more generally, she had no understanding of the role U&C prices
played in the claims adjudication process or how drug prices were
set.
No.
See, e.g., R. Irene Newman Dep. 35:15-36:18, 52:10-53:7, ECF
144-8;
see
also
Lauer
Dep.
89:3-21;
90:22-24,
ECF
145-8
(indicating that person copied on email did not understand the
51
meaning of “a member-only price that differs from the pharmacy’s
U&C price” and that he did not know what the email sender and
recipient “were talking about”); David Tharp Dep. 60:12–61:12, ECF
No. 144-10; William Nix Dep. at 101:11–24, 102:25–103:5, ECF No.
144-11.
Simply put, there is no evidence that anyone at Indiana
Carpenters had actual knowledge of the alleged scheme here.
Second, even with all the incentive to do so, Defendants offer
very little to suggest that a significant number of putative class
members other than the named Plaintiffs had actual knowledge of
the alleged scheme.
Defendants offer evidence suggesting that no
more than a dozen TPPs were informed they had not received HSP
prices as their U&C pricing.
See Defs.’ Opp’n 15-17, 42-43
(setting forth summary of eleven TPPs’ knowledge); Pls.’ Reply 32,
34-35 (noting that, of the TPPs Defendants have identified, five
are not class members for other reasons).
As in any action in which “determining whether any given
[class member] was injured (and therefore has a claim) turns on an
assessment of the individual facts[,]” Defendants here must be
afforded “the opportunity to challenge each class member’s proof
that the defendant is liable to that class member.”
F.3d at 55 (citing Dukes, 564 U.S. at 366-67).
Asacol, 907
But the need to
assess individual circumstances – here, with respect to individual
TPPs’ knowledge of the facts underlying the alleged fraud – does
not
alone
foreclose
class
certification.
52
Instead,
class
certification
is
precluded
only
where
“such
challenges
are
reasonably plausible in a given case” and “the plaintiff cannot
demonstrate that allowing for such challenges in a manner that
protects the defendant’s rights will be manageable and superior to
the alternatives.”
instant
case,
Id. (citing Fed. R. Civ. P. 23(b)(3)).
Plaintiffs
have
demonstrated
that
In the
successful
challenges to individual TPPs based on actual knowledge will be
few and far between.
To the extent these challenges present
genuine issues of material fact, the Court will manage them in
subclasses and afford Defendants the opportunity to challenge the
class member(s)’ proof.
See Manning v. Bos. Med. Ctr. Corp., 725
F.3d 34, 60 (1st Cir. 2013) (“Moreover, the district court has
many tools at its disposal to address concerns regarding the
appropriate contours of the putative class, including redefining
the
class
during
the
certification
process
or
creating
subclasses.” (citing Fengler v. Crouse Health Found., Inc., 595 F.
Supp. 2d 189, 197 (N.D.N.Y. 2009))).
That said, the Court does not anticipate being bogged down
with requests to perform thousands upon thousands of depositions
to explore issues of knowledge with each class member.
There can
be no question that there is room for large classes under Rule 23.
See Asacol, 907 F.3d at 59 (Barron, J., concurring) (“Rule 23 was
clearly
written
to
(citations omitted)).
facilitate
large
consumer
class
actions.”
Defendants have access to their own emails
53
and documents.
If they present colorable claims of knowledge, the
Court will entertain those concerns, thus protecting Defendants’
Seventh Amendment rights.
However, the Court will not allow
“arguments woven entirely out of gossamer strands of speculation
and surmise to tip the decisional scales in a class certification
ruling.”
See Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288,
298 (1st Cir. 2000) (citing Zeigler v. Gibralter Life Ins. Co., 43
F.R.D. 169, 173 (D.S.D. 1967)); see also id. (“[W]hen the court
supportably
finds
that
an
issue
which,
in
theory,
requires
individualized factfinding is, in fact, highly unlikely to survive
typical pretrial screening . . . , a concomitant finding that the
issue neither renders the case unmanageable nor undermines the
predominance of common issues generally will be in order.”). 17
Defendants also argue that individual knowledge issues will
predominate insofar as they dictate when class TPPs’ statute-oflimitations periods began to run. The First Circuit has made clear
that
affirmative
defenses,
such
as
statute-of-limitations
To the extent Defendants argue that CVS’s alleged
fraudulent pricing scheme cannot be the proximate cause of
overpayment under the civil RICO statute because it did not
“directly” lead to the violation, Defs.’ Opp’n 39, the Court
rejects the argument. As pleaded, and given the record before the
court on class certification, Plaintiffs have plainly established
that the putative class members were “the primary and intended
victim[s] of the scheme to defraud, and that the injury suffered
was a foreseeable and natural consequence of the fraudulent
scheme.” In re Neurontin Mktg. & Sales Practices Litig., 712 F.3d
51, 58 (1st Cir. 2013) (internal quotations and citations omitted).
