Corcoran v. CVS Health Corp.

• Decision Date: 14 March 2016
• Docket Number: Case No.: 15-CV-3504 YGR
• Citation: 169 F.Supp.3d 970
• Parties: Christopher Corcoran, et al., Plaintiffs, v. CVS Health Corporation and CVS Pharmacy, Inc., Defendants.
• Court: U.S. District Court — Northern District of California

169 F.Supp.3d 970

Christopher Corcoran, et al., Plaintiffs,

v.CVS Health Corporation and CVS Pharmacy, Inc., Defendants.

Case No.: 15-CV-3504 YGR

United States District Court, N.D. California.

Signed March 14, 2016

Christopher L. Lebsock, Bonny E. Sweeney, Michael Paul Lehmann, Hausfeld LLP, San Francisco, CA, Elizabeth Cheryl Pritzker, Jonathan Krasne Levine, Shiho Yamamoto, Pritzker Levine LLP, Oakland, CA, Kristen Ward Broz, Haufeld, Kristen Marie Ward, Richard S. Lewis, Hausfeld LLP, Pasquale A. Cipollone, Rebecca Ruby Anzidei, Robert B. Gilmore, Stein Mitchell Muse Cipollone Beato LLP, Washington, DC, for Plaintiffs.

August P. Gugelmann, Edward W. Swanson, Swanson & McNamara LLP, San Francisco, CA, David Michael Horniak, Enu Mainigi, Grant A. Geyerman, Luba Shur, Williams and Connolly LLP, Washington, DC, for Defendants.

ORDER ON MOTIONS TO DISMISS; MOTION TO APPOINT INTERIM CLASS COUNSEL; MOTION TO TRANSFER

Re: Dkt. Nos. 56, 57, 58, 85, 88

YVONNE GONZALEZ ROGERS, UNITED STATES DISTRICT COURT JUDGE

Plaintiffs Christopher Corcoran, Robert Garber, Toni Odorisio, Robert Guarnieri, Onnolee Samuelson, Irma Pacheco, Michael Norkus, Vincent Gargiulo, Zulema Avis, Ken Bolin, Robert Jenks, Tyler Clark, Carolyn Caine, Linda Krone, Elizabeth Gardener, Carl Washington, Zachary Hagert, Debbie Barrett, Robert Podgorny, Kevin Cauley, and Walter Wulff (collectively, “Plaintiffs”) bring this action on behalf of themselves and all others similarly situated against defendants CVS Health Corporation (“CVS Health”) and CVS Pharmacy, Inc. (“CVS Pharmacy”) (collectively, “Defendants” or “CVS”) for allegedly overcharging them for generic prescription drugs. In their Second Amended Complaint Plaintiffs bring nineteen causes of action for: fraud, constructive fraud, negligent misrepresentation, unjust enrichment, and violation of consumer protection laws in twelve states and the District of Columbia. (Dkt. No. 49, “SAC.”) Based thereon, Plaintiffs seek damages, injunctive and declaratory relief, and attorney fees on behalf of a national class as well as state-specific subclasses.

Currently pending before the Court is CVS Health's motion to dismiss for lack of personal jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2)

and CVS Pharmacy's motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) in which CVS Health joins.¹ Also pending before the Court is Plaintiffs' motion to appoint interim class counsel pursuant to Rule 23(g), which Defendants do not substantively oppose. (Dkt. No. 85.) Finally, Defendants filed a motion to transfer this action to the District of Rhode Island. (Dkt. No. 88.)

Having carefully considered the papers and evidence submitted, the pleadings in this action, and for the reasons set forth on the record at oral argument held March 8, 2016 and more fully below, the Court hereby GRANTS CVS Health's motion on jurisdictional grounds, GRANTS IN PART CVS Pharmacy's motion as described herein, GRANTS Plaintiffs' motion to appoint interim class counsel, and DENIES Defendants' motion to transfer.

I. BACKGROUND

CVS is a national retail pharmacy chain with over seven thousand pharmacies operating under its trade name in the United States and Puerto Rico, managing more than one billion prescriptions annually. (SAC ¶ 39.) In 2014, CVS earned net revenue of nearly one-hundred and forty billion dollars, approximately sixty-seven billion dollars of which is attributed to its retail pharmacy division. (Id. ) CVS operates one of the largest retail pharmacy chains in the United States. (Id. ¶ 4.) Since 2008, CVS has captured more than one third of total prescription growth in the United States. (Id. )

CVS pharmacies dispense prescription medications. (Id. ¶ 6.) Approximately ninety percent of Americans—including Plaintiffs—are enrolled in a private or public health care plan that shares prescription drug costs. (Id. ¶ 8.) When plan beneficiaries (insureds) fill a prescription, they pay a portion of the cost (copayment or copay) and the plan (third-party payor) pays the remainder of the cost. (Id. ¶ 43.) When an insured fills a prescription at CVS, the pharmacist generates a claim by transmitting patient, prescription, and insurance information electronically to the customer's insurer or its claims processor. (Id. ¶¶ 47-48.) The electronic CVS claims process utilizes standardized data fields developed by the National Council for Prescription Drug Programs (“NCPDP”), a standard-setting organization in the healthcare industry. (Id. ¶¶ 49, 51.) One data field on NCPDP's standard layout is Field No. 426-DQ, the usual and customary (“U & C”) price. (Id. ¶ 52.) The U & C price is “generally defined as the cash price to the general public, which is the amount charged [to] cash customers for the prescription, exclusive of sales tax or other amounts claimed.” (Id. ) The copayment a customer must pay is calculated in part based on the U & C price CVS transmits to the insurer. (Id. ¶¶ 53-54.) A copayment must be equal to or less than the drug's U & C price. (Id. ¶ 54.)

