State Va. Ex Rel. Darrell v. Mcgraw

• Decision Date: 20 May 2011
• Docket Number: No. 11–1251.,11–1251.
• Parties: State of WEST VIRGINIA ex rel. Darrell V. McGRAW, Jr., Attorney General, Plaintiff–Appellee,v.CVS PHARMACY, INCORPORATED, a Rhode Island Corporation; Kmart Holding Corporation, a Delaware Corporation; The Kroger Company, an Ohio Corporation; Wal–Mart Stores, Incorporated, a Delaware Corporation; Walgreen Company, an Illinois Corporation; Target Stores Incorporated, a Minnesota Corporation, Defendants–Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

646 F.3d 169

State of WEST VIRGINIA ex rel. Darrell

v. McGRAW, Jr., Attorney General, Plaintiff–Appellee,

v.CVS PHARMACY, INCORPORATED, a Rhode Island Corporation; Kmart Holding Corporation, a Delaware Corporation; The Kroger Company, an Ohio Corporation; Wal–Mart Stores, Incorporated, a Delaware Corporation; Walgreen Company, an Illinois Corporation; Target Stores Incorporated, a Minnesota Corporation, Defendants–Appellants.

No. 11–1251.

United States Court of Appeals, Fourth Circuit.

Argued: March 22, 2011.Decided: May 20, 2011.

ARGUED: David B. Goroff, Foley & Lardner, LLP, Chicago, Illinois, for Appellants. John William Barrett, Bailey & Glasser, LLP, Charleston, West Virginia, for Appellee. ON BRIEF: Pamela C. Deem, Bryant J. Spann, Allen Guthrie & Thomas PLLC, Charleston, West Virginia, Robert H. Griffith, Jonathan W. Garlough, Foley & Lardner, LLP, Chicago, Illinois, for CVS Pharmacy, Incorporated; Alexander Macia, Spilman, Thomas and Battle PLLC, Charleston, West Virginia, Tina M. Tabacchi, Brian J. Murray, Dennis Murashko, Jones Day, Chicago, Illinois, for Wal–Mart Stores, Incorporated; Thomas R. Goodwin, Susan C. Wittemeier, Johnny M. Knisely II, Goodwin & Goodwin, LLP, Charleston, West Virginia, Jill M. Wheaton, Todd G. Gattoni, Dykema PLLC, Ann Arbor, Michigan, for Kmart Holding Corporation; W. Henry Jernigan, Jr., Ramonda Lyons, Dinsmore & Shohl LLP, Charleston, West Virginia, for Walgreen Company and The Kroger Company; David Allen Barnette, Jackson Kelly PLLC, Charleston, West Virginia, Wendy Wildung, Craig S. Coleman, Faegre & Benson LLP, Minneapolis, Minnesota, for Target Stores Incorporated. Brian A. Glasser, Bailey & Glasser, LLP, Charleston, West Virginia, Joshua I. Barrett, Sean P. McGinley, Ditrapano, Barrett & Dipiero, PLLC, Charleston, West Virginia, Frances A. Hughes, Chief Deputy Attorney General, Office of the Attorney General, Charleston, West Virginia, for Appellee.Before NIEMEYER and DAVIS, Circuit Judges, and RONALD LEE GILMAN, Senior Circuit Judge of the United States Court of Appeals for the Sixth Circuit, sitting by designation.Affirmed by published opinion. Judge NIEMEYER wrote the majority opinion, in which Judge DAVIS joined. Senior Judge GILMAN wrote a dissenting opinion.

OPINION

NIEMEYER, Circuit Judge:

The State of West Virginia, by its Attorney General, commenced this action in state court against CVS Pharmacy, Inc., and five other pharmacies (collectively, the “Pharmacies”), alleging that the Pharmacies sold generic drugs to West Virginia consumers without passing along to the consumers the cost savings of generic drugs over brand name equivalents, in violation of West Virginia Code § 30–5–12b(g), regulating the practice of pharmacy, and the West Virginia Consumer Credit Protection Act, prohibiting “unfair or deceptive acts or practices in the conduct of any trade or commerce,” West Virginia Code § 46A–6–104, and “excess charges,” id. § 46A–7–111. The State, claiming to act in its “sovereign and quasi-sovereign capacity,” seeks injunctive relief, restitution and disgorgement of “overcharges,” recovery on behalf of the consumers of “excess charges,” civil penalties, interest, costs, and attorneys' fees.

The Pharmacies removed the action from state court to the district court under the Class Action Fairness Act of 2005 (“CAFA”), Pub.L. No. 109–2, 119 Stat. 4 (2005), arguing that the action is a “disguised class action” and therefore was subject to removal under CAFA.

On the State's motion, the district court ordered that the action be remanded to state court, holding that the action was not a “class action” under CAFA, but rather a “classic parens patriae action” intended to vindicate the State's quasi-sovereign interests and the individual interests of its citizens.