17
54
defenses,
“are
appropriate
certification calculus.”
for
consideration
in
Mowbray, 208 F.3d at 295.
the
class
That said,
the First Circuit has explained:
Although a necessity for individualized statute-oflimitations determinations invariably weighs against
class certification under Rule 23(b)(3), we reject any
per se rule that treats the presence of such issues as
an automatic disqualifier.
In other words, the mere
fact that such concerns may arise and may affect
different class members differently does not compel a
finding that individual issues predominate over common
ones.
Id. at 296 (citing 5 James Wm. Moore et al., Moore’s Federal
Practice § 23.46[3], at 23–210 to –211 (3d ed. 1999)); Smilow v.
Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 39 (1st Cir. 2003)
(“[W]here
common
issues
otherwise
predominated,
courts
have
usually certified Rule 23(b)(3) classes even though individual
issues were present in one or more affirmative defenses.” (citation
omitted)).
In Mowbray, the First Circuit affirmed the district
court’s certification of the class despite “possible differences
in the application of a statute of limitations to individual class
members” because the district court properly engaged in a “casespecific analysis”.
omitted).
208 F.3d at 296-97 (quotation and citation
As in Mowbray, the Court is confident that, here, “most
class members’ claims [are] unaffected by possible limitations
defenses”,
Mowbray,
accordingly,
that
208
the
F.3d
at
297
application
of
(citation
individual
limitation defenses do not bar certification.
55
omitted),
and
statute-of-
The Court will take
full advantage of its authority to “place class members with
potentially barred claims in a separate subclass or exclude them
from the class altogether” where “evidence later shows that an
affirmative defense is likely to bar claims against at least some
class members”.
Smilow, 323 F.3d at 39-40 (internal citations
omitted).
iii. Arbitration Clauses
Defendants aver that many absent class members may be subject
to arbitration clauses in their PBM/TPP contracts.
If a class is
certified, Defendants state they will move to dismiss or to compel
arbitration, causing individual issues to predominate.
Opp’n 53-54 & n.29.
Defs.’
Importantly, these contracts are between TPPs
and PBMs – CVS is a party to none of these contracts, and Caremark
is only a party where the contracting PBM was Caremark.
See id.
at 5; Pls.’ Reply 37-38.
First, in arguing that CVS will move to compel arbitration
under any PBM/TPP contracts containing an arbitration clause,
Defendants overstate the number of absent class members subject to
mandatory arbitration.
Under First Circuit precedent, CVS – as a
nonparty and nonsignatory to these contracts – would only succeed
at compelling a TPP to arbitrate as a third-party beneficiary where
it could “demonstrate with ‘special clarity that the contracting
parties intended to confer a benefit on’” CVS.
Hogan v. SPAR Grp.,
Inc., 914 F.3d 34, 39 (1st Cir. 2019) (quoting McCarthy v. Azure,
56
22 F.3d 351, 362 (1st Cir. 1994)).
It is not enough for a
nonsignatory to have some resulting benefit from “a signatory’s
exercise of its contractual rights”.
Id. at 40 (quoting Ouadani
v. TF Final Mile LLC, 876 F.3d 31, 39 (1st Cir. 2017)).
Instead,
the PBM/TPP contract must “mention [or] manifest an intent to
confer specific legal rights upon” CVS.
Id. (quoting InterGen
N.V. v. Grina, 344 F.3d 134, 147 (1st Cir. 2003)) (alteration in
original).
A TPP would further only be equitably estopped from avoiding
arbitration under narrow circumstances.
“[F]ederal courts ‘have
been willing to estop a signatory from avoiding arbitration with
a nonsignatory when the issues . . . to resolve in arbitration are
intertwined with the agreement that the estopped party has signed.”
Id. at 40–41 (quoting Ouadani, 876 F.3d at 38).
The First Circuit
has held that arbitration with a nonsignatory can be compelled
where the parties to the contract agreed to arbitrate any action
“arising out of, or relating in any way to” the agreement. Sourcing
Unlimited, Inc. v. Asimco Int’l, Inc., 526 F.3d 38, 48 (1st Cir.
2008.
Where contract language explicitly limits the agreement to
disputes between the signatories and there is no evidence of the
signatory’s intent to arbitrate with the nonsignatory, arbitration
cannot be compelled.
See Hogan, 914 F.3d at 42 (finding “no legal
basis for forcing [signatory] to arbitrate his claims against
[nonsignatory] when he demonstrated no intent to do so”).
57
Plaintiffs point to the arbitration clauses of over twenty
PBM/TPP contracts that explicitly state that the parties did not
intend to create rights for third parties.