This case involves the Health Savings Pass (“HSP”) program CVS introduced in 2008. (Id. ¶ 59.) The HSP program provides discounted pricing on hundreds of generic prescription medications (“HSP generics”). (Id. ¶ 61.) A generic drug is a copy of a brand-named drug that has the same active ingredients as the brands they copy but are typically offered at lower prices. (Id. ) The HSP generics include some of the most commonly prescribed generic drugs for cardiovascular, allergy, and diabetes

conditions, among others. (Id. ¶ 62.) From November 9, 2008 through 2010, cash paying customers could join the HSP program for a $10 fee. (Id. ¶ 61.) During this time, CVS charged HSP members $9.99 for a ninety-day supply of an HSP generic. (Id. ) Beginning in 2011, CVS raised the HSP enrollment fee to $15 a year and the cost of a ninety-day supply of an HSP generic rose to $11.00 for a ninety-day supply. (Id. )

Plaintiffs allege that CVS created the HSP program to compete with similar discounts introduced by its competitors while continuing to receive full reimbursement from third-party payors. (Id. ¶¶ 56-60.) Specifically, following implementation of the HSP program, CVS continued to report the full retail price of all HSP generics (rather than the HSP program price) as the U & C price to third-party payors. (Id. ¶ 64.) Plaintiffs allege that these U & C prices CVS reported for HSP generics were false because they did not reflect the price paid by the biggest group of cash paying customers: HSP program members. (Id. ¶¶ 77-80.) As a result of CVS reporting artificially inflated U & C prices to third-party payors for the same HSP generics CVS offers at lower prices under the HSP program, its insured customers in some instances paid copayments that exceeded the true U & C price, i.e. the HSP program price. (Id. ¶ 75.) Plaintiffs allege that CVS knowingly created the HSP program to report false U & C prices with the intent to deceive both third-party payors and insured customers into paying higher prices based on inflated U & C prices improperly higher than the HSP program prices. (Id. ¶¶ 9, 13-14, 64-81.) By contrast, four of CVS's major market competitors—Shoprite, Wal-Mart, Target, and Costco—report significantly lower U & C's to reflect the amounts charged under their respective discount programs. (Id. ¶¶ 76-77.)

Plaintiffs and class members are individuals who participate in third-party health care plans and purchased HSP generics from CVS retail pharmacies between 2008 and the filing of the SAC. (Id. ¶¶ 10, 16-36.) CVS charged Plaintiffs for copayments on the HSP generics in excess of the amount HSP program member price for the same drug. (Id. ¶¶ 16-36.) For these sales, Plaintiffs allege that CVS knowingly submitted to Plaintiffs' third-party payors a U & C price fraudulently inflated above CVS's true U & C price—the price CVS offered to HSP members. (Id. ) Based thereon, Plaintiffs allege they were all overcharged by varying amounts in inflated copayments. (Id. ) For example, with respect to Plaintiff Corcoran, the SAC alleges:

Plaintiff Christopher Corcoran is domiciled in the State of California. Mr. Corcoran has purchased generic versions of four monthly maintenance medications from CVS in California between February 2009 and the present. Mr. Corcoran carries private health insurance and carried private health insurance during the time that he purchased generic medications from CVS. All four medications prescribed to Mr. Corcoran are on the CVS HSP generic medication list (attached hereto as Exhibit A). CVS charged its cash-paying customers a usual and customary price of $3.33 for a 30-day supply of the same prescription that Mr. Corcoran purchased from 2008 to 2010, and $3.99 from 2011 to the present. CVS is required to charge Mr. Corcoran a copay that does not exceed the usual and customary price CVS charges for the prescription drug. For these sales, CVS knowingly submitted to Mr. Corcoran's third-party payor a purported usual and customary price fraudulently inflated above CVS's true usual and customary price—the price CVS offers under its HSP program. As a result of CVS's fraudulent scheme, Mr. Corcoran has paid copays substantially higher than $3.33 from 2008 to 2010 and $3.99 from 2011 to the present per 30-day supply when he purchased his generic prescriptions from CVS and has, thereby, been injured. CVS has overcharged Mr. Corcoran at least $284.79 in inflated copays. Mr. Corcoran anticipates filling future prescriptions for these generic drugs at a CVS pharmacy, and thus faces the prospect of paying additional inflated copays in the future if CVS continues its wrongful conduct.

(Id. ¶ 16.) Similar allegations are made as to all named Plaintiffs. (Id. ¶¶ 17-36.)

Plaintiffs assert nineteen claims sounding in fraud based on the allegations in the SAC. Defendants move to dismiss all claims for lack of personal jurisdiction over CVS Health under Rule 12(b)...