Healthcare Distribution Alliance v. Zucker
| Decision Date | 19 December 2018 |
| Docket Number | 18 Civ. 6168 (KPF), 18 Civ. 8180 (KPF), 18 Civ. 9830 (KPF) |
| Citation | 353 F.Supp.3d 235 |
| Parties | HEALTHCARE DISTRIBUTION ALLIANCE, Plaintiff, v. Howard A. ZUCKER, in His Official Capacity as Commissioner of Health of New York; and Barbara D. Underwood, in Her Official Capacity as the Attorney General of New York, Defendants. Association for Accessible Medicines, Plaintiff, v. Barbara D. Underwood, in Her Official Capacity as the Attorney General of New York; and Howard A. Zucker, in His Official Capacity as Commissioner of Health of New York, Defendants. SpecGx LLC, Plaintiff, v. Barbara D. Underwood, in Her Official Capacity as the Attorney General of New York; and Howard A. Zucker, in His Official Capacity as Commissioner of Health of New York, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Andrew Bennett Kratenstein, Michael Elias Berman, John J. Calandra, McDermott, Will & Emery, LLP (NY), New York City, Diann L. Smith, Eric Hageman, M. Miller Baker, Sarah Hogarth, Stephen P. Kranz, McDermott, Will & Emery (DC), Washington, DC, Andrew J. O'Connor, Brien T. O'Connor, Erin R. Macgowan, Ropes & Gray LLP, Boston, MA, Douglas H. Hallward-Driemeier, Ropes & Gray LLP, Washington, DC, Christopher Paul Conniff, Ropes & Gray LLP, New York, NY, for Plaintiff.
Seth Jonathan Farber, James M. Hershler, New York State Office of the Attorney General, New York, NY, for Defendants.
New York State — like the rest of our Nation — is in the grips of an opioid epidemic. To counter that epidemic, New York has taken proactive measures to treat existing opioid addiction, to prevent future addiction, and to educate New Yorkers about the dangers of opioid dependence
. The centerpiece of these efforts is the Opioid Stewardship Act (the "OSA" or the "Act"), effective July 1, 2018, which established a $600 million "stewardship fund" to further these goals. The plaintiffs in these three related cases do not contest the existence of the epidemic or the wisdom of countermeasures, but instead take issue with the particular means that New York has chosen.
Plaintiff Healthcare Distribution Alliance ("HDA") initiated the first action on July 6, 2018, seeking (i) a declaratory judgment that the Act was unconstitutional and (ii) a permanent injunction prohibiting its implementation. On September 12, 2018, HDA moved for summary judgment on its claims. Two other plaintiffs, the Association for Accessible Medicines ("AAM") and SpecGx LLC ("SpecGx"), have presented a more surgical approach, challenging provisions of the OSA that forbid opioid distributors and manufacturers from passing on the costs of the OSA to downstream purchasers (the "pass-through prohibition") as unconstitutional and moving for injunctive relief.
New York1 has moved to dismiss all three cases on jurisdictional and prudential grounds. Proceeding from the foundational premise that assessments for OSA's stewardship fund constitute a tax, New York argues that the Court is foreclosed from hearing Plaintiffs' challenges pursuant to the Tax Injunction Act (the "TIA"), or, in the alternative, that the Court should abstain from so hearing under principles of comity or Pullman abstention. As further fallback positions, New York asks the Court to find the OSA constitutional, either in its current state or, if need be, after the excision of the pass-through prohibition.
A review of the record in these cases2 confirms that while the animating concerns of the OSA are plainly valid, the method by which the Act extracts payments from opioid manufactures and distributors to redress those concerns violates the Dormant Commerce Clause of the United States Constitution. The OSA is not a tax, but is rather a regulatory penalty on opioid manufacturers and distributors. And as currently structured, it improperly burdens interstate commerce. Furthermore, the record demonstrates that New York did not intend the OSA to survive absent the pass-through prohibition. Accordingly, and for the reasons discussed in the remainder of this Opinion, HDA's motion for summary judgment is granted, as are AAM's and SpecGx's motions for preliminary injunctive relief.