See Pls.’ Reply 37
n.179 (“This agreement . . . is intended solely for the benefit of
each party hereto and their respective successors or permitted
assigns, and it is not the intention of the parties to confer third
party beneficiary rights, and this Agreement does not confer any
such rights, upon any other third party . . . .” (quoting Service
Agreement, at MI-SM_00000539, ECF No. 145-22)).
No one suggests
that the PBM/TPP contracts created any legal rights or duties for
CVS; indeed, CVS had its own contracts with the PBMs.
Thus, CVS
finds support in neither the third-party beneficiary doctrine nor
the equitable estoppel doctrine.
Second, that some putative class members may be subject to
mandatory arbitration is not a bar to class certification.
See
Smilow, 323 F.3d at 39 (noting that, “where common issues otherwise
predominated, courts have usually certified Rule 23(b)(3) classes
even
though
individual
issues
were
present
in
one
or
more
affirmative defenses”); see also Walsh v. Gilbert Enters., No. CV
15-472-WES, 2019 WL 1206885, at *4 (D.R.I. Mar. 14, 2019) (holding
that named plaintiff – whose contract did not have an arbitration
clause - was typical of class that included individuals subject to
arbitration clauses because common issues otherwise predominated).
Defendants
may
pursue
those
rights
58
under
motions
to
compel
arbitration and/or dismiss following class certification, and the
Court will employ the procedural tools at its disposable to exclude
those TPPs from the class or place them in a subclass.
For these
reasons, the Court is confident that the existence of arbitration
clauses in some PBM/TPP contracts will not result in individual
issues predominating over common issues.
b.
Generic Effective Rate
Defendants argue that individual issues further predominate
because
many
PBM/TPP
contracts
contain
“aggregate
discount
guarantees” (also called “generic effective rate guarantees” or
“GERs”) that, in their view, negate injury in fact and/or any
damages from alleged overstated U&C prices.
48.
Defs.’ Opp’n 4, 45-
A common PBM/TPP contract provision, a GER clause guarantees
that a TPP will receive an average percentage discount off a
benchmark price (e.g., average wholesale price) for all drugs in
a category (e.g., all generic drugs) for a specified period of
time (e.g., one calendar year).
Expert Report of Alan Sekula
(“Sekula Report”) ¶ 10, ECF No. 129-4.
something like this:
In practice, it looks
a PBM guarantees its contracting TPP that it
will receive an average discount of 70% off the average wholesale
price (“AWP”) for generic prescription drugs for calendar year
2021.
For any one generic drug, the TPP’s discount may be higher
than 70% and for any other, lower.
But in the aggregate, the
health plan is entitled to a 70% (or greater) discount off AWP for
59
generic drugs.
Id.
In this example, if the TPP paid more than
30% of AWP for the generic drugs purchased in 2021, the PBM would
issue a reconciliation payment to make up the difference.
Id. ¶
15.
Defendants offer Sheet Metal Workers as an example; once Sheet
Metal Workers’ 2014 GER reconciliation is considered, it incurred
no damages in 2014, a stark contrast to the $21,498 alleged.
Defs.’ Opp’n 52; Feb. 14, 2020 Hr’g Tr. 69-70; see also Barlag
Decl. ¶¶ 137-38. 18
In such situations, Defendants contend, health
plans would be left without damages.
Furthermore, Defendants
suggest that removing these uninjured putative class members – as
required by Asacol - would be unduly laborious, and individual
issues therefore predominate.
See Defs.’ Opp’n 49-52.
Plaintiffs retort that GERs are not relevant to injury; at
most, they say, GERs may offset damages for some putative class
members.
where
For this proposition, Plaintiffs point to antitrust law
injury
accrues
the
moment
an
overcharge
regardless of whether it is later offset.
is
incurred,
See In re Nexium
Antitrust Litig., 777 F.3d 9, 27 (1st Cir. 2015); see also Holmes
v. Sec. Inv’r Prot. Corp., 503 U.S. 258, 267-68 (1992) (concluding
To fall within one of the class definitions, a TPP need
only have suffered an injury during the class period; a TPP may
not have incurred damages in any one single calendar year, but
still aptly be included in one of the classes for injury incurred
during another year covered by the class period.
18
60
that Congress used the same words in drafting RICO as it had in
the already-enacted Sherman Act and Clayton Act, and thus the Court
could “only assume it intended them to have the same meaning that
courts had already given them” (citation omitted)).
The
Court
concludes
that,
on
this
record,
GERs
are not
relevant to putative class TPP injury in fact. Still, as discussed
below, Plaintiffs must demonstrate an administratively feasible
way to identify and apply GER offsets to damages in order to ensure
that the proposed classes’ damages calculations are accurate, and
Defendants’ due process rights are honored.
First, PBMs do not make GER reconciliation payments at the
transaction
level;
instead,
GER
reconciliation
payments
are
calculated in the aggregate, across a subset of drugs, for a
defined period, after claims have been adjudicated and paid. Conti
Reply ¶ 54; see also Sekula Report ¶ 15.
