Blue Cross Blue Shield v. Endo Pharamaceuticals

• Court: U.S. District Court — Eastern District of Michigan
• Writing for the Court: DAVID M. LAWSON, United States District Judge
• Citation: Blue Cross Blue Shield v. Endo Pharamaceuticals, 454 F.Supp.3d 686 (E.D. Mich. 2020)
• Decision Date: 14 April 2020
• Docket Number: Case Number 19-13153
• Parties: BLUE CROSS BLUE SHIELD and Blue Cross Network of Michigan, Plaintiffs, v. ENDO PHARAMACEUTICALS, Teikoku Pharma USA, Inc., Teikoku Seiyaku Co., Ltd., Allergan PLC, Watson Pharmaceuticals, Inc. and Watson Laboratories, Inc., Defendants.

454 F.Supp.3d 686

BLUE CROSS BLUE SHIELD and Blue Cross Network of Michigan, Plaintiffs,

v.ENDO PHARAMACEUTICALS, Teikoku Pharma USA, Inc., Teikoku Seiyaku Co., Ltd., Allergan PLC, Watson Pharmaceuticals, Inc. and Watson Laboratories, Inc., Defendants.

Case Number 19-13153

United States District Court, E.D. Michigan, Southern Division.

Signed April 14, 2020

Thomas J. Howlett, Bodman PLC, Detroit, MI, Elizabeth Brannen Carter, Pamela Beard Slate, Hill Hill Carter Franco Cole & Black, P.C., Montgomery, AL, for Plaintiffs.

George G. Gordon, John P. McClam, Dechert LLP, Philadelphia, PA, John R. Trentacosta, Leah R. Imbrogno, Foley & Lardner LLP, Detroit, MI, for Defendant Endo Pharmaceuticals Inc.

Stephanie E. Niehaus, Squire Patton Boggs (US) LLP, New York, NY, David S. Elkins, Squire Patton Boggs LLP, Palo Alto, CA, Jessica A. Sprovtsoff, Schiff Hardin LLP, Ann Arbor, MI, Joseph Anthony Meckes, Squire Patton Boggs, San Francisco, CA, for Defendant Teikoku Pharma USA, Inc.

David S. Elkins, Squire Patton Boggs LLP, Palo Alto, CA, Jessica A. Sprovtsoff, Schiff Hardin LLP, Ann Arbor, MI, Joseph Anthony Meckes, Squire Patton Boggs, San Francisco, CA, for Defendant Teikoku Seiyaku Co., Ltd.

David E. Plunkett, Williams, Williams, Birmingham, MI, for Defendants Allergan PLC, Watson Pharmaceuticals, Inc.

David E. Plunkett, Williams, Williams, Birmingham, MI, Karen Hoffman Lent, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, for Defendant Watson Laboratories, Inc.

OPINION AND ORDER GRANTING MOTION TO REMAND

DAVID M. LAWSON, United States District Judge

This case is an outgrowth of a series of antitrust lawsuits in a concluded multidistrict litigation that was pending in the Northern District of California. Several insurers and end users of the drug Lidoderm sued these defendants and others for conspiring to delay the introduction of a cheaper generic version of the medication into the marketplace. In the present case, Blue Cross brought an action in state court for itself and as the claims administrator for its self-funded customers alleging the same harm. However, the basis for these claims is not the Sherman Act, but rather its state-law counterpart, the Michigan Antitrust Reform Act (MARA), Mich. Comp. Laws Ann. §§ 445.771 et seq. The defendants removed the case alleging diversity jurisdiction, since no federal question is raised on the face of the complaint. Blue Cross has moved to remand the case, arguing that the Court must consider the citizenship of its self-funded customers, even though they are not named parties, when determining if there is complete diversity between the plaintiffs and all the defendants. Because of the nature of the alleged harm and the relief sought, the Court agrees that must be done. And because some of the self-funded plan customers share citizenship with some of the defendants, there is no complete diversity between the parties. The motion to remand will be granted and the case will be remanded to the Wayne County, Michigan circuit court.

I.

Plaintiff Blue Cross Blue Shield is a non-profit health care corporation organized under Michigan law with its principal office in Michigan. Plaintiff Blue Care Network is its wholly owned subsidiary. Blue Cross writes health insurance policies that it sells to customers. Those customers pay an annual premium, and when they incur a covered health care expense, they (or their providers) submit a claim and Blue Cross, from its own funds, pays all or a portion of it under its schedule.

Blue Cross also provides administrative services to other, "self-funded" customers — usually businesses that maintain self-funded health care plans (SFPs) of their own. That means that the SFPs pay the medical care costs of their employees from their own revenue (usually up to a stop-loss limit), instead of purchasing health insurance for them. The SFPs sign a contract with Blue Cross for Blue Cross to act as a third-party administrator for health care claims. The parties refer to those contracts as the Administrative Services Contracts (ASC). Under the ASCs, Blue Cross receives, processes, and pays health care claims from the SFPs’ employees; provides the SFPs with stop-loss insurance coverage; and allows the SFPs’ employees access to Blue Cross's provider networks and their discounted rates. It then bills the SPFs for the healthcare costs plus its administrative fees. Under that arrangement, the cost of the employee health care, including prescription drugs when allowed, is borne by the SFP.

