Plaintiffs, City of Rockford, Illinois, and Acument Global Technologies Inc., filed a second amended complaint (the "SAC") against two groups of defendants: (1) Mallinckrodt plc and Mallinckrodt ARD, Inc.
I. BACKGROUND
The following facts are drawn from the allegations in the SAC. Because this case comes before the court pursuant to a motion to dismiss, the court accepts all non-conclusory allegations in the SAC as true.
A. Acthar and the Exclusive Dealing Arrangement
Acthar is an adrenocorticotropic hormone ("ACTH") drug, which causes the body to produce cortisone and other steroid hormones. SAC ¶ 41. In 1952, the Food and Drug Administration approved Acthar's application to over fifty conditions.
Before 2007, Acthar was distributed to any doctor, hospital, wholesaler, or specialty pharmacy who requested the drug to treat seriously ill patients.
Express Scripts' role is to provide "integrated specialty services" to facilitate every other facet of the distribution chain, where each Express Scripts entity plays different roles at different levels of this process.
Plaintiffs further allege various anticompetitive acts that enabled defendants to use the ASAP to price-fix and maintain Mallinckrodt's monopoly. One example is the timing of Acthar's first large price increase. As soon as defendants implemented the ASAP, Mallinckrodt increased the price of Acthar from approximately $ 1,980 to $ 27,922.80-a 1,310% increase in the span of a month, and a 69,707% increase from 2001.
B. The Synacthen Acquisition
Plaintiffs also contend that the purported conspiracy allowed Mallinckrodt to keep Acthar's price high by eliminating potential competition to Acthar. By 2013, the only significant alternative to Acthar was Synacthen Depot ("Synacthen"), a synthetically derived ACTH medication manufactured by Novartis AG.
In 2013, Novartis agreed to sell the rights of Synacthen to Retrophin, Inc., for $ 16 million.
In January 2014, Retrophin sued Mallinckrodt for antitrust violations in the United States District Court for the Central District of California. Retrophin alleged that there was no procompetitive aspect of Mallinckrodt's acquisition of Synacthen.
Rockford provides its employees with a health plan that includes prescription insurance coverage for two Acthar patients. The health plan has a contract with ESI, which requires ESI to collect payments for the price of Acthar. In a contract between Rockford and ESI (the "PBM Agreement" or the "contract") that the parties entered into on January 1, 2015, ESI agreed to provide Rockford certain services, including "cost containment," although "cost containment" is not defined in the agreement. Mallinckrodt charged Rockford for Acthar at a discounted rate of 13.5% off the "average wholesale price" as set forth in the PBM Agreement. Mallinckrodt set the average wholesale prices of Acthar used by Express Scripts for reimbursement. Accordingly, on April 1, 2015, Mallinckrodt had Acthar shipped directly to the children of two Rockford employees. ESI then charged Rockford $ 100,457.64 for the 30-day supply of Acthar, pursuant to the terms of the PBM Agreement.
In contrast, Acument has a contract with CVS Caremark ("CVS") which covered the spouse of one of Acument's employees because the spouse suffers from a condition for which Acthar was prescribed as a treatment option. Plaintiffs allege that CVS stepped into the place of ESI in the Acthar distribution chain, but was still coordinated by UBC. CVS charged Acument $ 894,617.75 for thirteen administrations of Acthar in a thirteen-month period between December 2015 and December 2016.
The SAC alleges claims by Rockford against Express Scripts for unjust enrichment (Count I); Rockford against Mallinckrodt for unjust enrichment (Count II); Acument against Mallinckrodt for unjust enrichment (Count III); plaintiffs against all defendants for fraud (Count IV), conspiracy to defraud (Count V), maintenance of monopolization under
II. ANALYSIS
When deciding a motion to dismiss, the court accepts all of the well-pleaded allegations of the complaint as true and draws all reasonable inferences in favor of the plaintiff. Bell Atl. Corp. v. Twombly,
As an initial matter, defendants argue in their motions to dismiss that plaintiffs' claims are barred by applicable statutes of limitations to the extent that plaintiffs seek recovery for them and the class based on payments for Acthar that fall outside of each claim's respective limitations periods. "A plaintiff is not required to plead elements in his or her complaint that overcome affirmative defenses, such as statute-of-limitations defenses." NewSpin Sports, LLC v. Arrow Elecs., Inc.,
A. Federal Antitrust Claims (Counts VI and VII)
The gravamen of plaintiffs' antitrust claims is that defendants acted and conspired to raise Acthar prices exorbitantly high as part of a vertical price-fixing scheme and did so by implementing the ASAP, restricting distribution, not seeking low-cost alternatives to Acthar, and, in the case of the Synacthen Acquisition, eliminating viable competitors from entering the ACTH market in order to unlawfully preserve Mallinckrodt's monopoly for its and Express Scripts' pecuniary benefit. The antitrust conspiracy, as plaintiffs allege, injured plaintiffs by forcing them to pay higher costs for Acthar than they would have but for defendants' conduct. For the foregoing reasons, the court finds that Rockford has plausibly stated that defendants' conduct amounted to violations of §§ 1 and 2 and that it was injured by this conduct, but that Acument does not plausibly allege that it has antitrust standing to sue.