Thus, this arrangement
is factually distinguishable from those in which an injury offset
could be traced back to a specific transaction.
See Barlag Decl.
¶ 136 (recognizing that GERs are not applied at the transaction
level, but rather in the aggregate, by noting that “[e]ven if one
assumes submitting the HSP price as the U&C price would have
changed the amount paid by Sheet Metal on an individual claim, it
does not change the aggregate annual amount paid by Sheet Metal
across all claims”).
61
The First Circuit authority dictates that a RICO claim has
not accrued where injury to a plaintiff’s property is speculative.
DeMauro v. DeMauro, 115 F.3d 94, 97-98 (1st Cir. 1997).
DeMauro,
plaintiff-wife
sued
defendant-husband,
and
In
others,
alleging that they had fraudulently concealed separate and marital
assets during protracted and contentious divorce proceedings.
at 95.
Id.
The First Circuit held that any injury to the plaintiff’s
legal claim had not accrued because it was too speculative, as no
one yet knew whether the alleged concealment would diminish her
award in the divorce proceeding.
Id. at 97 (citing Lincoln House,
Inc. v. Dupre, 903 F.2d 845, 847 (1st Cir. 1990)).
The First
Circuit noted concern that “it is hard to see how a court would
calculate damages now, given the dual uncertainties of what [the
plaintiff]
will
concealment.”
be
awarded
and
how
it
be
affected
by
Id. (citing First Nationwide Bank v. Gelt Funding
Corp., 27 F.3d 763, 768 (2d Cir. 1994)).
arise,
will
however,
where
the
plaintiff
This concern did not
alleged
concealment
of
property in which she held a present ownership interest; for that
property, the court concluded she had alleged injury under RICO.
Id. at 98 (citing Grimmett v. Brown, 75 F.3d 506, 516–17 (9th Cir.
1996)).
Here, each alleged injury stems from an overcharge paid by a
TPP as a result of an inflated U&C price.
The injury fully accrued
when the claim was adjudicated and paid.
At that point, the only
62
loose end was the possibility of an aggregate offset in the form
of a GER reconciliation payment.
“[T]he injury has occurred and
is known, but it is speculative whether the damages might be
reduced or even eliminated”; this is not a case in which “the
injury is speculative because it is not known whether it will occur
at all” due to some future event that may or may not occur.
See
Grimmett, 75 F.3d at 517; see also DeMauro, 115 F.3d at 97; cf.
Gastronomical Workers Union Local 610 & Metro. Hotel Ass’n Pension
Fund v. Dorado Beach Hotel Corp., 617 F.3d 54, 61–62 (1st Cir.
2010)
(“Fairly
viewed,
that
claim
does
not
suggest
that
the
trustees have alleged a speculative injury, the existence of which
depends upon future events that may or may not occur.
Rather, the
claim is that a future event may change the type of remedy
available to redress an existing injury. Consequently, it is the
future event, not the trustees’ injury, that is speculative.”).
Defendants’ cited cases do not counsel otherwise, as each
involves
speculative,
purported RICO injury.
future
events
that
may
undermine
the
See, e.g., Maio v. Aetna, 221 F.3d 472 (3d
Cir. 2000) (“There is no factual basis for appellants’ conclusory
allegation that they have been injured in their ‘property’ because
the health insurance they actually received was inferior and
therefore ‘worth less’ than what they paid for it.”); In re
Bridgestone/Firestone, Inc. Tires Prod. Liab. Litig., 155 F. Supp.
2d 1069, 1091 (S.D. Ind.), on reconsideration in part, No. MDL NO.
63
1373, 2001 WL 34691976 (S.D. Ind. Nov. 14, 2001), rev’d on other
grounds 288 F.3d 1012 (7th Cir. 2002) (“RICO affords a monetary
remedy only to plaintiffs who have actually realized the diminished
value or experienced product failure, and not to those who allege
a risk (or even a probability) of such loss.”).
The Court is satisfied that, on this record, Plaintiffs’
injury from overcharge accrued at the time of payment.
Second, regardless of whether the GER reconciliation payments
go to injury or damages, Defendants will get their day in court to
meaningfully challenge the effect of GER payments on class damages.
In the wake of Asacol, the Court can be confident of a few things.
A class may be certified without each putative class member first
establishing standing, and Rule 23 does not require the district
court to establish injury in fact for each class member prior to
class certification.
Asacol, 907 F.3d at 58.
But, Defendants
must be afforded a meaningful opportunity to challenge injury in
fact and pick off uninjured class members before or at trial.
Id.
And there is no question, post-Asacol, that a district court may
not certify a class where a body of uninjured class members stand
to recover, regardless of whether the defendants are found liable
for the aggregate damages amount.
See generally id.
