North Jackson Pharmacy, Inc. v. Express Scripts

• Decision Date: 13 October 2004
• Docket Number: No. CIV.A. CV-03-HS-2696.,No. CIV. CV-03-HS-2697-N.,CIV.A. CV-03-HS-2696.,CIV. CV-03-HS-2697-N.
• Citation: 345 F.Supp.2d 1279
• Court: U.S. District Court — Northern District of Alabama
• Parties: NORTH JACKSON PHARMACY, INC., C & C, Inc., d/b/a Big C Discount Drugs, Inc., individually and on behalf of all others similarly situated, Plaintiffs, v. EXPRESS SCRIPTS, INC., Defendant. North Jackson Pharmacy, Inc., C & C, Inc., d/b/a Big C Discount Drugs, Inc., individually and on behalf of all others similarly situated, Plaintiffs, v. Medco Health Solutions, Inc.; Merck & Co., Inc.; and Paid Prescriptions, L.L.C., Defendants.

345 F.Supp.2d 1279

NORTH JACKSON PHARMACY, INC., C & C, Inc., d/b/a Big C Discount Drugs, Inc., individually and on behalf of all others similarly situated, Plaintiffs, v. EXPRESS SCRIPTS, INC., Defendant.

North Jackson Pharmacy, Inc., C & C, Inc., d/b/a Big C Discount Drugs, Inc., individually and on behalf of all others similarly situated, Plaintiffs, v. Medco Health Solutions, Inc.; Merck & Co., Inc.; and Paid Prescriptions, L.L.C., Defendants.

No. CIV.A. CV-03-HS-2696.

No. CIV. CV-03-HS-2697-N.

United States District Court, N.D. Alabama, Northeastern Division.

October 13, 2004.

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Joe R. Whatley, Jr., Andrew C. Allen, Othni J. Lathram, Whatley Drake LLC, Archie C. Lamb, Jr., A. David Fawal, Chris W. Cantrell, Law Offices of Archie Lamb LLC, Birmingham, AL, for Plaintiffs.

Gregory C. Cook, A. Kelly Brennan, Balch & Bingham, LLP, Birmingham, AL, Kenneth R. Logan, Jayma M. Meyer, Peter E. Kazanoff, Simpson, Thacher & Bartlett, LLP, New York City, Sam C. Pointer, Jr., Harlan I. Prater, IV, James F. Hughey, III, Sarah Warburton, Lightfoot, Franklin & White LLC, Birmingham, AL, Kenneth M. Kramer, James P. Tallon, Marc D. Ashley, Shearman & Sterling LLP, New York, NY, for Defendant.

OPINION REGARDING MOTION TO DISMISS SECOND AMENDED COMPLAINT

HOPKINS, District Judge.

This matter is before the court on a motion by the Defendants in these consolidated actions to dismiss the Plaintiffs' Second Amended Complaint ("SAC"). Doc. 27. The Plaintiffs allege a violation of § 1 of the Sherman Act. The issue is whether the SAC "state[s] a claim upon which relief can be granted." F.R.Civ.P. 12(b)(6). The court holds that it does.

I. BACKGROUND

The Plaintiffs are independent pharmacies. One of the four Defendants, Merck & Co., Inc., is a pharmaceuticals manufacturer. The Plaintiffs allege that during the relevant time period, Merck "controlled and dominated" another Defendant, Medco Health Solutions, Inc., "to the extent that Medco was the mere `alter ego' and/or agent of Merck." SAC Doc. 90 (case no. CV-03-HS-2695-NE¹) at ¶ 21. Medco, like the other two Defendants, is a pharmacy benefits manager, or "PBM." The PBMs administer drug-benefit plans on behalf of the plan sponsors.

II. DISCUSSION

A. Standard of Review

A complaint is not to be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Inquiry under Rule 12(b)(6) is limited to whether the complaint "give[s] the defendant fair notice of what the ... claim is and the grounds upon which it rests." Id. at 47, 78 S.Ct. 99. This liberal "notice pleading" standard applies in antitrust cases. See Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 746-47, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976); cf. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 512-13, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002); Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 168-69, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993).

B. Analysis

Section 1 of the Sherman Act states that "[e]very contract, combination..., or conspiracy, in restraint of trade or commerce among the several States ... is ... illegal." 15 U.S.C. § 1. Though the statute does not explicitly so state, its scope is limited to "unreasonable" trade restraints. See, e.g., Maris Distr. Co. v. Anheuser-Busch, Inc., 302 F.3d 1207, 1215 (11th Cir.2002).

The party alleging a § 1 violation must prove that two or more persons entered into an agreement to restrain trade. Aquatherm Indus. v. Florida Power & Light Co., 145 F.3d 1258, 1262 (11th Cir.1998). The antitrust plaintiff must also prove that the restraint is unreasonable. Retina Assocs. v. Southern Baptist Hospital of Fla., 105 F.3d 1376, 1380 (11th Cir.1997) (per curiam).

