State v. Caremark, Inc.

• Decision Date: 21 July 2009
• Docket Number: No. 08-50360.,No. 08-50357.,No. 08-50358.,No. 08-50359.,No. 08-50354.,08-50354.,08-50357.,08-50358.,08-50359.,08-50360.
• Citation: 584 F.3d 655
• Parties: State of TEXAS; State of California; State of Arkansas; State of Louisiana; State of Delaware; State of Illinois; State of Massachusetts, Plaintiffs-Appellants, v. CAREMARK, INC.; Caremark International, Inc.; Caremark International Holdings, Inc.; Medpartners, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

584 F.3d 655

State of TEXAS; State of California; State of Arkansas; State of Louisiana; State of Delaware; State of Illinois; State of Massachusetts, Plaintiffs-Appellants, v. CAREMARK, INC.; Caremark International, Inc.; Caremark International Holdings, Inc.; Medpartners, Inc., Defendants-Appellees.

No. 08-50354.

No. 08-50357.

No. 08-50358.

No. 08-50359.

No. 08-50360.

United States Court of Appeals, Fifth Circuit.

July 21, 2009.

Bill L. Davis, Richard E. Salisbury (argued), Bill Ralph Moss, Austin, TX, for State of TX.

Howard M. Pearl (argued), William Paul Ferranti (argued), Katie P.B. Zell, Winston & Strawn, Chicago, IL, Jennifer L. Weaver, Waller, Lansden, Dortch & Davis, Nashville, TN, Charles J. Muller, III, Strasburger & Price, San Antonio, TX, for Caremark, Inc., Caremark Intern., Inc., Caremark Intern. Holdings, Inc. and Medpartners, Inc.

Siobhan Franklin, Cal. Dept. of Justice, Medi-Cal Fraud & Elder Abuse, San Diego, CA, for State of CA.

Valerie L. Kelly, Little Rock, AR, for State of AR.

Fred Duhy, James R. Murray, Baton Rouge, LA, for State of LA.

Manisha S. Desai, Waller, Lansden, Dortch & Davis, Nashville, TN, for Caremark, Inc. in No. 08-50359.

Lorinda Holloway, Kurt Howard Kuhn, Brown McCarroll, L.L.P., Austin, TX, for States of IL, DE and MA.

Appeal from the United States District Court for the Western District of Texas.

Before SMITH, GARZA and CLEMENT, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

This interlocutory appeal arises out of litigation involving the United States, several individual states (the "States"), and Defendant-Appellee Caremark, Inc. ("Caremark"). The States moved, on the grounds of sovereign immunity, to dismiss an affirmative defense asserted by Caremark that the States characterize as a "counterclaim". The district court summarily denied the motion as "premature" given other threshold legal issues. The States appealed. We vacate the order and remand to the district court to consider and rule upon the sovereign immunity issue in the first instance.

I

This appeal arises out of a qui tam suit that was filed by relator Janaki Ramados ("Ramados"). Ramados initiated the action by filing a complaint on her own behalf and on behalf of the United States and the states of Arkansas, California, Florida, Illinois, Louisiana, Tennessee and Texas alleging Caremark's violation of the False Claims Act (31 U.S.C. § 3729 et seq.) as well as violations of analogous provisions of state law (including the Texas Medicaid Fraud Prevention Act) and other statutory and common law duties. Soon thereafter several of the States and the United States filed notices of intervention and filed a joint complaint in intervention ("Joint Intervention Complaint"); the state of Louisiana separately filed its own complaint in intervention ("Louisiana Complaint"). Ramados subsequently filed a First Amended Complaint ("Relator's Complaint") acknowledging the interventions by the United States and the States. The United States' and States' complaints alleged that Caremark, a pharmacy benefit manager, fraudulently withheld reimbursement payments due to the States under the federal Medicaid program. Caremark responded to each complaint with motions to dismiss, which were denied by the district court.

