County of Santa Clara v. Astra Usa, Inc.

• Decision Date: 02 December 2005
• Docket Number: No. C 05-03740 WHA.,C 05-03740 WHA.
• Citation: 401 F.Supp.2d 1022
• Parties: COUNTY OF SANTA CLARA, on behalf of itself and all others similarly situated, Plaintiff, v. ASTRA USA, INC., Astrazeneca Pharmaceuticals LP, Aventis Pharmaceuticals, Inc., Bayer Corp., Bristol-Myers Squibb Co., Burroughs Wellcome Co., Glaxo Wellcome, Inc., Pfizer, Inc., Schering-Plough Corp., Tap Pharmaceutical Products, Inc., Wyeth-Ayerst Laboratories, Inc., Zeneca, Inc., ZLB Behring LLC, and Does 1 through 100, inclusive, Defendants.
• Court: U.S. District Court — Northern District of California

Page 1022

401 F.Supp.2d 1022

COUNTY OF SANTA CLARA, on behalf of itself and all others similarly situated, Plaintiff, v. ASTRA USA, INC., Astrazeneca Pharmaceuticals LP, Aventis Pharmaceuticals, Inc., Bayer Corp., Bristol-Myers Squibb Co., Burroughs Wellcome Co., Glaxo Wellcome, Inc., Pfizer, Inc., Schering-Plough Corp., Tap Pharmaceutical Products, Inc., Wyeth-Ayerst Laboratories, Inc., Zeneca, Inc., ZLB Behring LLC, and Does 1 through 100, inclusive, Defendants.

No. C 05-03740 WHA.

United States District Court, N.D. California.

December 2, 2005.

Jacqueline E. Mottek, Aelish M. Baig, Jennie Lee Anderson, Patrick J. Coughlin, Lerach Coughlin Stoia Geller Rudman & Robbins LLP, San Francisco, CA, Ann Miller Ravel, Office of the County Counsel, Cheryl A. Stevens, County of Santa Clara, San Jose, CA, for Plaintiff.

Paul Jeffrey Riehle, Esq., Matthew A. Fischer, Sedgwick Detert Moran & Arnold LLP, Steven M. Edwards, Hogan & Hartson, L.L.P., New York City, Alicia J. Donahue, Sara J. Romano, Shook Hardy & Bacon LLP, Paul Lionel Yanosy, Jr., Sidley Austin Brown & Wood LLP, Molly Moriarty Lane, Morgan Lewis & Bockius LLP, Colin T. Kemp, Kirke M. Hasson, Pillsbury Winthrop Shaw Pittman LLP, Peter Nels Larson, Jones Day, Fletcher C. Alford, Gordon & Rees LLP, San Francisco, CA, Sharon Douglass Mayo, Arnold & Porter LLP, Los Angeles, CA, Jeffrey Lawrence Handwerker, Robert S. Litt, Arnold & Porter LLP, Washington, DC, Jaime L.M. Jones, Richard Raskin, Timothy T. Scott, Sidley Austin Brown & Wood LLP, Chicago, IL, Lyndon M. Tretter, Brian W. Shaffer, Jennifer B. Jordan, Morgan, Lewis & Bockius LLP, Philadelphia, PA, Brien T. O'Connor, Justin J. Wolosz, Ropes & Gray LLP, Boston, MA, Kelly Jeanne Davidson, Stephen Craig Holden, Ober Kaler Grimes & Shriver, Baltimore, MD, Sharon Douglass Mayo, Arnold & Porter LLP, Los Angeles, CA, Valerie M. Wagner, Dechert, LLP, Palo Alto, CA, for Defendants.

ORDER (1) DENYING MOTION FOR REMAND OR DISMISSAL, (2) GRANTING REQUESTS FOR JUDICIAL NOTICE AND (3) DENYING MOTION FOR RULE 19(a) JOINDER

ALSUP, District Judge.

INTRODUCTION

Asserting four state-law claims, plaintiff County of Santa Clara moves for joinder of additional defendants and, based on such joinder, for remand to state court for lack of subject-matter jurisdiction. As an alternative to remand, it moves for dismissal due to lack of jurisdiction. Santa Clara and the defendants, all pharmaceutical manufacturers, separately have requested judicial notice of certain facts. The requests for judicial notice are unopposed and are GRANTED. The motion for remand or dismissal is DENIED; this Court has federal-question subject-matter jurisdiction. The Rule 19(a) motion for joinder is DENIED.

STATEMENT

Defendants make pharmaceuticals, including common medicines such as Tums, Excederin and the antibiotic, Zithromax (Compl.¶¶ 19-21).¹ They provide these medications to distributors who sell them to public hospitals and health-care clinics (Br.2). As required by state law, Santa Clara County pays the cost of drugs given to many indigent and other patients at such medical facilities, including the Santa Clara Valley Medical Center. See Cal. Welf. & Inst.Code § 17000. In 2004, the county spent more than $30 million on prescription and over-the-counter medications given to outpatients at such facilities (Compl.¶¶ 1, 3, 7).