Unreasonableness can be shown by demonstrating that the conduct in question is "historically ... of the type that regularly poses anticompetitive consequences," and thus qualifies as a "per se" violation. Id. at 1381. In lieu of this, the plaintiff can establish a per se violation by means of "a preliminary examination of market conditions" which discloses an "anticompetitive effect," with no "procompetitive justification." Id.

Failing either of these alternatives, the antitrust plaintiff must cope with the "rule of reason," which requires proof that the defendant's "conduct had an anticompetitive effect in the relevant market; and ... that no procompetitive rationale would justify the conduct." Id. at 1383. This approach requires more extensive evidence of an anti-competitive effect than is necessary in connection with a preliminary examination. See id. (The "preliminary examination of market conditions... is not as detailed as the one required by the rule of reason, and has been referred to as a `quick look' at market conditions." (citation omitted)).

The SAC alleges that the Defendants have agreed amongst themselves, with other PBMs, and/or with plan sponsors to fix prices that would be paid to Plaintiffs for their services. SAC at ¶¶ 66-68, 74-77. The Plaintiffs characterize this as a "horizontal" scheme. Id. at ¶ 59. See generally, e.g., Southern Card & Novelty v. Lawson Mardon Label, Inc., 138 F.3d 869, 875 n. 9 (11th Cir.1998) ("Restraints imposed by agreement between competitors have traditionally been denominated as horizontal restraints, and those imposed by agreement between firms at different levels of distribution as vertical restraints." (citation omitted)). They also assert that the price-fixing constitutes a per se violation of § 1. See SAC at ¶¶ 67, 76; see generally, e.g., United States v. Giordano, 261 F.3d 1134, 1142 (11th Cir.2001) (referring to the "long-established rule that a horizontal price-fixing agreement ... is per se illegal").

In their motion to dismiss, the Defendants implicitly concede that a price-fixing conspiracy among PBMs would constitute a per se violation of § 1. The Defendants do, however, claim that a conspiracy involving plan sponsors would create a "vertical" restraint, rather than a "horizontal" one, and therefore is not a per se violation. They assert that the allegations of price-fixing are deficient in a number of other respects as well. These assertions are considered in the sub-sections which follow.

Conspiracy

(1) Plus Factors

To establish their claim, the Plaintiffs will have to prove that the Defendants reached an agreement among themselves or with others on the price to be paid for Plaintiffs' services. Recognizing the unlikelihood that direct evidence of a price-fixing agreement will be available, courts permit the existence of such an agreement to be inferred from indirect evidence. See, e.g., Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1299-1300 (11th Cir.2003).

Indirect evidence often involves proof that the antitrust defendants demand similar contractual terms in dealing with the plaintiffs. This "parallel" behavior is not enough by itself, however, as it is just as plausible that the behavior simply reflects "a rational, independent calculus by each" of the defendants, rather than a conspiracy to fix prices. Id. at 1299. The courts have accordingly "fashioned a test under which price fixing plaintiffs must demonstrate the existence of `plus factors' that remove their evidence from the realm of equipoise and render that evidence more probative of conspiracy rather than of conscious parallelism." Id. at 1301. "One prominent `plus factor' ... is a showing that the defendants' behavior would not be reasonable or explicable (i.e., not in their legitimate economic self-interest) if they were not conspiring to fix prices...." City of Tuscaloosa v. Harcros Chemicals, 158 F.3d 548, 572 (11th Cir.1998).

The Plaintiffs accuse the Defendants of "parallel behavior." SAC at¶ 53. They describe this behavior as follows:

[The Defendants all] have substantially similar contracts in which all material provisions are the same; all are engaged in the formation of third-party utilization services, including Hub RX [sic — RxHub]; all used the AWP [average wholesale price] and MAC [maximum allowable cost] to set their reimbursement prices to pharmacies; all require member pharmacies to use and purchase similar software designed to process claims and to maintain their detrimental pricing scheme; all impose unreasonable and unnecessary additional costs on member pharmacies; all continue to "push" drugs, by placing them on their formulary, that are not the least expensive or even the most therapeutic or effective of a given class of drugs; all contractually require pharmacies to turn over confidential customer data and then use that data to divert customers to their mail-order pharmacies; all refuse to disclose to pharmacies what price they have negotiated for formulary drugs with the drug manufacturer, including any rebates, discounts, or incentives they received; all refuse to share any of the savings they receive via these rebates and discounts with either the pharmacies or the health plan members; and all impose the same or similar unconscionable and punitively low reimbursement rates on member pharmacies.

Id.²

The Defendants argue that "each of the parallel practices alleged ... is ... in the economic interest of individual PBMs acting independently and therefore cannot support an inference of conspiracy." Defendants' Brief (doc. 28) at 17. Because the SAC "proffers no plus factors reflecting unlawful parallel conduct," the Defendants assert, the complaint must be dismissed. Id.

The premise underlying this argument is that a complaint which fails to allege a valid plus factor is subject to dismissal pursuant to Rule 12(b)(6). The Defendants imply that such is the case, citing 3 cases for the proposition that "`plus factors' must be alleged." Id. at 16. Those cases are not on point, however, as they addressed the...