Moeckel v. Caremark, Inc.

Decision Date13 November 2007
Docket NumberCase No. 3:04-0633.
Citation622 F.Supp.2d 663
PartiesRobert E. MOECKEL, individually and on behalf of the John Morrell Employee Benefits Plan, similarly situated Plans, and other participants and beneficiaries similarly situated, Plaintiff, v. CAREMARK, INC., Defendant.
CourtU.S. District Court — Middle District of Tennessee

David A. McKay, Herman Mathis Casey Kitchens & Gerel, LLP, Atlanta, GA, John A. Day, Rebecca Cothran Blair, Brandon E. Bass, Day & Blair, P.C., Brentwood, TN, Mike Miller, Stacey E. Tjon, Solberg Stewart Miller & Tjon, Fargo, ND, Stephen J. Herman, Maury A. Herman, Herman, Herman, Katz & Cotlar, LLP, New Orleans, LA, for Plaintiff.

Frank E. Pasquesi, Robert H. Griffith, Foley & Lardner LLP, Chicago, IL, Joseph A. Woodruff, Paul Savage Davidson, Jennifer L. Weaver, Waller, Lansden, Dortch & Davis, LLP, Mark H. Wildasin, Office of the United States Attorney Nashville, TN, for Defendant.


ALETA A. TRAUGER, District Judge.

Pending before the court are cross-motions for partial summary judgment (Docket Nos. 120 and 128), to which responses and replies have been filed (Docket Nos. 139, 142, 159, 164). The plaintiff has requested a hearing on his motion. (Docket No. 121). The plaintiff has also asked to unseal his memorandum of law filed in support of his summary judgment motion or to refile the brief in the public record with redaction. (Docket No. 134).

I. Introduction

Plaintiff Robert E. Moeckel, an employee of John Morrell & Co. ("Morrell & Co."), brought suit against Caremark, Inc. ("Caremark") and its parent company Caremark Rx, Inc. for breach of fiduciary duties under 29 U.S.C. § 1106(b) of the Employee Retirement Income Security Act of 1974 ("ERISA"). The plaintiff was a participant in and beneficiary of the John Morrell Employee Benefits Plan ("the John Morrell Plan" or "the JM Plan"), a prescription drug plan funded by contributions by the plan sponsors as well as coinsurance, deductibles, co-payments, and other contributions made by the plaintiff and other plan participants and beneficiaries.

John Morrell Plan's prescription drug benefits were administered by defendant Caremark, a pharmacy benefits manager ("PBM").1 According to the plaintiff Caremark's provision of PBM services pursuant to its contracts with Morrell & Co. rendered Caremark a fiduciary under ERISA. More specifically, Moeckel claims that Caremark exercised discretion or control over the pricing of prescription drugs through its control over the terms of its contracts with its network of retail pharmacies (which control the reimbursement rates for retail drugs) and with drug manufacturers (which control the actual cost of drugs dispensed through Caremark's mail order pharmacies). The plaintiff alleges that Caremark manipulated the terms of its undisclosed contracts by creating hidden "pricing spreads" that yielded significant revenue to Caremark that it failed to pass through to the plans. By failing to disclose to the plans the discounted price it paid for drugs purchased by the plans' participants and beneficiaries at retail pharmacies, Caremark allegedly was able to conceal from the plans the fact that Caremark secretly exercised its discretion to create a "spread" between the discounted price that Caremark paid retail pharmacies and the discounted price that Caremark contracted to be reimbursed by the plans, a "spread" it retained. Similarly, by buying drugs from drug manufacturers to stock mail-order pharmacies, through which Caremark sold prescriptions to participants and beneficiaries, Caremark allegedly arranged significant discounts on those drugs but created a "spread" (which it retained) between the prices that Caremark agreed to pay the manufacturers and the prices that Caremark contracted to be reimbursed by the plans.

Moeckel also contends that Caremark contracted with drug manufacturers in ways that enriched Caremark to the detriment of the plans. Plaintiff alleges that Caremark was delegated discretionary control and authority to decide which manufacturers' drugs would be included in its formularies, including which would be included in its standardized formulary,2 which drugs on the formularies would be "preferred," and which relative cost indicators would be placed next to each included drug. The plaintiff also alleges that Caremark was delegated discretionary authority and control to create "formulary compliance programs," or drug-switching programs, which enabled Caremark to switch plan participants and beneficiaries from higher-cost therapeutically equivalent drugs to lower-cost therapeutically equivalent drugs. The plaintiff alleges that Caremark used the market power it gained from this level of control to enrich itself at the expense of the plans, by negotiating with manufacturers to favor more expensive therapeutically equivalent drugs, which increased the plans' costs, in exchange for monies which Caremark retains and did not pass on to the plans.