1. Plaintiffs' Article III Standing for Federal Antitrust Claims
Generally, Article III standing is "the threshold question in every federal case, determining the power of the court to entertain the suit." Warth v. Seldin,
2. Rockford's Antitrust Standing for Federal Claims
The Supreme Court has found two additional standing limitations born from the
a. Illinois Brick
As alleged, Rockford directly purchased Acthar from Express Scripts, so the "indirect purchaser" limitation of Illinois Brick does not affect Rockford's antitrust standing to sue Express Scripts. As for its claims against Mallinckrodt as an indirect purchaser,
Illinois Brick does not limit suits by consumers against a manufacturer who illegally contracted with its dealers to set the latter's resale price. The consumer plaintiff is a direct purchaser from the dealer who, by hypothesis, has conspired illegally with the manufacturer with respect to the very price paid by the consumer. There is no problem of duplication or apportionment because the consumer is the only party who has paid any overcharge. Although the manufacturer did not sell directly to the consumer, he is a fellow conspirator with the direct-selling dealer and therefore jointly and severally liable with the dealer for the consumer's injury.
2 PHILLIP E. AREEDA & HERBERT HOVENKAMP , ANTITRUST LAW 264 (rev. ed. 1995) (footnotes omitted); see Paper Sys. Inc. v. Nippon Paper Indus. Co.,
A plaintiff alleging conspiracy to fix prices in violation of the Sherman Act must allege "enough factual matter (taken as true) to suggest that an agreement was made"-that is, "enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Twombly,
id="p749" href="#p749" data-label="749" data-citation-index="1" class="page-label">*749
As the court accepts all allegations at the Rule 12 stage as true, the court finds that a reasonable inference could be drawn that defendants conspired to unlawfully boost the price of Acthar, restrict its output, and eliminate competition in violation of federal antitrust law when Mallinckrodt instituted its "new strategy." The goal of the exclusive dealing arrangement was "to lock patients into receiving Acthar through one channel and prevent a competitive product from entering the market." SAC ¶ 222 (emphasis added). Express Scripts employed its market power to effectuate these goals, allowing Mallinckrodt to maintain its monopoly, thereby increasing both their profits, and prevent competitors from challenging that monopoly. Thus, Mallinckrodt's decision to purchase the rights to Synacthen "at the eleventh hour" only to "shelve" the product upon acquiring it was simply an intended goal of the ASAP, effectuated by both defendants. Id. ¶¶ 111-114, 145, Specifically, Express Scripts agreed not to push back on Mallinckrodt's decisions to inflate Acthar's price beyond the competitive level, in contrast to when Express Scripts took the opposite approach in 2015 with respect to Turing's drug, Daraprim. Id. ¶¶ 86-88. While defendants appear to isolate the exclusive dealing arrangement from the Synacthen Acquisition, taking the allegations in the SAC as true, plaintiffs allege that these anticompetitive acts were part of the same conspiracy. Id. ¶¶ 231, 250. The court anticipates that further discovery will shed light on Express Scripts' knowledge of and role in the Synacthen Acquisition, if any. But at this stage of litigation, the court draws all reasonable inferences from the complaint in favor of plaintiffs and taking the SAC as a whole finds that plaintiffs have sufficiently alleged a conspiracy.
Defendants cite In re ATM Fee Antitrust Litigation to argue that allegations of a vertical conspiracy pursuant to the "co-conspirator" exception must include the allegation that "the conspiracy must fix the price paid by the plaintiffs," and because plaintiffs failed to allege that defendants fixed the price paid by plaintiffs, Illinois Brick still applies.
