Glanton ex. rel Alcoa Prescription Drug Plan v. Advancepcs Inc.

• Decision Date: 14 October 2006
• Docket Number: No. 04-15328.,04-15328.
• Citation: 465 F.3d 1123
• Parties: Tommie GLANTON, on behalf of ALCOA PRESCRIPTION DRUG PLAN and all other similarly situated plans, et al.; Tara Mackner, on behalf of the Kmart Comprehensive Health Plan, Plaintiffs-Appellants, v. ADVANCEPCS INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

465 F.3d 1123

Tommie GLANTON, on behalf of ALCOA PRESCRIPTION DRUG PLAN and all other similarly situated plans, et al.; Tara Mackner, on behalf of the Kmart Comprehensive Health Plan, Plaintiffs-Appellants, v. ADVANCEPCS INC., Defendant-Appellee.

No. 04-15328.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted October 18, 2005.

Filed October 14, 2006.

Stephen J. Herman, Herman Mathis Casey Kitchens & Gerel, LLP, New Orleans, LA; David S. Casey, Jr., Herman Mathis Casey Kitchens & Gerel, LLP, San Diego, CA; Mary E. Alexander, Mary Alexander & Associates, San Francisco, CA, for the plaintiff-appellant.

Paul J. Ondrasik, Jr., Martin D. Schneiderman, Eric G. Serron, Steptoe & Johnson LLP, WA, D.C.; Peter S. Kozinets, Steptoe & Johnson LLP, Phoenix, AZ, for the defendant-appellee.

Howard M. Radzely, Solicitor of Labor, Timothy D. Hauser, Associate Solicitor, Elizabeth Hopkins, Counsel for Appellate and Special Litigation, Mary F. Williams, Trial Attorney, for amicus Secretary of the United States Department of Labor, WA, D.C.

Douglas K. deVries, deVries Law Firm, Sacramento, California; Ronald Dean, Pacific Palisades, CA; Amy Bach, United Policyholders, San Francisco, CA, for amicus United Policyholders.

Appeal from the United States District Court for the District of Arizona; Susan R. Bolton, District Judge, Presiding. D.C. Nos. CV-02-00507-SRB, CV-03-00607-SRB.

Before KOZINSKI and FERNANDEZ, Circuit Judges, and TERRY J. HATTER, JR.,^* District Judge.

KOZINSKI, Circuit Judge.

We consider whether prescription drug plan participants who have suffered no judicially cognizable injury may sue their plans' fiduciaries under the Employee Retirement Income Security Act of 1974 ("ERISA").

Facts

AdvancePCS is a pharmacy benefits management company (PBM). PBMs manage prescription drug benefit programs and seek to reduce their clients' drug costs by pooling claims and negotiating volume discounts with pharmaceutical companies. Among AdvancePCS's clients are employee welfare benefit plans sponsored by ALCOA and K-Mart.

When AdvancePCS receives a prescription from one of the plan participants, it decides whether to buy the drug (preferably from a seller with whom it has negotiated a discount), reject the claim or switch the participant to another drug. AdvancePCS pays for the drugs with plan assets after accounting for the participant's co-payment. Plaintiffs allege that, in addition to earning fees from the plans, AdvancePCS has secretly been keeping the spread between what it charges the plans for drugs and what it pays suppliers — a practice plaintiffs claim violates ERISA.

Plaintiff Tommie Glanton works for ALCOA and is a member of its prescription drug plan. Plaintiff Tara Mackner was a member of the K-Mart plan, but ceased working for K-Mart after the suit was filed and thus no longer participates in its plan.¹

Plaintiffs sued AdvancePCS under ERISA for breach of fiduciary duty. The district court found that plaintiffs lacked standing. Plaintiffs appeal.

Analysis

1. ERISA authorizes plan participants to sue fiduciaries for losses the plan suffers from a breach of their duties. 29 U.S.C. §§ 1109, 1132(a). A plan fiduciary is defined as anyone who exerts "any discretionary authority ... respecting management of such [a] plan." 29 U.S.C. § 1002(21)(A).

AdvancePCS easily fits this definition. In choosing whether to fill a prescription or shift a participant to a different drug, it exercises discretion over the plans' assets. While AdvancePCS is not named as a plan fiduciary, the applicable section of ERISA makes no distinction between named and unnamed fiduciaries. See 29 U.S.C. § 1002(21)(A); see also Kayes v. Pac. Lumber, 51 F.3d 1449, 1458-61 (9th Cir. 1995). It follows that plaintiffs here are authorized to sue AdvancePCS for breach of fiduciary duty.

2. Plaintiffs, nevertheless, cannot proceed unless they have Article III standing. See Raines v. Byrd, 521 U.S. 811, 820 n. 3, 117 S.Ct. 2312, 138 L.Ed.2d 849 (1997). They claim to meet the traditional standing requirements outlined by Lujan v. Defenders of Wildlife, 504 U.S. 555, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). Alternatively, they contend that they have standing as congressionally authorized representatives of the injured plans.