Among the drugs covered by the SFPs and by Blue Cross for its insurance customers is lidocaine, a common anesthetic agent administered via injection and also by patches applied to the skin. The later delivery device is marketed under the brand name Lidoderm. Lidoderm is manufactured and marketed by defendants Endo Pharmaceuticals, Inc., Teikoku Seiyaku Co. Ltd., and Teikoku Pharma, USA (the Endo/Teikoku Defendants). A generic version of the patch was developed by defendant Watson Laboratories, Inc., and Watson Pharmaceuticals, Inc., which acquired defendant Allergan, Inc. in January 2013 (the Watson Defendants).

Blue Cross alleges that around May 28, 2012, the Endo/Teikoku Defendants entered into a "pay-for-delay" agreement with the Watson Defendants in which the Watson Defendants agreed to delay release of their generic version of lidocaine patches until September 15, 2013. Blue Cross says that while the generic version had not yet been approved by the FDA, such approval was "imminent," and eventually occurred on August 23, 2012. In exchange for this delay, says Blue Cross, the Endo/Teikoku Defendants gave the Watson Defendants $96 million worth of brand-name Lidoderm to sell. And the Endo/Teikoku Defendants promised to delay selling their own version of the generic lidocaine patches for 7.5 months following the Watson Defendants’ release of their generic version, holding off until May 2, 2014. This scheme, Blue Cross contends, inflicted anti-trust injuries and damages on it and the SFPs, which had to pay more for the branded version of lidocaine patches far longer than they should have but for the pay-for-delay agreement.

Blue Cross alleges that under the scheme, the Endo/Teikoku Defendants were able illegally to extend and maintain their monopoly in the market for lidocaine patches for 13 months. That also resulted in a delayed introduction of an authorized generic version, which allowed the Endo/Teikoku Defendants to maintain super-competitive prices for lidocaine. Finally, the scheme allocated 100% of the generic market for lidocaine to the Watson Defendants for 7.5 months.

This is not the first lawsuit related to the pay-for-delay agreement. The same conduct alleged in this action was the subject of a series of lawsuits beginning in November 2013, including a lawsuit brought on behalf of a class of end-payors situated similarly to the plaintiffs here. These class action cases were eventually consolidated by the Judicial Panel on Multidistrict Litigation in the Northern District of California, where they were litigated over the course of several years (In re Lidoderm Antitrust Litigation , MDL 2521, 3:14-md-02521). The class actions finally resolved through settlement in September 2018. The plaintiffs were class members and did not opt out of the class settlements. But the settlement agreement did not release claims under MARA or any other state law.

On September 16, 2019, Blue Cross filed a two-count complaint in the Wayne County, Michigan circuit court alleging violations of MARA and unjust enrichment. The defendants removed the case to this Court asserting diversity jurisdiction under 28 U.S.C. § 1332(a).

Blue Cross brought this action not only for itself but also for a number of SFPs that, it says, suffered antitrust injuries for having to pay too much for lidocaine patches. Blue Cross identified over 450 SPFs with whom it has ASCs. Relevant to the remand motion, at least 13 are incorporated in Delaware. That is significant, because Endo Pharmaceuticals, Inc. is a citizen of Delaware and Pennsylvania.

II.

The parties agree with these basic points: First , federal district courts are courts of limited jurisdiction, and the burden of establishing subject matter jurisdiction rests with the defendant, as the party removing the case and asserting federal jurisdiction. See, e.g., Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). Second , " ‘[a]ll doubts as to the propriety of removal are resolved in favor of remand.’ " Jacada (Europe), Ltd. v. Int'l Mktg. Strategies, Inc. , 401 F.3d 701, 704 (6th Cir. 2005) (quoting Coyne v. Am. Tobacco Co. , 183 F.3d 488, 493 (6th Cir. 1999) ), abrogated on other grounds by Hall St. Assocs., L.L.C. v. Mattel, Inc. , 552 U.S. 576, 128 S.Ct. 1396, 170 L.Ed.2d 254 (2008). Third , although 28 U.S.C. § 1441(b) permits a defendant in a civil action to remove cases originally filed in state courts to federal district courts where there is diversity of citizenship between the parties, federal diversity jurisdiction "exists only when no plaintiff and no defendant are citizens of the same state." Jerome-Duncan, Inc. v. Auto–By–Tel, L.L.C. , 176 F.3d 904, 907 (6th Cir. 1999) (citing United States Fidelity & Guar. Co. v. Thomas Solvent Co. , 955 F.2d 1085, 1089 (6th Cir. 1992) ); see also Lincoln Prop. Co. v. Roche , 546 U.S. 81, 89, 126 S.Ct. 606, 163 L.Ed.2d 415 (2005) (holding that a federal court has jurisdiction under 28 U.S.C. § 1332 only if there is "complete diversity between all plaintiffs and all defendants" (citing Strawbridge v. Curtiss , 3 Cranch 267 (7 U.S.) 267, 2 L.Ed. 435 (1806) ). Fourth , for diversity purposes, a corporation is a citizen both of the state of incorporation and where it has its principal place of business. 28 U.S.C. § 1332(c)(1) ; Hertz Corp. v. Friend , 559 U.S. 77, 80-81, 130 S.Ct. 1181, 175 L.Ed.2d 1029 (2010).

There also appears to be no dispute over the reality that if...