But ATM Fee expressly noted that the Seventh Circuit takes a different approach. See ATM Fee,
Further, the three concerns highlighted by Illinois Brick are not of concern in the instant case. First, there is no risk of duplicative liability or potentially inconsistent judgments because plaintiffs and Express Scripts would not be suing for the same injury given plaintiffs' allegations that Express Scripts took part in the price-fixing that allegedly injured plaintiffs. Second, permitting plaintiffs to sue would not cause inefficient enforcement of the antitrust laws by diluting the ultimate
In sum, plaintiffs allege circumstantial evidence to support their argument that defendants agreed to a vertical price-fixing scheme. Discovery may illuminate that Express Scripts did not in fact play a role in the Synacthen Acquisition, that defendants had no intention of effecting harm to the market through the exclusive dealing arrangement, and/or that Mallinckrodt conducted its allegedly unlawful conduct separate and apart from its business associations with Express Scripts. Indeed, plaintiffs will be required later in litigation to provide evidence "that tends to exclude the possibility that the alleged conspirators acted independently." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
b. AGC
Aside from Illinois Brick, another antitrust standing limitation imposed on parties bringing antitrust actions comes from AGC. In determining whether an antitrust plaintiff is a "proper party" to bring suit under AGC, courts look at the following factors: (1) the causal connection between the violation and the harm; (2) the presence of improper motive; (3) the type of injury and whether it was one Congress sought to redress; (4) the directness of the injury; (5) the speculative nature of the damages; and (6) the risk of duplicate recovery or complex damage apportionment.
The court finds that Rockford alleges that it is a proper party to bring its federal antitrust claims and thus satisfies the AGC factors.
3. Acument's Antitrust Standing for Federal Claims
While the court finds that the SAC plausibly alleges an antitrust conspiracy between Mallinckrodt and Express Scripts, there is an additional wrinkle concerning the "directness" of Acument's purchasing relationship to Express Scripts because plaintiffs allege that Acument paid CVS for Acthar and not ESI. Specifically, they allege that,
when Acument contracted with CVS Caremark for the provision of specialty drugs, like Acthar, to its employee beneficiaries, CVS Caremark simply charged the same prices based on the prices set by Mallinckrodt in agreement with Express Scripts, as the product continued to flow directly from Express Scripts to the patients of other PBMs, like CVS Caremark...."[S]uch payments were transferred by CVS Caremark to Mallinckrodt pursuant to a likely understanding between the two that the total amount would be forwarded to Mallinckrodt, less a certain amount previously agreed to by Mallinckrodt and CVS Caremark."
SAC ¶¶ 70, 72, 196, 246 (emphasis added).
Plaintiffs do not sufficiently plead that CVS was a member of the conspiracy merely by alleging that CVS operated in the same fashion as Express Scripts, see id. ¶¶ 233-234, or that Mallinckrodt had a "likely understanding" with CVS, which mirrored the arrangement it had with Express Scripts, id. ¶ 196. Otherwise, the SAC contains scant mentions of CVS and its role as part of the dealing arrangement alleged in all other respects to be exclusive.
AGC also presents a problem here, albeit less of a problem than Illinois Brick. It appears that the allegations in the SAC may satisfy the AGC factors as applied to Acument. But until we know the contours of CVS' role in supplying Acthar to Acument's employee's spouse, the court is not able to engage in a complete application of the AGC factors to Acument.
Thus, the court dismisses without prejudice Acument's federal antitrust claims against Mallinckrodt and Express Scripts. The court grants plaintiffs leave to replead to correct Counts VI and VII's deficiencies.
The court now turns to the merits of Rockford's §§ 1 and 2 claims under the Sherman Act.
4. § 1 (Count VII)
Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce."
a. Unreasonable Restraint of Trade
The "unreasonable restraint of trade" prong asks courts to assess "the competitive effects of challenged behavior relative to such alternatives as its abandonment or a less restrictive substitute."