After the district court's denial of its motions to dismiss, Caremark filed its answers. In each answer, Caremark pled the same "Seventh Affirmative Defense," which stated that it was entitled to "a set-off and/or recoupment of all amounts paid to the [plaintiffs] to which [such plaintiffs were] not entitled." In essence, Caremark asserted that, due to miscalculations Caremark had made regarding the amounts due to the States on their claims for Medicaid reimbursements, it had overpaid the States and was entitled to recover the overpayments. The States, arguing that the Seventh Affirmative Defense is actually a "counterclaim," moved to dismiss the Seventh Affirmative Defense on the grounds of sovereign immunity. The district court noted that, while the States' sovereign immunity arguments were potentially meritorious, dismissal of the Seventh Affirmative Defense was "premature"; without giving further reasons, the court denied the States' motion. The States filed a notice of interlocutory appeal. The district court subsequently issued an "Advisory to the Fifth Circuit," stating that it had denied the States' motion "because ... it was necessary to first address the numerous motions for summary judgment regarding threshold legal questions," and that the district court's "inclination ... has been to address the major legal issues in the action in logical order," with the first step being resolution of the pending summary judgment motions. The district court expressed its view that this court should not rule on the sovereign immunity issue until other legal issues were resolved and further discovery was conducted in the proceedings below.

Caremark argues that we do not have jurisdiction to consider the district court's order denying the motion to dismiss as premature. Alternatively, Caremark argues that even if we possess jurisdiction, the States have waived sovereign immunity as to Caremark's Seventh Affirmative Defense by initiating the litigation at hand. Because the district court summarily denied the States' motion without considering the merits, it did not reach the latter question.

II

We have jurisdiction to review the district court's denial of a motion to dismiss pursuant to the collateral order doctrine, which permits review of orders that "[1] conclusively determine the disputed question, [2] resolve an important issue completely separate from the merits of the action, and [3] [are] effectively unreviewable on appeal from a final judgment." Will v. Hallock, 546 U.S. 345, 349, 126 S.Ct. 952, 163 L.Ed.2d 836 (2006) (quoting Puerto Rico Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144, 113 S.Ct. 684, 121 L.Ed.2d 605 (1993)). Denials of motions to dismiss on sovereign immunity grounds fall within the collateral order doctrine, and are thus immediately appealable. McCarthy ex rel. Travis v. Hawkins, 381 F.3d 407, 411-12 (5th Cir. 2004) (citing Puerto Rico Aqueduct, 506 U.S. at 144-45, 113 S.Ct. 684).

Caremark argues that the district court's order was "tentative, informal, or incomplete," which would remove it from the ambit of the collateral order doctrine. See Swint v. Chambers County Comm'n, 514 U.S. 35, 42, 115 S.Ct. 1203, 131 L.Ed.2d 60 (1995) (quoting Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949)). Pointing to the district court's statement that the Motions to Dismiss are "premature" given the need to resolve the "threshold legal issues" contained in the motions for summary judgment, Caremark argues that the district court has not issued a "final order" for the purposes of the collateral order doctrine.

We disagree. Because sovereign immunity protects states from suit, Puerto Rico Aqueduct, 506 U.S. at 144-45, 113 S.Ct. 684, orders denying dismissal on the basis of sovereign immunity are immediately appealable regardless of the district court's reasons for its decision. In Sherwinski v. Peterson, 98 F.3d 849, 851 (5th Cir.1996), this court maintained jurisdiction over an appeal from a district court order that denied a sovereign immunity-based motion to dismiss against the Texas Department of Criminal Justice. The district court in that case had stated that "[u]ntil the factual and legal basis of the case has been further developed, no defendants will be dismissed." Id. We held that because the very object and purpose of sovereign immunity is to protect the state from the "coercive process of judicial tribunals at the instance of private parties," and because the value of sovereign immunity is "for the most part lost as litigation proceeds past motion practice," we had jurisdiction over the appeal pursuant to the collateral order doctrine. Id.

Sherwinski controls the present question. The district court's description of the Motions to Dismiss as premature, and its stated desire to delay the issue until after the resolution of the motions for summary judgment, do not render its order "tentative, informal or incomplete." Swint, 514 U.S. at 42, 115 S.Ct. 1203. As the States point out, the denial of their motions leaves them open to potentially intrusive discovery related to Caremark's Seventh Affirmative Defense—i.e., discovery into how the Medicaid Drug Rebate Program is administered, including the agreements between private drug manufacturers and the federal and state agencies that regulate Medicaid. Thus, the sovereign immunity question must be decided before further litigation proceeds; otherwise, the object and purpose of sovereign immunity—to shield the states from the burden of suits to which they have not consented—is violated. See, e.g., Fed. Mar. Comm'n v. S.C. State Ports Auth., 535 U.S. 743,...