The plaintiffs in the three lawsuits occupy different links within the opioid distribution chain. Plaintiff HDA is the national trade association for pharmaceutical wholesale distributors. Its members do not manufacture, produce, or prescribe opioids. Instead, they are responsible for coordinating receipt and delivery between and among manufacturers and pharmacies, hospitals, and other dispensers of pharmaceuticals to consumers. (HDA Compl. ¶ 9). By contrast, Plaintiff AAM is an association representing the leading manufacturers and distributors of generic and biosimilar medicines, manufacturers and distributors of bulk active pharmaceutical ingredients, and suppliers of other goods and services to the generic and biosimilar pharmaceutical industry. (AAM Compl. ¶ 9). Plaintiff SpecGx is a limited liability company organized and existing under the laws of the State of Delaware, which develops, manufactures, and sells pharmaceutical products and therapies, including generic opioid medications. (SpecGx Compl. ¶ 13).
HDA represents distributors of opioids, while SpecGx and members of AAM are manufacturers of generic opioids. None of the Plaintiffs is a manufacturer of brand-name opioids. As explained by SpecGx:
[G]eneric prescription drugs are sold by two primary paths: (i) the manufacturer sells the products to wholesale distributors under terms of a negotiated contract, after which the wholesale distributor then resells the product to retail pharmacies or other providers; and (ii) the manufacturer may also sell to national or regional pharmacy chains, hospitals, and other healthcare facilities.
The parties' submissions present divergent views of the OSA's legislative history. Ultimately, the Court's decision rests on the text of the OSA itself; the legislative history is largely irrelevant to the constitutional problems the Court has identified. However, given the parties' arguments concerning severability, the Court provides a brief discussion of the legislative history in order to illuminate the intentions of OSA's sponsors and supporters.
As deaths continued to mount from abuse of opioids
,4 Governor Andrew M. Cuomo announced that the crisis would be a priority in his State of the State Address before the New York State Legislature. (HDA 56.1 ¶¶ 1-2). To that end, on January 16, 2018, the Governor introduced his proposed budget, which included the proposal that would eventually become the OSA: "Opioid manufacturers have created an epidemic. We would have an opioid surcharge, 2 cents per milligram will be paid by the manufacture[rs] and would go to offset the costs that we're spending to fight opioid abuse
[,] which are multiples of the $170 million." (Id. at ¶¶ 3-4).
As the New York State Assembly debated the bill, Assemblywoman Helene Weinstein, the Chair of the Ways and Means Committee, stated that the OSA's cost would be borne by distributors and manufacturers of opioid medications. (Declaration of Seth Farber dated October 17, 2018 ("Farber Decl." (6168, Dkt. # 42) ), Ex. K at 21). In response to concerns that the cost would ultimately be borne by downstream pharmacies (and, by extension, their customers), Member Weinstein further declared that it was "certainly not the [drafter's] intention [to have pharmacies pay the OSA's surcharge]." (Id. at 23). In subsequent discussion with Assemblyman Richard N. Gottfried, who was and remains Chair of the Assembly Health Committee, Defendant Commissioner Howard Zucker confirmed that the OSA was structured to ensure that payment would not "get filtered down to the end-user[.]" (Declaration of Andrew Kratenstein dated September 12, 2018 ("Kratenstein Decl." (6168, Dkt. # 37) ), Ex. K at 174-76). In the OSA's final form, this payment was given a name: the "opioid stewardship payment." (HDA. 56.1 ¶ 6). On April 12, 2018, the Governor signed the legislation into law. 2018 N.Y. Sess. Laws 57, S.7507-C. (Id. at ¶ 7). The OSA was codified in two places, at New York Public Health Law § 3323 and New York State Finance Law § 97 -aaaaa.
The OSA creates a $600 million fund (the "Opioid Stewardship Fund" or the "Fund") that is derived from annual assessments on pharmaceutical manufacturers and wholesale distributors that are licensed to sell or distribute opioid products in New York (collectively, the "Licensees"). (HDA Compl. ¶ 13). The assessment will be spread out over six years, with $100 million paid annually from 2019 through 2024; each year's assessment is calculated based on sales made the previous year and is payable the following year. (HDA 56.1 ¶¶ 11-12). The assessment for each Licensee is expressed in terms of a "ratable share" and is calculated as follows:
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