To establish standing under Lujan, plaintiffs must show a likelihood that the injury they have suffered will be redressed by a favorable outcome to the litigation. Id. at 560-62, 112 S.Ct. 2130. Plaintiffs don't claim they were denied benefits or received inferior drugs. Rather, they claim that AdvancePCS charged the plans too much for drugs, and that this caused the plans to demand higher co-payments and contributions from participants. Plaintiffs claim that, if their suit is successful, the plans' drug costs will decrease, and that the plans might then reduce contributions or co-payments. But nothing would force ALCOA or K-Mart to do this, nor would any one-time award to the plans for past overpayments inure to the benefit of participants. ALCOA and K-Mart would be free to reduce their contributions or cease funding the plans altogether until any such funds were exhausted. There is no redressability, and thus no standing, where (as is the case here) any prospective benefits depend on an independent actor who retains "broad and legitimate discretion the courts cannot presume either to control or to predict." ASARCO, Inc. v. Kadish, 490 U.S. 605, 615, 109 S.Ct. 2037, 104 L.Ed.2d 696 (1989) (opinion of Kennedy, J.); see also Fernandez v. Brock, 840 F.2d 622, 627 (9th Cir. 1988).

Other circuits that have considered this issue have reached the same conclusion. See Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, 433 F.3d 181, 201 (2d Cir.2005); Horvath v. Keystone Health Plan E., 333 F.3d 450, 455 (3d Cir.2003); Harley v. Minnesota Mining & Mfg., 284 F.3d 901, 906 (8th Cir.2002).

We therefore turn to plaintiffs' argument that they have standing to bring this lawsuit as representatives of the plan. Plaintiffs rely heavily on Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000), which upheld qui tam actions against an Article III standing challenge. Relators in qui tam actions are congressionally authorized to sue for redress of injuries suffered by the United States. Qui tam plaintiffs retain a percentage of the recovery; the rest goes to the United States. The issue in Vermont Agency was whether the fact that qui tam plaintiffs have suffered "no ... invasion" of any "legally protected right" precludes them from having Article III standing. Id. at 772-73, 120 S.Ct. 1858,

The Court concluded that the False Claims Act (FCA) "can reasonably be regarded as effecting a partial assignment of the Government's damages claim" to the relator, and that an "adequate basis for the relator's suit [could be found] in the doctrine that the assignee of a claim has standing to assert the injury in fact suffered by the assignor." Id. at 773, 120 S.Ct. 1858. The Court noted "the long tradition of qui tam actions in England and the American Colonies," and that it has "routinely" entertained suits by assignees. Id. at 773-74, 120 S.Ct. 1858.

We find the qui tam analogy inapt. Whereas qui tam actions have existed for centuries, there is no similar tradition of unharmed ERISA beneficiaries bringing suit on behalf of their plans.² More importantly, the FCA assigns relators a concrete stake in qui tam cases by giving them a piece of the action. Id. at 772, 120 S.Ct. 1858. ERISA gives plan beneficiaries nothing; any monetary recovery goes to the plans — as would the benefits of any injunctive relief.³

Plaintiffs argue, more generally, that "representative damages litigation is common — from class actions under Fed. R.Civ.P. 23(b)(3) to suits by trustees representing hundreds of creditors in bankruptcy to parens patriae actions by state government to litigation by and against executors of decedents' estates." In re Oil Spill by the Amoco Cadiz, 954 F.2d 1279, 1319 (7th Cir.1992), quoted with approval in United Food & Commercial Workers Union Local 751 v. Brown Group, Inc., 517 U.S. 544, 557, 116 S.Ct. 1529, 134 L.Ed.2d 758 (1996). None of these examples is particularly relevant to our case, because in each the plaintiff has a direct stake in the outcome of the litigation. A party can only serve as class representative if he has a personal claim that is representative of the claims of other class members; while he also litigates the case on behalf of the class, he always shares in any recovery, on a par with other class members. Trustees and executors, likewise, have a stake in the litigation because they are acting on behalf of the estate, which owns the claims being litigated. Finally, governmental entities have a concrete stake in the proper application of the laws of their jurisdiction, giving them a sufficient basis for Article III standing in parens patriae cases. Alfred L. Snapp & Son, Inc. v. Puerto Rico ex rel. Barez, 458 U.S. 592, 607, 102 S.Ct. 3260, 73 L.Ed.2d 995 (1982).⁴

Nor can plaintiffs find comfort in the associational standing cases, where the Supreme Court has held that associations or unions may bring suit to redress the rights of their members, even though the suing entity itself suffered no injury. See, e.g., United Food & Commercial Workers, 517 U.S. at 558, 116 S.Ct. 1529. These cases turn on the fiction that an individual member authorizes the group to sue on his behalf. As the Court discussed it in NAACP v. Alabama ex rel. Patterson, 357 U.S. 449, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958), the association "and its members are in a very practical sense identical." Id. at 459, 78 S.Ct. 1163, quoted in United Food & Commercial Workers, 517 U.S. at 552, 116 S.Ct. 1529. When the association is "organized for a purpose germane to the subject of its member's claim ... the association's litigators will themselves...