We affirm, concluding that this action is not a “class action” as defined by CAFA. CAFA authorizes the removal of specified civil actions that are brought under Federal Rule of Civil Procedure 23 or a “ similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.” 28 U.S.C. § 1332(d)(1)(B) (emphasis added). This action was not brought under Federal Rule of Civil Procedure 23, nor under West Virginia's corresponding rule, West Virginia Rule of Civil Procedure 23. Rather, it was brought under a West Virginia statute regulating the practice of pharmacy and the West Virginia Consumer Credit Protection Act, neither of which includes provisions providing for a typical class action, such as provisions addressing the adequacy of representation, numerosity, commonality, and typicality requirements. Because this action was brought by the State under state statutes that are not “similar” to Federal Rule of Civil Procedure 23, we conclude that it is not removable under CAFA as a class action.

I

Attorney General Darrell McGraw commenced this action in the Circuit Court of Boone County, West Virginia, naming as defendants CVS Pharmacy, Inc., Kmart Holding Corporation, the Kroger Company, Wal–Mart Stores Inc., Walgreen Co., and Target Stores, Inc., and alleging that in filling drug prescriptions, these Pharmacies overcharged West Virginia citizens, in violation of two laws, West Virginia Code § 30–5–12b (the “Pharmacy Act”) and West Virginia Code §§ 46A–6–104 and 46A–7–111 (the West Virginia Consumer Credit Protection Act or “WVCCPA”), and thereby obtained unjust profits.

The Pharmacy Act requires pharmacists to fill prescriptions with generic drugs, when appropriate, and to pass on to the consumer the savings in the cost of the generic drugs. Thus, when a pharmacy acquires a brand name drug at $30 and a generic equivalent at $10, the pharmacy must pass on at least the $20 difference to the consumer. See W. Va.Code § 30–5–12b(g). But it must also pass on any other savings, such as the savings represented by the difference in the retail prices. See id. The Attorney General contends that violations of the Pharmacy Act also constitute violations of the WVCCPA, which prohibits “unfair or deceptive” trade practices and the collection of “excess charges.” See W. Va.Code §§ 46A–6–104, 46A–7–111.

As authorized by these Acts, the West Virginia Attorney General is, in this action, seeking a temporary and permanent injunction against further violations of the Acts; “[e]quitable relief, including but not limited to restitution and disgorgement of monies obtained as a result of the overcharges”; repayment of the “excess charges” to affected consumers; civil penalties of up to $5,000 for each willful violation of the WVCCPA; pre-judgment and post-judgment interest; and costs including legal fees. The State alleges that it is pursuing these remedies “in its sovereign and quasi-sovereign capacity.”

The Pharmacies removed the action to federal court, relying on several distinct grounds for doing so, including CAFA. To justify removal under CAFA, the Pharmacies asserted that because the “complaint [was] a disguised class action” designed “to recover funds on behalf of those consumers who have allegedly paid overcharges,” it was a removable class action. In particular, they pointed to Count III, which is dedicated to the remedy of collecting, on behalf of consumers, excess charges under West Virginia Code § 46A–7–111(1). That section provides that if “an excess charge has been made, the court shall order the [defendant] to refund to the consumer the amount of the excess charge.” Id. Noting the large number of consumers in West Virginia and prescriptions filled for them, the Pharmacies argued that Count III met CAFA's numerosity and amount-in-controversy requirements. Because the Pharmacies are not West Virginia citizens, they also argued that minimal diversity was satisfied. Finally, because the Attorney General was seeking refunds on behalf of each affected West Virginia purchaser of generic drugs, the Pharmacies contended that the action was a representational proceeding, qualifying as a “class action” under CAFA.

The district court granted the State's motion to remand, rejecting each of the various grounds relied on for removal. With respect to the CAFA ground, which is the only issue on appeal, the court concluded that this action was “a classic parens patriae action that is neither a class action nor a mass action contemplated by CAFA.” West Virginia ex rel. McGraw v. CVS Pharmacy, Inc., 748 F.Supp.2d 580, 597 (S.D.W.Va.2010). In concluding that this action was a parens patriae action, the district court noted that the WVCCPA authorized the Attorney General to act “as an administrator of the law,” independently of individual consumer complaints. Id. at 593 (quoting Manchin v. Browning, 170 W.Va. 779, 296 S.E.2d 909, 919 (1982)); see also id. at 595 (observing that the Attorney General is charged with “a freestanding consumer-protection duty”). The district court also noted that the State's action was “imbued with a ‘disgorgement’ purpose,” “separate and apart from the interests of particular consumers in obtaining recompense.” Id. at 593. In this sense, the court explained, “the Attorney General's paramount goal [was] to extract from the alleged wrongdoers every penny associated with the excess charges, along with civil penalties flowing to the State alone,” thereby “warning ... future violators that they [would] not long profit from consumer fraud.” Id. at 594.

The Pharmacies sought permission to appeal the CAFA portion of the district court's order, relying on 28 U.S.C. § 1453(c)(1), and we granted their motion by order dated March 24, 2010.

II

In arguing that the district court erred in concluding that this action was not removable as a class action under CAFA, the Pharmacies acknowledge that the Attorney General did not purport to bring his action as a class action but rather relied on his authority under the Pharmacy Act and the WVCCPA. But the Pharmacies argue:

It is well-settled that “in determining whether there is...