The circumstances presented here are clearly distinguishable
from those in Asacol.
In Asacol, the First Circuit was presented
with a putative class with a small percentage of members known to
64
be uninjured – the so-called brand loyalists.
no
administratively
feasible
way
to
Moreover, there was
allow
the
defendants
a
meaningful opportunity to challenge the uninjured class members’
inclusion.
members
See id. at 53.
were
defendants.
all
but
As a result, the uninjured class
guaranteed
to
collect
damages
from the
Here, in contrast, we don’t inhabit the theoretical
but-for world of antitrust law; instead, a world where alleged
injury and damages are knowable and well documented.
Even if a
subset of putative class members incurred overcharges that were
later offset by GER reconciliation payments, Defendants will have
the opportunity to challenge them at (or before) trial.
No
uninjured putative class members stand to recover.
Finally, the Court is satisfied that Plaintiffs’ expert, Dr.
Rena Conti, will be able to incorporate GER offsets into her
damages
calculations
methods.
on
a
class-wide
basis.
She
offers two
First, if provided with reconciliation payment data, Dr.
Conti will perform the following calculation. Dr. Conti will first
isolate a TPP’s measured effective rate and compare it to its
contracted GER guaranteed rate (i.e., the guaranteed GER in that
TPP’s contract).
Conti Reply ¶ 55.
A measured effective rate is
1 minus (the sum of all ingredient costs paid/the sum of all AWP
amounts).
Id.
If a TPP pays less in the aggregate for the
specified drugs than it would under its GER provision (e.g., paying
an aggregate of AWP minus 76%, where its contract provides that it
65
pay
no
more
than
reconciliation.
AWP
minus
Id. ¶ 56.
75%),
the
PBM
would
submit
no
If the TPP pays more (e.g., its
aggregate payment was equal to AWP minus 72%, where its GER was
AWP minus 75%), the PBM would reconcile this with a payment equal
to the 3% (75%-72%) difference.
Id. ¶ 57.
Dr. Conti incorporates
reconciliation-payment offsets into her damages calculation, and
where a reconciliation payment is greater than the calculated
damages, the damages are bottomed out at $0.
Conti’s
formula
appropriately
errs
on
Id. ¶¶ 58-61.
the
side
of
conservative in response to Defendants’ expert’s critique.
Dr.
being
See
id. ¶¶ 59 (formula 8), 62-64 (noting additional exclusions to
provide for a conservative damages model).
In
the
alternative,
if
Dr.
Conti
is
not
provided
with
reconciliation payments data, she sets forth a conservative method
for calculating the effect of GERs on a class-wide basis.
65.
Id. ¶
Under this method, Plaintiffs would first review all PBM
contracts for a range of annual GER guarantees and identify each
PBM’s highest GER guarantee for each year.
Id. ¶¶ 65-66.
Next,
using claims data for the generic drugs included in each PBM’s GER
calculation and a list of the HSP-eligible drugs, Plaintiffs would
calculate the impact of adjusting the HSP price on the conservative
GER reconciliation payment.
reconciliation
payment
overcharge calculation.
would
Id. ¶¶ 66, 69.
be
Id. ¶ 66.
66
used
to
This delta in GER
offset
Plaintiffs’
The Court concludes that Plaintiffs have demonstrated by a
preponderance of the evidence that they have a “reasonable and
workable plan” for determining the effect of a GER on the putative
class members’ damages “that is protective of the defendant[s]’s
constitutional rights and does not cause individual inquiries to
overwhelm
common
issues.”
Asacol,
907
F.3d
at
58.
Though
Defendants’ experts have declared the process overly burdensome,
they acknowledge that an expert ostensibly could, for any health
plan,
identify
any
applicable
GER
provisions,
determine
the
periods they cover, the drugs to which they apply, whether the
health plan received reconciliation payments, and the effect any
reconciliation payments had on offsetting any alleged overcharge
to the health plan.
See Sekula Report ¶¶ 19; Defs.’ Opp’n 47-48.
In the Court’s view, the need to account for GER damages
offsets does not impede certification.
The parties will confer
before trial on which putative class members fall away as incurring
no damages.
Should there be a dispute over a subset of health
plans, Defendants will have the opportunity to challenge their
inclusion in the classes.
Asacol, 907 F.3d at 53 (suggesting a
class would be ripe for certification where “a very small absolute
number of class members might be picked off in a manageable,
individualized
information
is
process
at
knowable
or
before
from
trial”).
PBM/TPP
Because
contracts
and
this
data,
individual issues will not predominate – not now, and not at trial.
67
c.
To
satisfy
Damages
the
predominance
requirement,
not
only
must
liability be established through common proof, but Plaintiffs must
also demonstrate that “any resulting damages would likewise be
established by sufficiently common proof.”
Nexium, 777 F.3d at 18
(quoting New Motor Vehicles, 522 F.3d at 20).