Rockford alleges two anticompetitive understandings-the exclusive dealing arrangement and the Synacthen Acquisition-that together form the basis of their § 1 claims. While courts generally assess exclusive dealing arrangements under the rule of reason analysis, it is less clear that the rule of reason analysis applies here where plaintiffs have alleged that the conspiracy included both the exclusive dealing arrangement and the Synacthen Acquisition, which plaintiff argues deserves a "per se" analysis. However, the court agrees with plaintiffs that the court need not make this determination at this time. See In re: EpiPen (Epinephrine Injection, USP) Mktg., Sales Practices & Antitrust Litig.,
Rockford alleges that defendants conspired to keep prices high, restrict output, and prevent competition from entering the market. The "new strategy" reduced the number of wholesale distributors of Acthar from three to one, thereby restricting patient's access to Acthar, and employed Express Scripts' market power not to push for lower-cost alternatives. SAC ¶¶ 48, 103. The ASAP thus allowed Mallinckrodt to maintain its dominant monopoly power in the ACTH drug market, maintain prices at artificially high levels, and exclude less expensive competitive products from the ACTH drug market.
b. Antitrust Injury
The third prong requires that an antitrust plaintiff must allege that the "claimed injuries are of the type the antitrust laws were intended to prevent and reflect the anticompetitive effect of either the violation of or anticompetitive acts made possible by the violation." Kochert,
5. § 2 (Count VI)
Rockford alleges that defendants acted and conspired to monopolize the ACTH drug market in violation of § 2.
The first prong of this test is sufficiently pled. Plaintiffs allege that Mallinckrodt initiated its "new strategy" to limit Acthar's distribution to one distributor, Express Scripts. Id. ¶¶ 48-49, 221, 231. Plaintiffs allege that Mallinckrodt was acting in concert with Express Scripts in an exclusive dealing arrangement well before the Synacthen Acquisition, and thus, plaintiffs plausibly allege that defendants' conspiracy encompassed and facilitated the Acquisition. As to the third prong, the parties do not dispute that as pled the alleged conspiracy affects a substantial amount of interstate commerce. See SAC ¶ 19. With respect to the fourth prong, in cases such as this that involve exclusive dealing arrangements, courts typically infer a sufficient allegation of specific intent when overt acts are adequately pled. See Spectrum Sports, Inc. v. McQuillan,
In addressing the second prong, similar to § 1's "anticompetitive effects" requirement, plaintiffs must allege that the overt acts constitute "anticompetitive conduct." See Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP,
While analysis of this prong can in some cases differ greatly from claims under § 1, for exclusive dealing claims brought under § 2, the analysis nearly the same as that for § 1 claims. This makes sense given that a plaintiff alleging an "unreasonable restraint of trade" would typically be required to allege that a defendant undertook "overt acts" to effectuate the restraint. Methodist Health,
Further, like claims under § 1, a plaintiff alleging a § 2 claim must also allege an "antitrust injury." See O.K. Sand & Gravel, Inc. v. Martin Marietta Techs., Inc.,
Accordingly, the court denies defendants' motions to dismiss Counts VI and VII as to Rockford, finding that Rockford has antitrust standing to bring these claims and has met its burden at the Rule 12 stage.
B. State-Law Antitrust and Consumer Protection Claims (Count VIII)
Plaintiffs bring various state-law antitrust and consumer protection claims against defendants. Defendants put forth three separate arguments as to why plaintiffs' state-law claims should be dismissed. Their first argument is that plaintiffs lack constitutional standing under Article III to
1. Article III Standing for Claims of Unnamed Class Members
Although defendants do not dispute plaintiffs' Article III standing to pursue their federal claims, defendants challenge plaintiffs' Article III standing to bring state-law claims on behalf of the unnamed class members.
Courts across this country are split on this timing issue. See McDonnell v. Nature's Way Prods., LLC, No.
One court in this district discussed Halperin v. International Web Services, LLC,
2. Rockford's Antitrust Standing for State-Law Claims
Defendants also argue that the proximate-cause limitation under AGC applies to plaintiffs' attempt to bring state-law claims for the unnamed class members.
Generally, in deciding whether to apply AGC to state-law antitrust claims, courts look to whether the relevant states' highest courts have ruled on the issue. Broiler Chicken,
3. Acument's Antitrust Standing for State-Law Claims
Conversely, the court finds that Acument would not meet even the least stringent state's "proximate cause" test. To reiterate this opinion's section on the application of AGC to Acument's federal antitrust claims, the SAC lacks sufficient allegations to allow the court to determine how Acument's injuries in Tennessee are connected to defendants' conduct. Thus, the court grants defendants' motions to dismiss Count VIII as it pertains to Acument. The court grants plaintiffs leave to replead to correct the deficiencies associated with Acument's "proper party" status concerning its state-law claims.
