661 F.3d 1199
9th Cir.2011Background
- Plaintiffs own five independent California pharmacies; Defendants are pharmacy benefit managers who contract with third‑party payors to manage prescription drug benefits.
- California Civil Code § 2527 requires bidirectional reporting: pricing studies of private pharmacy charges, every 24 months, and delivery of results to clients (third‑party payors).
- Section 2528 imposes civil penalties for violations; legislative history shows a goal to inform reimbursement discussions, not mandate actions.
- District court initially dismissed for lack of standing; on remand, Defendants moved for judgment on the pleadings asserting § 2527 compels speech in violation of the First Amendment and California Constitution.
- California appellate decisions (ARP, A.A.M. Health, Bradley) held § 2527 unconstitutional under California Constitution; district court declined Erie deference and ruled § 2527 constitutional.
- This Ninth Circuit interlocutory appeal addresses Erie deference and the constitutionality of § 2527 under US and California constitutions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Erie requires following California appellate holdings | Erie binding state appellate law governs rule of decision. | Erie allows departing from state appellate holdings where persuasive reasons exist. | Erie does not require following ARP/A.A.M. Health/Bradley; federal courts may apply First Amendment precedent. |
| Whether § 2527 constitutes unconstitutional compelled speech under the First Amendment | § 2527 compels PBMs to disclose pricing data, altering their speech. | Compelled disclosure of objective data does not suppress or force an opposing viewpoint; not a content-based compelment. | § 2527 does not offend the First Amendment; it's not a content-based compelled speech requiring heightened scrutiny. |
| Whether California's free speech provision (art. I, § 2) would be violated | California freedom of speech clause is broader and may bar compelled disclosure. | California would align with First Amendment analysis; compelled data reporting would be permissible. | California Supreme Court would construe its provision as coextensive with the First Amendment and uphold § 2527. |
| Facial vs. as‑applied challenge to § 2527 | The statute would chill or compel across circumstances; broad invalidation warranted. | Challenge is facial; statute would be valid under some circumstances; no chilling effect enough to invalidate. | The Court treats challenge as facial and upholds § 2527 as constitutional. |
Key Cases Cited
- Erie R.R. Co. v. Tompkins, 304 U.S. 64 (U.S. 1938) (Erie doctrine governs choice of law in federal diversity cases)
- Riley v. National Federation of the Blind of North Carolina, 487 U.S. 781 (U.S. 1988) (compelled factual disclosures analyzed under First Amendment scrutiny)
- FAIR (Rumsfeld v. Forum for Academic and Institutional Rights), 547 U.S. 47 (U.S. 2006) (compelled speech in context of military recruiting not always requiring heightened scrutiny)
- United Foods, Inc. v. United States, 533 U.S. 405 (U.S. 2001) (compelled subsidies for speech; distinguishes compelled speech from subsidies)
- Sorrell v. IMS Health, Inc., 131 S. Ct. 2653 (U.S. 2011) (First Amendment protection extends to data dissemination; heightened scrutiny in certain contexts)
- Bartnicki v. Vopper, 532 U.S. 514 (U.S. 2001) (speech vs. transmission of sealed recordings; First Amendment protections for disseminated information)
- Kasky v. Nike, Inc., 27 Cal.4th 939 (Cal. 2002) (California free speech provision broader than First Amendment in some contexts)
- ARP Pharmacy Servs. v. Gallagher Bassett Servs., Inc., 138 Cal.App.4th 1307 (Cal.App. 2006) (California appellate holding that § 2527 violates California Constitution § 2)