To do so, Plaintiffs
must establish that damages are both “capable of measurement on a
classwide basis” and tied to their theory of liability.
See
Comcast, 569 U.S. at 34-36.
A model measuring class-wide damages in a class action “must
measure only those damages attributable to that theory.”
35.
Id. at
“If the model does not even attempt to do that, it cannot
possibly establish that damages are susceptible of measurement
across the entire class for purposes of Rule 23(b)(3).”
Id.
“Calculations need not be exact, but at the class-certification
stage (as at trial), any model supporting a plaintiff’s damages
case must be consistent with its liability case . . . .”
Id.
(internal citations and quotations omitted).
In
support
of
their
Motion
for
Class
Certification,
Plaintiffs offer the expert opinion of Dr. Rena Conti.
generally Conti Report; Conti Reply.
See
Using her model, Dr. Conti
measures damages for the Nationwide Class as the delta between
what a TPP paid for certain HSP-eligible drugs and the amount it
would have paid for those HSP drugs had the U&C price incorporated
68
the HSP price.
Conti Report ¶ 62.
For this model, Dr. Conti used
CVS pharmacy claims data for HSP drugs across 14 states 19, as well
as HSP price data.
Id. ¶¶ 11, 63.
Under her model, damages for
these 14 states total $334.2 million, exclusive of any GER offsets.
Conti Reply ¶ 4.
The model is flexible and can be adjusted to
account for more or higher quality data as discovery proceeds.
Id. ¶ 5.
After
concludes
careful
that
review
her
model
of
Dr.
Conti’s
reflects
a
reports,
reliable
the
and
Court
sound
methodology 20 by which to measure Plaintiffs’ alleged damages given
The data cover thirteen states and the District of
Columbia. For ease of reference, the Court refers to them as the
“14 states” in this decision.
19
While Defendants have not yet filed a Daubert motion to
exclude Dr. Conti’s expert opinion, it was inescapable for the
Court to consider the soundness of her methodology in determining
whether damages are capable of measurement on a class-wide basis
and tied to Plaintiffs’ liability theory.
Moreover, the Court
considered the expert reports offered by Defendants criticizing
Dr. Conti’s report. The Court otherwise DENIES WITHOUT PREJUDICE
the Motions as premature and will consider them once refiled as
the case proceeds. See Pls.’ Mots. to Exclude the Expert Testimony
of Brett E. Barlag, Catherine Graeff, Michael P. Salve, Ph.D., ECF
Nos. 140-42.
To the extent those reports conclude Dr. Conti’s
methodology is unreliable or inaccurate, the Court disagrees for
the reasons set forth herein; the Court understands the experts as
largely offering competing views that go to the weight, and not
admissibility, of the opinion. See Ruiz-Troche v. Pepsi Cola of
Puerto Rico Bottling Co., 161 F.3d 77, 85 (1st Cir. 1998) (“Daubert
neither requires nor empowers trial courts to determine which of
several competing scientific theories has the best provenance. It
demands only that the proponent of the evidence show that the
expert’s conclusion has been arrived at in a scientifically sound
and methodologically reliable fashion.” (citation omitted)).
20
69
that she intends to procure and incorporate additional data to
strengthen the model.
A summary of the model is helpful.
Dr.
Conti began with all the CVS pharmacy patient claims data for the
14 states covering transactions occurring between November 2008
and December 2015.
Conti Report ¶ 70.
She then excluded drugs
that never appeared on the HSP formulary drug list during the
relevant time, limited the claims to the five PBMs implicated in
this case, and excluded government payors.
Id. ¶ 71.
She further
excluded claims that were paid based on lesser-of pricing formulas
that do not include U&C.
Conti Reply ¶ 48.
Using the remaining claims, Dr. Conti calculated the TPP
overpayment amount as the TPP adjudicated payment amount less the
HSP price, adjusting for the amount paid by the pharmacy customer.
Conti Report ¶ 73.
Moreover, Dr. Conti applied a damages offset
for the annual HSP membership fees paid by cash customers to access
the HSP prices, and explained the technique she could apply to
incorporate GER offsets, if the Court deemed them relevant.
Conti
Reply ¶¶ 54-69; Conti Report ¶¶ 75-76.
Dr. Conti opined that, after discovery produces the requisite
PBM data, she will use this same method to calculate damages on a
classwide basis using the updated data.
Conti Report ¶ 77.
From
PBM data, she will also be able to identify individual class
members.
Id.
Indeed, she demonstrated this by using the PBM data
for named Plaintiffs to calculate their damages during the class
70
period.
Id.
Dr. Conti further extrapolated the damages for the
14 states to the remaining 36 states using state-specific data
(viz., demographic information, total retail prescription sales,
Medicaid claims, and CVS’s dominance in that market).
Id. ¶ 78.