Having negotiated with a plan or a plan's sponsor to share some of the rebates or other compensation, the plaintiff alleges that Caremark also engaged in self-dealing by characterizing (and sometimes intentionally mischaracterizing) payments, credits, or other compensation in ways to maximize its own profit at the expense of the plans. Moeckel also alleges that Caremark generated and retained interest on the "float" prior to disbursement of any rebates to the plans. In addition, the plaintiff alleges that Caremark violated its fiduciary duties by secretly and subversively conspiring with drug manufacturers to inflate the average wholesale price of prescription drugs, thereby evading the "best pricing" statute, the Omnibus Budget and Reconciliation Act, 42 U.S.C. § 1396r-8.

II. Procedural History

Plaintiff Moeckel filed this case on July 19, 2004 as a putative class action on behalf of the John Morrell Plan and all other similarly situated self-funded prescription drug plans utilizing the services of defendants Caremark Rx Inc. and Caremark Inc. The plaintiffs original complaint was superseded by the amended complaint, filed November 9, 2004. (Docket No. 44). In it, plaintiff asserted multiple counts against Caremark Rx Inc. and/or Caremark Inc. under ERISA, 29 U.S.C. § 1001 et seq., bringing claims in his capacity as a participant in the John Morrell Plan, on behalf of the John Morrell Plan under Section 502(a)(2) and/or 502(a)(3) of ERISA, 29 U.S.C. §§ 1132(a)(2) and (a)(3), and on his own behalf and on behalf of other participants in, and/or beneficiaries of, the John Morrell Plan and other prescription drug plans administered by Caremark who made percentage copayments when purchasing prescription drugs, under Section 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3). The plaintiff alleges that the defendants, whom the plaintiff asserts were fiduciaries within the meaning of ERISA, violated ERISA in the following ways: (1) Count I—breach of fiduciary duty under 29 U.S.C. § 1104; (2) Count II—breach of fiduciary duty under 29 U.S.C. § 1106(b)(1); (3) Count III—breach of fiduciary duty under 29 U.S.C. § 1106(b)(2); (4) Count IV—breach of fiduciary duty under 29 U.S.C. § 1106(b)(3); (5) Count V—breach of the duty of care under 29 U.S.C. § 1104(a)(1)(B); (6) Count VI—a cause of action for appropriate equitable relief from Caremark as a "party-ininterest" pursuant to 29 U.S.C. § 1106(A)(1)(D) and § 1132(a)(3); and (7) Count VII—an accounting of the amount of plan assets Caremark retained for its own benefit (and to the detriment of the plans) and of the profits earned by Caremark through its unlawful activities.

The defendants first moved to dismiss the plaintiffs complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction due to lack of standing or pursuant to Rule 12(b)(6) for failure to state a claim. (Docket No. 45). Alternatively, the defendants moved to transfer this case to the Northern District of Alabama pursuant to 28 U.S.C. § 1404(a). (Id.)

On August 29, 2005, the court granted in part and denied in part the defendants' motion. 385 F.Supp.2d 668 (M.D.Tenn. 2005). The court granted the motion to the extent that the defendant Caremark Rx Inc. was dismissed as a party to this action. (Id.) The court denied the motion in all other respects. (Id.) With regard to venue, the court found that Caremark had failed to meet its burden of convincing the court that a transfer of venue to the Northern District of Alabama would serve the convenience of the parties and witnesses and the interests of justice. 385 F.Supp.2d at 685-87. After the court's decision, Caremark filed a motion to certify interlocutory appeal, to amend order, and to stay the case pending appeal. (Docket No. 71). The court denied the motion in all respects. (Docket No. 74).

The defendants subsequently moved to transfer this case to the Northern District of Illinois pursuant to 28 U.S.C. §§ 1404(a) and 1406(a). (Docket No. 82). The court denied the motion under both statutes, finding that Caremark had not persuaded the court that venue in this judicial district was improper or that the plaintiffs choice of forum should be upset. (Id.)

On April 17, 2006, the plaintiff filed a motion to compel Caremark to produce information and documents regarding Caremark's contracts with a "sample group" of members of the proposed class of ERISA plans; the number of "Caremark Clients," as defined by the plaintiff, on the first day of each of Caremark's fiscal years at issue; electronic billing data; pricing lists; pharmacy remittance data; rebates and other compensation received by Caremark from drug manufacturers; Caremark's revenue and profits related to the John Morrell Plan; and Caremark's policies, procedures, and protocols for certain conduct. (Docket No. 92). The parties jointly requested oral argument on the pending motion (Docket No. 94), which the court granted...

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