United Food & Commercial Workers Unions & Employers Midwest Health Benefits Fund v. Walgreen Co.
719 F.3d 849
7th Cir.2013Background
- The Fund (an employee benefit plan) sued Walgreens and Par under RICO, alleging a scheme to overcharge insurers by substituting more expensive dosage forms (Par's ranitidine capsules and fluoxetine tablets) for prescribed dosage forms without physician authorization.
- Par manufactured less-common dosage forms that were reimbursed using Average Wholesale Price (higher), while the common forms used Maximum Allowable Cost (lower); Par marketed this reimbursement disparity to pharmacies.
- Walgreens reprogrammed its systems beginning in 2001 to automatically fill ranitidine and fluoxetine prescriptions with Par’s more expensive dosage forms, allegedly without physician approval; Walgreens later stopped the practice after government scrutiny and settled related federal and state claims.
- The Fund relied on facts from unsealed qui tam proceedings and alleged an association-in-fact “Hrp enterprise” (Walgreens, Par, and certain managers) formed to profit from the switches.
- The district court dismissed for failure to state a RICO claim under 18 U.S.C. § 1962(c); the Seventh Circuit affirmed, holding the complaint did not plausibly allege that Walgreens and Par conducted the affairs of a distinct RICO enterprise.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the complaint pleads an association-in-fact enterprise under § 1962(c) | Fund: Allegations of a shared purpose, communications, and multi-year scheme show an enterprise ("Walgreens/Par/Hrp"). | Defendants: Conduct describes ordinary commercial relationship and independent business actions, not a distinct enterprise. | Held: Allegations insufficient — relationship was ordinary commercial cooperation, not conduct of a distinct enterprise. |
| Whether defendants (persons) conducted the enterprise's affairs distinct from their own | Fund: Combined actions (Par’s manufacture/marketing; Walgreens’s system changes) show they acted for the enterprise. | Defendants: Each acted to further its own business; no control or involvement in the other’s internal affairs. | Held: Activities consistent with each company acting on its own behalf; no allegation they conducted enterprise affairs. |
| Whether illegality alone supports inference of coordinated enterprise conduct | Fund: Illegal parallel conduct implies coordination and enterprise operation. | Defendants: Illegal acts by corporations can be undertaken on their own behalf without forming an enterprise. | Held: Illegality alone insufficient; RICO requires plausibly pleaded coordination beyond parallel unlawful acts. |
| Whether RICO conspiracy under § 1962(d) is pleaded | Fund: Agreement to participate in enterprise through predicate acts inferred from joint scheme. | Defendants: No plausible allegation of agreement to conduct enterprise affairs. | Held: Conspiracy claim fails because substantive § 1962(c) claim is not adequately pleaded. |
Key Cases Cited
- Boyle v. United States, 556 U.S. 938 (2009) (definition of association-in-fact enterprise: purpose, relationships, longevity)
- Reves v. Ernst & Young, 507 U.S. 170 (1993) (defendant must conduct the enterprise’s affairs, not just its own)
- Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158 (2001) (person must be distinct from the enterprise for § 1962(c))
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)