The federal government sets maximum prices at which such medications can be sold to public health-care institutions for use in outpatient treatment (Com pl.¶¶ 26-27). 42 U.S.C. 256b. Santa Clara sued defendants in Alameda County Superior Court, claiming they had bled the county's finances with overcharges for these medicines. Santa Clara asserted four claims on behalf of itself and similarly afflicted California counties: violations of the state's unfair-competition law and false-claims act, for an accounting that would reflect the amount of overcharges and for unjust enrichment (Compl.¶¶ 68-87). Defendants removed the action here claiming diversity and federal-question jurisdiction (Notice of Removal of Action 1). Santa Clara made a timely motion for remand.

ANALYSIS

1. JUDICIAL NOTICE.

Santa Clara requested judicial notice of a publication in the Federal Register describing federal price limitations on prescription medications (Pl.'s Req. 1). Defendants requested judicial notice of six different matters: a description of the price-control regime on a Department of Health and Human Services web site; a report by the same department; the Pharmaceutical Pricing Agreement (the standard drug-pricing contract between the government and drug makers participating in the price-control program); complaints filed in two federal lawsuits; and a list of California cities by the League of California Cities (Defs.' Req. 1-3).

Under Federal Rule of Evidence 201, a court must take judicial notice of adjudicative facts if a party requests it to, if it supplies the necessary information to decide the request and if the facts are "not subject to reasonable dispute" because they are "capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned."

The time has passed for parties to object to the requests. They have not done so. Both sides have met their Rule 201 requirements. This order takes notice of the requested matters.

2. FEDERAL-QUESTION JURISDICTION.

District courts have jurisdiction over civil cases arising under the Constitution, laws and treaties of the United States. 28 U.S.C. 1331. When such a case is filed in state court, defendants may remove it to federal court. 28 U.S.C. 1441(b). Federal courts must construe the removal statute strictly. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, 85 L.Ed. 1214 (1941).

Federal-question jurisdiction arises most obviously for rights of action conferred by a federal statute or constitutional provision. Section 1331 also confers jurisdiction when an issue of federal law undergirds a claim otherwise based in state law. Such a claim, however, may only be removed to federal court if it meets certain conditions: (1) it must raise a stated federal legal issue, (2) determination of the federal issue must be necessary to resolution of the claim, (3) the federal issue must be actually disputed, (4) the federal issue must be substantial, and (5) the federal court must be able to entertain the claim "without disturbing any congressionally approved balance of federal and state judicial responsibilities." Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg., ___ U.S. ___, 125 S.Ct. 2363, 2366-68, 162 L.Ed.2d 257 (2005). If only one of several state claims satisfies the requirements for removal on federal-question grounds, then any other purely state claims in the same complaint may also be determined by the federal court under its supplemental jurisdiction. 28 U.S.C. 1441(c). This order now analyzes whether the Grable and Sons requirements are met here.

The instant case raises two stated federal legal issues: one contractual and one statutory. All the claims asserted by Santa Clara explicitly involve allegations that it was victimized by drug prices in excess of those allowed under a federal statute, 42 U.S.C. 256b, and under the Pharmaceutical Pricing Agreement, a contract between the federal government and the manufacturers (see Compl. ¶¶ 2, 7, 34; Defs.' Req. for Judicial Notice, Exh. B).² The contract, by its own terms, must be "construed in accordance with Federal common law" (Pharmaceutical Pricing Agreement at § VII(g), Defs.' Req. for Judicial Notice, Exh. B). Both violations of the federal statute and breaches of the federal contract raise obviously federal issues. See Boyle v. United Techs. Corp., 487 U.S. 500, 504, 108 S.Ct. 2510, 101 L.Ed.2d 442 (1988) ("[O]bligations to and rights of the United States under its contracts are governed exclusively by federal law."); Illinois v. City of Milwaukee, Wis., 406 U.S. 91, 100, 92 S.Ct. 1385, 31 L.Ed.2d 712 (1972) ("[Section] 1331 jurisdiction will support claims founded upon federal common law as well as those of a statutory origin.").

Contrary to Santa Clara's assertions at the hearing, determination of at least one of the stated federal issues is necessary. The alleged misconduct undergirding Santa Clara's claims distills to this: defendants purported to sell drugs in accordance with the federal-government's price prescriptions yet actually charged more. This conduct injured Santa Clara because it was obligated for those overcharges under state law. See Cal. Welf. & Inst.Code § 17000 (counties responsible for indigent medical care). For this case to be resolved on its merits, at least one of the federal issues embedded in the complaint must be addressed. There is simply no other way.

The necessity of determining the federal issues was hotly disputed by the parties in the briefs and at the hearing. This order therefore carefully examines each claim, demonstrating why it requires determination of at least one federal issue. Again, even if only one of the claims falls under federal-question jurisdiction, all may be heard here. See 28 U.S.C. 1441(c).

First, Santa Clara claims that it is entitled to an accounting. It wants this remedy so it may determine whether it paid more than allowed under the federal price-control statute and the Pharmaceutical Pricing Agreement (Compl.¶ 74). An essential element of a claim for accounting is that there is a balance due from the defendant that can only be ascertained by an accounting. St. James Church of Christ Holiness v.Super. Ct. in and for L.A. County, 135 Cal.App.2d 352, 359, 287 P.2d 387 (1955). The only way in which Santa Clara claims that a balance is due is by asserting that defendants charged in excess of the amount required by federal statute and contract. The only methods to determine the proper price are to construe or interpret the relevant federal statutes and contract. The accounting claim therefore...