Bickley v. Caremark Rx, Inc.

• Decision Date: 30 December 2004
• Docket Number: No. CV-02-HS-2197-S.,CV-02-HS-2197-S.
• Parties: Roland H. BICKLEY, on behalf of Georgia Pacific Corporation Life Health and Accident Plan, and all other similarly situated Plans, Plaintiff, v. CAREMARK RX, INC., and Caremark, Inc. Defendants.
• Court: U.S. District Court — Northern District of Alabama

361 F.Supp.2d 1317

Roland H. BICKLEY, on behalf of Georgia Pacific Corporation Life Health and Accident Plan, and all other similarly situated Plans, Plaintiff, v. CAREMARK RX, INC., and Caremark, Inc. Defendants.

No. CV-02-HS-2197-S.

United States District Court, N.D. Alabama, Southern Division.

December 30, 2004.

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Bernard W Smalley, Daniel J. Siegel, Elizabeth T. Allison, Michele L. Reed, Sol H. Weiss, Anapol Schwartz Weiss Cohan Feldman & Smalley, Philadelphia, PA, Bruce D Rasmussen, Gary W. Kendall, Michie Hamlett Lowry Rasmussen & Tweel, Charlottesville, VA, Carrie J Feit, Kirk W.B. Wagar, Wagar Law Firm, Coconut Grove, FL, David A Kimberley, Cusimano Keener Roberts Kimberley & Miles PC, Gadsden, David A McKay, Peter C. Adams, Herman Mathis Casey Kitchens & Gerel, Atlanta, GA, H Lewis Gillis, Tyrone C. Means, Thomas Means Gillis & Seay, PC, Montgomery, John B Baldwin, Melissa Smith, Baldwin & Baldwin, Marshall, TX, John A Day, Branham & Day, Brentwood, TN, Kenneth J Merlino, Power Rogers & Smith, Chicago, IL, Lawrence J Pascal, Ashcraft & Gerel, Alexandria, VA, Mary E Alexander, Richard L. Akel, Mary Alexander & Associates PC, San Francisco, CA, Maury A Herman, Herman Mathis Casey Kitchens & Gerel, New Orleans, LA, Michael A Ferrara, Jr, Niki A. Trunk, Ferrara Rossetti & Devoto, Cherry Hill, NJ, Michael Heaviside, Ashcraft & Gerel, Washington, DC, Mike Miller, Stacey E. Tjon, Solberg Stewart Miller & Johnson, Fargo, ND, Paul R Thomson, III, Michie Hamlett Lowry Rasmussen & Tweel, Roanoke, VA, Paul C Williams, Williams Johnson & Jones LLC, Atlanta, GA, Peggy J Reali, Finkelstein & Krinsk, San Diego, CA, Peter N Wasylyk, Peter N Wasylyk Law Offices, Providence, RI, Quinton S Seay, Thomas Means Gillis & Seay, Atlanta, GA, Raymond L Johnson, Jr, Law Offices of Raymond L Johnson Jr, Birmingham, Richard D McCune, Jr, Welebir McCune & Jure, Redlands, CA, Robert J Bonsignore, Bonsignore & Brewer, Medford, MA, Ronald S Goldser, Zimmerman Reed PLLP, Minneapolis, MN, Stephen J Herman, Herman Mathis Casey Kitchens & Gerel, New Orleans, LA, Timothy J Becker, Zimmerman Reed PLLP, Minneapolis, MN, for Roland H Bickley on behalf of Georgia Pacific Corporation Life Health and Accident Plan and all other similarly situated Plans, Plaintiff.

Anthony C Harlow, Starnes & Atchison LLP, Birmingham, Daniel S Floyd, Gibson Dunn & Crutcher, Los Angeles, CA Frank E Pasquesi, Ungaretti & Harris, Chicago, IL, Gail Jeanne Standish, Gibson Dunn & Crutcher, Los Angeles, CA, Robert H Griffith, Ungaretti & Harris, Chicago, IL, W Michael Atchison, Starnes & Atchison LLP, Birmingham, for Caremark RX, Inc., Caremark, Inc., Defendants.

MEMORANDUM OPINION

HOPKINS, District Judge.

This is a class action brought by Plaintiff Roland Bickley on behalf of the Georgia Pacific Corporation Life Health and Accident Plan and all other similarly situated self-funded prescription drug Plans that use the services of Defendants Caremark Rx, Inc. and its subsidiary, Caremark, Inc., as a Pharmacy Benefits Manager. The action is brought under § 502(a)(3) of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132(a)(3).

Background and Procedural Posture

Roland Bickley ("Bickley") brings this action as a member of the Georgia Pacific Plan (the "Georgia Pacific Plan" or "the Plan"),¹ and all other similarly situated Plans. Caremark, Inc. ("Caremark") is the Pharmacy Benefits Manager ("PBM") of the Georgia Pacific Plan, which is self funded by Georgia Pacific². For various fees (depending upon what service is being provided), Caremark manages and administers the Plan's prescription drug program. In doing so, Caremark buys drugs from manufacturers, sells drugs to retail pharmacies and operates a service where Plan members can fill their prescriptions through the mail. Caremark negotiates prescription drug prices with both drug manufacturers and dispensing retail pharmacies. And, as noted, it offers a mail order pharmacy service that essentially competes against retail pharmacies.