4. Statutory Limitations
In addition to the aforementioned standing arguments, defendants also bring a
a. Arizona, California, Florida, Hawaii, Iowa, Kansas, Massachusetts, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oregon, Rhode Island, South Dakota, Tennessee, and Wisconsin
Defendants' briefing on this issue is cursory. Mallinckrodt simply argues that "[t]he antitrust laws of these states limit their reach to activities which occur within the state. Because Plaintiffs fail to allege conduct within those states that would violate the respective statutes, each claim should be dismissed." Similarly, for the consumer protection statutes, defendants argue that those statutes only concern "intrastate" activity. The court finds that plaintiffs have met their bare pleading requirements at this stage that unnamed class members purchased Acthar in these states. See SAC ¶¶ 260-266, 269-289, 293-336, 341-348, 353-356. Later stages in this litigation, including the Rule 23 stage, will allow the court to more definitively determine whether any unnamed class members purchased Acthar in these states.
However, as noted in the previous section, the SAC does not sufficiently allege that Acument is a proper party to bring any antitrust or consumer protection claims (federal or state). Thus, with leave to replead, the court dismisses Count VIII to the extent Acument seeks to represent the claims of unnamed class members-including those in Tennessee.
b. Arkansas
The Arkansas Deceptive Trade Practices Act (the "ADTPA") prohibits a variety of conduct, including "[d]eceptive and unconscionable trade practices."
Defendants do not cite any authority supporting its argument that the consent order between the FTC and Mallinckrodt-which defendants ask this court to ignore as evidence connected to a different argument pursuant to their motions to dismiss-falls within the statutory exemption of the ADTPA. In the court's view, the exemption appears inapplicable to the consent order here, as the safe harbor provision is meant to exempt "conduct that is permitted under laws administered" by the FTC, see DePriest v. AstraZeneca Pharms., L.P.,
In Arkansas, unconscionable trade practices include "conduct violative of public policy or statute." Universal Coops., Inc. v. AAC Flying Serv., Inc.,
c. Illinois
Defendants argue that plaintiffs cannot bring their claims under the Illinois Antitrust Act because, while it allows for recovery by indirect purchasers, it provides that "no person shall be authorized to maintain a class action in any court of this State for indirect purchasers asserting claims under this Act, with the sole exception of this State's Attorney General." 740 ILCS 10/7(2). Rockford contends that, under Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.,
In Shady Grove, the Supreme Court held that a New York statute prohibiting class actions "in suits seeking penalties or statutory minimum damages" did not bar the class action in that case under New York law in federal court. See
There is a split of authority on the issue of whether the Illinois Antitrust Act's class action prohibition is part of Illinois' "substantive rights or remedies." Some courts have answered in the affirmative. See, e.g., In re Opana ER Antritrust Litig.,
While the court recognizes the split in authority on this issue, the court agrees with the reasoning of Aggrenox, which casts doubt on whether Justice Stevens' "framework of substantive rights or remedies" concurrence controls. The Court noted the doctrine from
The Stevens concurrence is "narrower" than the position of the other Justices who made up the Shady Grove majority only in the sense that it would reject state procedural rules in fewer cases. It is not logically narrower, however, because it is not a logical subset of the opinion of the other Justices in the majority. Those Justices do not implicitly approve of its rationale for sometimes allowing state procedural rules to control-on the contrary, they explicitly reject that rationale-and it therefore does not represent the common denominator of the Court's reasoning. The courts that have taken the Stevens concurrence to be controlling have generally not addressed that problem ... [E]ven though Stevens joined the majority to hold that Rule 23 trumps New York's class-action bar, he agreed with the dissent that some state procedural rules-when sufficiently intertwined with the state's substantive rights and remedies-can control in federal court. The Wellbutrin Court infers from that agreement that there were five votes for Stevens's approach. The problem is that no other Justice joined his concurrence, and even if we nevertheless infer agreement, the common denominator of a concurrence and a dissent does not support the judgment.
