Skilstaf, Inc. v. CVS Caremark Corp.

• Decision Date: 09 February 2012
• Docket Number: No. 10–15338.,10–15338.
• Citation: 12 Cal. Daily Op. Serv. 1739,669 F.3d 1005,2012 Daily Journal D.A.R. 1848
• Parties: SKILSTAF, INC., on behalf of itself and all others similarly situated, Plaintiff–Appellant, v. CVS CAREMARK CORP.; Longs Drugs Stores Corporation; the Kroger Co.; New Albertson's, Inc.; Rite Aid Corporation; Safeway Inc.; Supervalu Inc.; Walgreen Co.; Wal–Mart Stores Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

12 Cal. Daily Op. Serv. 1739

2012 Daily Journal D.A.R. 1848

669 F.3d 1005

SKILSTAF, INC., on behalf of itself and all others similarly situated, Plaintiff–Appellant,

v.CVS CAREMARK CORP.; Longs Drugs Stores Corporation; the Kroger Co.; New Albertson's, Inc.; Rite Aid Corporation; Safeway Inc.; Supervalu Inc.; Walgreen Co.; Wal–Mart Stores Inc., Defendants–Appellees.

No. 10–15338.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 12, 2011.Filed Feb. 9, 2012.

R. Bryan McCulley, McCulley McCluer PLLC, Jacksonville, FL, for the plaintiff-appellant.

Fred A. Kelly, Jr., Sarah E. Andre, Nixon Peabody LLP, Los Angeles, CA, for defendants-appellees New Albertson's, Inc. and Supervalu Inc.

Gregory P. Stone, Michael R. Doyes, Carolyn H. Luedtke, Munger Tolles & Olson LLP, Los Angeles, CA, for defendant-appellee Safeway Inc.Matt Oster, McDermott Will & Emery LLP, Los Angeles, CA, for defendant-appellee Walgreen Co.Laurence A. Weiss, Kristi K. Elder, Hogan Lovells US LLP, Palo Alto, CA, for defendant-appellee the Kroger Co.Steven H. Frankel, Sandra D. Hauser, Sonnenschein Nath & Rosenthal LLP, San Francisco, CA, for defendant-appellee Wal–Mart Stores, Inc.Peter Buscemi, Morgan, Lewis & Bockius LLP, San Francisco, CA, for defendant-appellee Rite Aid Corp.Tami S. Smason, Robert H. Griffith, Page R. Barnes, Foley & Lardner LLP, San Francisco, CA, for defendants-appellees CVS Caremark Corp. and Longs Drugs Stores Corp.Appeal from the United States District Court for the Northern District of California, Susan Illston, District Judge, Presiding. D.C. No. 3:09–cv–02514–SI.Before: BETTY B. FLETCHER and SIDNEY R. THOMAS, Circuit Judges, and LEE H. ROSENTHAL, District Judge.^*

OPINION

ROSENTHAL, District Judge:

This is an appeal from the dismissal of a putative class action filed in a California federal district court. The dismissal was based on a Massachusetts federal district court's final judgment certifying a nationwide class and approving a class settlement. A class member who appeared through counsel as an objector in the Massachusetts case filed the present suit in California seeking to represent a nationwide class. The California complaint sought damages based in large part on the same facts alleged in the Massachusetts case, but against different defendants. The putative class was part of the same class certified in the Massachusetts case.

The California defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). The motion was based on a covenant not to sue contained in the settlement and final judgment entered in the Massachusetts case. Under that provision, the class members, including the member who filed the California suit as the named plaintiff, not only released their claims against the Massachusetts defendants but also agreed not to sue “any other person seeking to establish liability based, in whole or in part,” on the claims released.

The California defendants argued that the covenant not to sue in the Massachusetts settlement agreement and final judgment precluded the California action. The district court held that the covenant was enforceable against the named plaintiff in the California case, declined to appoint or allow a new class representative because no class had been certified, did not decide whether the covenant was enforceable against the absent members of the putative class, and dismissed. The named plaintiff appealed. We affirm.

I. Factual and Procedural BackgroundA. The Massachusetts Class Action and the Filing of the California Suit

The named plaintiff filing the California case is Skilstaf, Inc., an Alabama payroll-service company that self-funds a prescription-drug plan for its employees. Skilstaf was a member of the class the Massachusetts district court certified in New England Carpenters Health Benefits Fund v. First DataBank, Inc. & McKesson Corp.¹ The class consisted of third-party payors—such as insurance companies, self-insured employers like Skilstaf, and union health and benefit plans—that made reimbursements for consumers' purchases of certain prescription drugs. The class also included individual consumers who made percentage co-payments for such drugs and uninsured or underinsured individual consumers who paid the full amounts.