Defendants argue that Plaintiffs’ proposed damages model both
cannot measure damages on a class-wide basis and is not tied to
Plaintiffs’ liability theory.
In particular, they take issue with
Plaintiffs’ failure to test certain data.
Defendants’ argument implicates a joint stipulation that had
resolved a May 2017 discovery dispute between the parties.
See
Joint Stipulation Regarding Pls.’ Motion to Compel CVS to Produce
Nationwide Data (“Joint Stipulation Nationwide Data”), ECF No. 54.
In the stipulation, Plaintiffs agreed to accept the subset of data
produced
in
the
Corcoran
case
in
the
Northern
District
of
California, which involved twelve states and the District of
Columbia. See id. In exchange for Plaintiffs’ agreeing to abandon
their
claim
to
CVS’s
nationwide
transaction
data,
Defendants
agreed that Plaintiffs could rely upon this subset of data to
demonstrate that damages could be calculated on a class-wide basis.
See id.
To this end, the stipulation states:
CVS will not challenge Plaintiffs’ methodology for
calculating classwide damages (a) on the basis that the
data fields that CVS has produced to date for the
Corcoran States represent different types of information
than is available for states other than the Corcoran
States or (b) by using data from states other than the
71
Corcoran States,
Plaintiffs.
Id. at 2.
purchased
which
has
not
been
produced
to
Caremark produced claims data only for HSP drugs
in
Indiana
and
Illinois
November 2008 and January 2016.
at
CVS
pharmacies
between
Pls.’ Reply 30.
Under Plaintiffs’ theory, the damages of any given TPP are
the difference between the amount it actually paid for certain HSP
drugs and the amount it would have paid for those drugs if the HSP
price had been reported as the U&C price.
Conti Report ¶ 62.
In
preparing Plaintiffs’ damages model, Dr. Conti did not have TPP
payments data – due to the Joint Stipulation – and thus based
Plaintiffs’ model on PBM payments data.
Defendants now complain
that Dr. Conti did not calculate the class TPP damages at all,
instead she calculated the difference between what the PBMs paid
and what they would have paid had HSP prices included U&C prices.
Defs.’ Opp’n 49.
For purposes of class certification, and given that Dr. Conti
asserts that she intends to update this model once more data are
made available, the Court finds that PBM data are a reliable proxy
for TPP data for purposes of class certification.
See New Eng.
Carpenters Health Benefits Fund v. First DataBank, Inc., 248 F.R.D
363, 370 (D. Mass. 2008) (stating, in a RICO case involving
fraudulently reported average wholesale drug prices, that the
“data [were] a reasonable proxy of TPP reimbursements for drugs”).
72
Plaintiffs’ model generates a conservative damages estimate, or,
in other words, “underestimates the overcharges attributable to
Defendants’ alleged fraud”, because TPPs compensate “PBMs for
their services at a markup of what PBMs pay pharmacies.”
Conti
Reply ¶ 40; see also Pls.’ Reply 27-28 & n.130 (noting that for
any one HSP drug, CVS would submit the inflated U&C price to the
adjudicating PBM, the PBM would pay CVS, and the inflated price
would “ultimately be passed to the Class member in the form of an
even higher price so that the PBM would profit from the ‘spread’
between what it paid CVS and what the Class member paid the PBM”
(citing Conti Report ¶¶ 62, 73)).
In addition to modeling damages using PBM claims data as a
proxy for TPP claims data, Dr. Conti provides that once more PBM
data are produced for the HSP drugs, her “method is flexible to
accommodate their inclusion in estimating damages.”
¶ 40.
Conti Reply
Indeed, the model’s flexibility is on display where Dr.
Conti updates her estimate of named-Plaintiff Sheet Metal Workers’
damages to reflect coinsurance payments and the effect of the
Maintenance Choice Program.
Id. ¶ 53 & n.70; see also id. ¶¶ 54-
69 (describing how model can take GERs into account).
Given that this methodology produces a conservative damages
model using PBM claims data, and has the demonstrated flexibility
to
be
adjusted
to
accommodate
additional
data,
the
Court
is
satisfied that, while not “exact[,]” the model is “consistent with
73
[the proposed classes’] liability case.”
(citations and quotation omitted).
Comcast, 569 U.S. at 35
It is true that the model has
not been tested using TPP data, but the shortcomings of Plaintiffs’
data are directly attributable to Defendants’ strategic decision
and will be resolved at the liability stage.
Moreover, the record
supports a finding that, in the aggregate, any overcharges incurred
by PBMs were passed on to the putative class.
40.
See Conti Reply ¶
In sum, Dr. Conti’s methodology is solid and the data are
forthcoming. 21
Defendants also challenge the amount of individualization
necessary to calculate damages under Plaintiffs’ model.