The gravamen of Bickley's assertions is that Caremark enriches itself through undisclosed discounts, rebates, coupons and other forms of compensation from drug companies and pharmacies; through a price differential or "spread" created by Caremark's negotiating a second discount with pharmacies; and a second price "spread" in the dispensing fee paid by the Plan to Caremark and by Caremark to the retail pharmacies that fill Plan members' prescriptions. Bickley also says that Caremark circumvents the "best pricing" rules set forth in the Omnibus Reconciliation Act, 42 U.S.C. § 1396r-8, and uses its market power and position to favor some drugs over others ("drug-switching program") in exchange for monies received from the drug manufacturer(s). Bickley says Caremark does not disclose any of these practices and monies received to the Plan or Plan members. Bickley says Caremark does these things using Plan assets (money). He says Caremark breaches its duty to the Plan and Plan members by not disclosing these arrangements and practices to the Plan, and by keeping the monies earned, which Bickley says should go to the Plan for the benefit of its members. Bickley says Caremark is a Plan fiduciary and its practices violate its fiduciary duty(ies) to the Plan.³

Caremark denies it has done anything illegal and attacks Bickley's ability to bring and maintain this action. Caremark denies it is an ERISA fiduciary, denies Bickley has standing to maintain this action, and says Bickley has failed to exhaust his administrative remedies.

The case was originally filed in the United States District Court for the Southern District of California, and transferred here on venue grounds. Caremark Rx, Inc. is a Delaware corporation with its principal place of business in Birmingham, Alabama. Caremark, Inc. is a subsidiary of Caremark Rx, Inc. and a resident of Illinois.

Currently pending are Bickley's Motion for Class Certification (doc. 75) and Caremark's Motion to Dismiss the Second Amended Complaint ("SAC") (doc. 49), as supplemented, and Caremark Rx, Inc.'s Motion to Dismiss (doc. 50). The Motion to Dismiss, Bickley's opposition and the parties' related filings raise a number of ERISA questions, among them waiver, standing, who can be an ERISA fiduciary, and exhaustion of administrative remedies. Caremark, Rx, Inc. also moves to dismiss on the basis that it is not a PBM.

The parties have thoroughly briefed the issues, including authority from other district courts facing similar if not identical questions. If Caremark's Motion To Dismiss is granted, the class certification motion is moot.

Discussion

I. Applicable Law

This action is a federal question case and the court is not bound by the Van Dusen — Ferens rule that a transferee court must apply the law that would have been applied in the transferor court, so that a change in forums will mean a change in courtroom, but not a change of law. Van Dusen v. Barrack, 376 U.S. 612, 639, 84 S.Ct. 805, 821, 11 L.Ed.2d 945 (1964) (when transfer in a diversity case is made on motion of defendant, transferee court must apply substantive law of transferor court); Ferens v. John Deere Co., 494 U.S. 516, 110 S.Ct. 1274, 108 L.Ed.2d 443 (1990) (same principle applies when plaintiff moves for venue transfer). The Court in both Van Dusen and Ferens spoke quite explicitly of diversity cases. "This suggests that in a federal-question case the transferee court is free to think for itself what federal law is and need not mechanically apply the view of federal law that is taken in the circuit from which the case was transferred". Wright, Law Of Federal Courts, (5th Ed., 1994) § 44 at 281 West; In re Korean Air Lines Disaster of Sept. 1, 1983, 829 F.2d 1171 (D.C.Cir.), aff'd on other grounds, 490 U.S. 122, 109 S.Ct. 1676, 104 L.Ed.2d 113 (1989). The distinction is potentially significant; for example, the court's cursory review of Ninth Circuit exhaustion law suggests that the Ninth Circuit is more willing to excuse the failure to exhaust administrative remedies than the Eleventh Circuit. Having said that, the court hopes that the federal forum distinction would, upon closer examination, be less likely to be dispositive — Caremark Rx and Georgia-Pacific both have their principal places of business in the Eleventh Circuit (Birmingham, Alabama and Atlanta, Georgia, respectively). The January 1, 1995, Integrated Agreement between Caremark, Inc.(an Illinois subsidiary of Caremark Rx) and Georgia-Pacific ("the First Agreement") recites that it will be construed under the laws of Georgia. Declaration of Stephanie Sawyer, Ex. A., page 17, filed May 10, 2002 Under Seal for June 10, 2002 Hearing. The 2001 Prescription Benefit Management Agreement, Ex. B to Declaration of Stephanie Sawyer ("the PBM Agreement"), recites that Illinois law will govern the PBM Agreement and its interpretation. A reasonable assumption from the two (2) prescription drug plan agreements would be that the parties contemplated that any federal law questions would most likely be decided in the Eleventh Circuit, with the Seventh Circuit being a second choice.⁴

II. Standard Of Review

In passing on a Motion To Dismiss, the court accepts all of Bickley's well-pled allegations as true, and grants him all the favorable inferences that can be drawn from those allegations. E.g., Wagner v. Daewoo Heavy Inds. America Corp., 289 F.3d 1268, 1271 (11th Cir.2002). The court may consider the full text of documents referenced in, or central to, the allegations of the complaint. See Brooks v. Blue Cross and Blue Shield of Florida, Inc., 116 F.3d 1364, 1369 (11th Cir.1997). If an allegation in the Complaint is based on a writing and the writing contradicts the allegation, the writing controls. See Assoc. Builders, Inc. v. Alabama Power Co., 505 F.2d 97, 100 (5th Cir.1974).⁵ The court has reviewed and considered the Plan, the First Agreement and the...