The defendants in the Massachusetts case were McKesson Corporation, a wholesale prescription-drug distributor that also owns pharmacy-related businesses, and First DataBank, a publisher of information about prescription drugs. Wholesalers such as McKesson sell prescription drugs to retail pharmacies and other purchasers. Pharmacies in turn mark up the price in selling to consumers. If the consumers are insured, the insurer's reimbursement payment is typically based on average wholesale prices (AWPs) published by, among others, First DataBank. Third-party payors typically contract to reimburse retail pharmacies at a discount from the published AWP figures. The complaint in the Massachusetts suit alleged that the third-party payors and the individual consumers paid improperly inflated prices for many brand-name prescription drugs based on AWPs published by First DataBank. The plaintiffs in the Massachusetts case alleged that beginning in 2001, McKesson and First DataBank conspired to publish AWPs that used a 25% markup for drugs that historically had only 20% markups. The complaint alleged that this conspiracy increased the amounts the pharmacies charged and the amounts third-party payors had to pay in reimbursements. In addition, individual consumers who had percentage co-pay arrangements with plans that reimbursed the cost of brand-name drugs based on the AWPs, or who were uninsured or underinsured, allegedly overpaid based on the inflated AWPs. The plaintiffs alleged that the inflated AWPs generated a windfall for pharmacies, which inclined them to purchase drugs from McKesson and to use First DataBank's AWP publications. The plaintiffs alleged a conspiracy to violate RICO.²

In March 2008, after three years of litigation, the Massachusetts court presiding over New England Carpenters certified the third-party payor and consumer classes described above.³ The notice of class certification and of the right to opt-out informed the class members that remaining in the suit would prevent them from filing a later lawsuit “related in any way” to the claims against McKesson. The notice did not contain a statement that remaining in the class would prevent a member from later asserting claims arising out of the same facts against an entity other than McKesson.

McKesson ultimately agreed to pay $350 million to settle the claims, consisting of $288 million to the class net of fees and expenses.⁴ The district court preliminarily approved the settlement in January 2009. The settlement agreement included a section entitled “Releases” that stated as follows:

Upon the Effective Date of this Agreement, the Released Parties shall be released and forever discharged by all Releasers from all Released Claims. All Releasers covenant and agree that they shall not hereafter seek to establish liability against any Released Party or any other person based, in whole or in part, on any of the Released Claims.(emphasis added).

The settlement agreement defined “Released Parties” as:

(I) McKesson, (ii) its respective present and former, direct and indirect, parents, subsidiaries, divisions, partners and affiliates, (iii) the respective present and former stockholders, officers, directors, employees, managers, agents, attorneys, partners, and any of the legal representatives of the foregoing, (iv) any future operating entities created and controlled by McKesson, and (v) any predecessors, successors, heirs, executors, trustees, administrators and assigns of each of the foregoing, all in their capacities as such.

The settlement agreement defined “Released Claims” as:

[A]ny ... claims ... that any Releaser who has not timely excluded ... itself from the ... Settlement Class ... has, ... arising out of any conduct ... relating to the use of ... the AWP ... published or disseminated by First DataBank ... for any prescription pharmaceuticals, including ... the allegations contained in or which could have been contained in the Class Action.... Released claims do not include claims against any manufacturer regarding pricing or marketing by the manufacturer or regarding AWP manipulation by the manufacturer.

The settlement notice sent to class members in April 2009 set out the covenant not to sue with other provisions of the settlement agreement. But the notice did not emphasize that the members were giving up claims against “any other person” along with the claims against McKesson and affiliated entities. In the section entitled “What claims am I giving up?,” the notice quoted the agreement's release clause (including the “any other person” language) and its definition of “Released Claims.” The quoted section was preceded by a “plain language” explanation that stated:

If the Proposed Settlement is approved, the claims against McKesson will be completely “released.” This means that you cannot sue McKesson for money damages or other relief based on the claims in the lawsuit or otherwise arising from its alleged involvement in setting AWP for brand drugs in the relevant period. Settlement Class Members agree to forever release all claims even if they later discover new facts about the claims in the lawsuits. This includes claims whether known or unknown, suspected or unsuspected, contingent or non-contingent. All claims will be released forever whether or not the facts were concealed or hidden, without regard to the subsequent discovery or existence of such different or additional facts.

In the section entitled “What entities am I releasing?,” the settlement notice stated that the “Released Entities” included “McKesson Corporation, its parent companies, subsidiaries, and affiliates, and their past, present and future officers, directors, trustees,...