See Royal
Park Invs. SA/NV v. Wells Fargo Bank, N.A., No. 14-CV-09764, 2018
WL 739580, at *15 (S.D.N.Y. Jan. 10, 2018) (noting that expert’s
method was sufficiently reliable and he was not required to present
a “comprehensive model at the class certification stage” but
concluding
that
determinations).
individualized
the
methodology
While
there
inquiry
is
can
required
required
be
no
under
individualized
question
the
that
instant
some
damages
Defendants’ other criticisms are sufficiently addressed in
Dr. Conti’s Reply Report. See Conti Reply ¶ 48 (adjusting model
to exclude claims that may have been paid based on formulas that
do not include U&C pricing); id. ¶¶ 52-53 (adjusting model to
account for patient payment structures).
And as addressed at
length above, the Court is satisfied that Dr. Conti’s damages model
can accurately and reliably account for GERs.
21
74
model, the Court is satisfied that damages can “be established by
sufficiently common proof.”
Accordingly,
the
Nexium, 777 F.3d at 18.
Court
concludes
that
Plaintiffs
have
demonstrated that common issues predominate as to damages and that
the damages are both “capable of measurement on a classwide basis”
and tied to their theory of liability.
See Comcast, 569 U.S. at
34-36.
6.
Superiority
For the final prerequisite to class certification, Plaintiffs
bear the burden of establishing that a class action is “superior
to other available methods for fairly and efficiently adjudicating
the controversy.”
Fed. R. Civ. P. 23(b)(3).
In undertaking this
analysis, the Court examines four factors:
(A) the class members’ interests in individually
controlling the prosecution or defense of separate
actions; (B) the extent and nature of any litigation
concerning the controversy already begun by or against
class members; (C) the desirability or undesirability
of concentrating the litigation of the claims in the
particular forum; and (D) the likely difficulties in
managing a class action.
Id.
The Court is mindful that “[t]he policy at the very core of
the class action mechanism is to overcome the problem that small
recoveries do not provide the incentive for any individual to bring
a solo action prosecuting his or her rights.”
Amchem Prods. Inc.
v. Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v. Van Ru Credit
Corp., 109 F.3d 338, 344 (7th Cir. 1997)).
75
The superiority and
predominance inquiries thus ensure that class action litigation
will “achieve economies of time, effort, and expense, and promote
. . . uniformity of decision as to persons similarly situated,
without sacrificing procedural fairness or bringing about other
undesirable results.”
Id. (quoting Advisory Committee’s Notes on
Fed. R. Civ. P. 23).
Defendants argue that class adjudication is not superior to
other methods of adjudication because (1) the elements of the state
law causes of action are materially different, and (2) the putative
class members are sophisticated entities capable of bringing suit
on their own.
Defs.’ Opp’n 6, 68-69.
The Court is satisfied that class adjudication is the superior
method of adjudication.
Though some putative class members may be
capable of suing on their own, and there may be some opportunity
to recover fees for a successful suit under RICO and some state
statutes, judicial economy plainly favors certification.
Managing
subclasses within this action alleging a single fraudulent scheme
is superior to managing several thousand suits.
Moreover, variations in the underlying state law claims do
not undermine Plaintiffs’ certification efforts.
The classes are
narrowly tailored and are not unlike numerous other nationwide
class actions that courts have certified.
See, e.g., In re
Loestrin 24 FE Antitrust Litig., 410 F. Supp. 3d 352, 375-76, 40607 (D.R.I. 2019) (certifying class action brought under numerous
76
state laws and analyzing viability of pharmaceutical antitrust
claims under those state statutes). 22
For these reasons, the Court
concludes that, in this case, a class action is “superior to other
available methods for fairly and efficiently adjudicating the
controversy.”
See Fed. R. Civ. P. 23(b)(3).
III. Conclusion
For the above reasons, Caremark’s Motion to Dismiss, ECF No.
163, is GRANTED; Plaintiffs’ Motion for Class Certification, ECF
No. 120, is GRANTED; Plaintiffs’ Motions to Exclude the Expert
Testimony of Brett E. Barlag, Catherine Graeff, Michael P. Salve,
Ph.D., ECF Nos. 140-42, are DENIED WITHOUT PREJUDICE.
The Court
further appoints Hagens Berman Sobol Shapiro LLP as Class Counsel
and appoints named Plaintiffs as Class Representatives.
IT IS SO ORDERED.
William E. Smith
District Judge
Date: May 11, 2021
The Court gives Plaintiffs fifteen days from the entry of
this order to show cause why the Unfair and Deceptive Conduct
Consumer Protection Class definition should not be amended to
exclude health plans that paid for generic prescription drugs in
New Jersey, Ohio, and Iowa, as Defendants assert these state laws
were never pleaded in the Amended Complaint and/or were dropped
earlier in this suit. See Defs.’ Sur-Reply 27.
22
77
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