Skilstaf, Inc. v. Cvs Caremark Corp.
2012 U.S. App. LEXIS 2561
| 9th Cir. | 2012Background
- Massachusetts class action New England Carpenters Health Benefits Fund v. First Data-Bank, Inc. & McKesson Corp. certified third-party payors and consumers claiming inflated AWPs by McKesson and First DataBank.
- Settlement: $350 million with a release of Released Claims and a covenant not to sue that barred liability against Released Parties and “any other person” based on the Released Claims.
- Notice to the Massachusetts class stated release of McKesson-related claims; it did not clearly limit the covenant to McKesson alone.
- Skilstaf objected to the broad “or any other person” language as overbroad and not adequately disclosed in the notice; Massachusetts denied striking or clarifying but gave Skilstaf a second opt-out opportunity.
- Skilstaf did not opt out after the second opt-out opportunity and accepted its settlement proceeds.
- California suit by Skilstaf sought a nationwide class damages against nine retail pharmacies for RICO and related claims, asserting the same underlying conduct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the covenant not to sue in the Massachusetts settlement is ambiguous under California law | Skilstaf argues extrinsic evidence shows ambiguity and misinterpretation by Massachusetts court | Defendants contend the language is clear and unambiguous | No ambiguity; covenant clear and enforceable against Skilstaf |
| Whether enforcing the covenant against Skilstaf violates due process | Skilstaf asserts lack of adequate notice and due process due to second opt-out not offered to all class members | Massachusetts provided notice and second opt-out; Skilstaf was adequately represented | Due process satisfied as to Skilstaf; second opt-out adequate |
| Whether issue preclusion bars Skilstaf’s California claims based on Massachusetts judgment | Skilstaf seeks collateral challenge to covenant in California; anticipates broader preclusion | Massachusetts judgment resolved the covenant/notice and allowed challenge only as to Skilstaf; issue preclusion applies | Massachusetts judgment premised on Skilstaf’s objections; issue preclusion applies to Skilstaf’s challenge |
| Whether the Massachusetts final judgment required California court to determine enforceability against nonnamed putative class members | Massachusetts judgment language permits challenging covenant’s enforceability before another court for all class members | Massachusetts judgment limited preclusion to Skilstaf’s context; does not bind nonnamed members absent class | Massachusetts judgment did not obligate California court to decide nonnamed members' enforcement issues |
| Whether the California court properly limited discovery and applied contract interpretation rules | Skilstaf contends extrinsic evidence should be considered; discovery should be allowed | Contract language is not reasonably susceptible to more than one interpretation; no discovery needed | Correct to dismiss without further discovery; contract unambiguous |
Key Cases Cited
- Reyn’s Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741 (9th Cir. 2006) (issue preclusion and settlement collateral attack principles applied to class actions)
- Churchill Village, L.L.C. v. General Electric, 361 F.3d 566 (9th Cir. 2004) (scope of due process rights for objectors and opt-out mechanisms)
- Hesse v. Sprint Corp., 598 F.3d 581 (9th Cir. 2010) (collateral review of adequacy of representation in class settlements)
- A. Kemp Fisheries, Inc. v. Castle & Cooke, Inc., 852 F.2d 493 (9th Cir. 1988) (parol evidence to determine contract ambiguity; contract interpretation)
- In re General Am. Life Ins. Sales Practices Litig., 357 F.3d 800 (8th Cir. 2004) (due process and notice in class actions (discussed for context))