Aggrenox,
But even to the extent that Justice Stevens' concurrence could be construed as persuasive " Marks-doctrine dicta," the Court found that the Illinois Antitrust Act did not alter the scope of any substantive right or remedy-and is thus not substantive for purposes of Shady Grove -"because any indirect purchaser procedurally blocked from participation in a class action would still have the same remedy in an individual action." Id. The Court acknowledged that the Illinois Antitrust Act's class action limitation hewed more closely to a particular substantive right (indirect-purchaser antitrust claims) than the New York state-law limitation in Shady Grove, but ultimately found that "if New York's state-law bar is not a procedural rule that alters the scope of a substantive right or remedy, then the narrower scope of Illinois's state-law bar does not make it one that does." Id.; see also In re TFT-LCD (Flat Panel) Antitrust Litig., No. M 07-1827 SI,
d. Arizona, Hawaii, Nevada, and Utah
With respect to plaintiffs' claims under Arizona, Hawaii, Utah, and Nevada, defendants argue as another basis for dismissal that plaintiffs' failure to plead compliance with the notice provisions of these states' antitrust statutes necessitates dismissal. Plaintiffs have represented to the court that they have made "post-filing efforts" to provide notice. Defendants offer no authority to suggest that late notice would require dismissal. See Broiler Chicken,
In sum, as to Rockford, the court denies defendants' motions to dismiss plaintiffs' state-law claims with respect to all twenty-four states named. As to Acument, the court grants defendants' motion to dismiss Count VIII without prejudice with leave to replead if Acument can properly do so. The court notes in passing that Rockford, and perhaps Acument, will be required at some later point in these proceedings to demonstrate that they have Article III standing to bring these claims by showing that Acthar was in fact purchased in these states.
C. Breach of Contract (Count XII)
Rockford alleges that Express Scripts
Express Scripts argues that the "cost containment" language, as "prefatory" language contained in the recitals section of the agreement, does not create a "binding obligation" capable of being breached. See
ESI, either directly or through its subsidiaries, engages in pharmacy benefit management services, including, among other things, pharmacy network contracting; pharmacy claims processing; mail and specialty drug pharmacy; cost containment, clinical, safety, adherence, and other like programs; and formulary and rebate administration ("PBM Services").
(emphasis added).
"Recitals to a contract provide explanations of those circumstances surrounding the execution of the contract."
Here, there is uncertainty as to how the "cost containment" language is referenced to in the operative portion of the contract. It is true, as Rockford contends, that "cost containment is one of the "PBM Services" noted in the recitals and the term "PBM Services" is referred to throughout the operative portion of the contract. Conversely, it is worth noting that, with the conspicuous omission of "cost containment," the other undertakings listed in
Turning to another issue, under Illinois law contractual terms that are too vague or indefinite are not enforceable. A term that is too vague or indefinite is one that a court cannot, "under proper rules of construction and applicable principles of equity ... ascertain what the parties have agreed to do." Dawson v. Gen. Motors Corp.,
Therefore, the court dismisses Count XII without prejudice, and the court grants Rockford leave to replead if it can appropriately allege that Express Scripts is in breach of their contract with Rockford by not engaging in cost containment programs. Further, should Rockford choose to replead this claim, it should specify what is meant by the contract term "cost containment ... programs."
D. Breach of the Implied Covenant of Good Faith and Fair Dealing (Count XV)
The court turns to Rockford's claim based on an alleged breach of the implied covenant of good faith and fair dealing. To state a claim for breach of the implied covenant of good faith and fair dealing in Illinois, a plaintiff must plausibly allege (1) that the existence of an enforceable contract (2) "breaching a specific duty imposed by the contract other than the covenant of good faith and fair dealing"; (3) that defendant failed to exercise its contractual discretion reasonably and with proper motive; and (4) resultant damages. AAA Gaming LLC v. Midwest Elecs. Gaming, LLC, No. 16 CV 4997,
However, in Illinois, "[e]very contract implies good faith and fair dealing between the parties to it, and where an instrument is susceptible of two conflicting constructions, one which imputes bad faith to one of the parties and the other does not, the latter construction should be adopted. This good-faith principle is used only as a construction aid in determining the intent of the contracting parties." Mid-W. Energy Consultants, Inc. v. Covenant Home, Inc.,
Here, Rockford's implied-covenant claim is deficient for several reasons. First, Rockford pleads it as an independent cause of action, which it cannot do. More importantly, even if plaintiffs replead these allegations as an alternative theory in connection with its breach of contract claim, the allegations as currently formulated lack a reference to any particular section of the PBM Agreement that discusses Express Scripts' discretion to effectuate "cost containment."
E. Promissory Estoppel (Count XIII)
In Count XIII, Rockford brings a claim against Express Scripts for promissory estoppel. Specifically, Rockford seeks enforcement of Express Scripts' promise to continue with its obligations under the PBM Agreement. SAC ¶ 396. Promissory estoppel is a common-law "principle that a promise made without consideration may nonetheless be enforced to prevent injustice if the promisor should have reasonably expected the promisee to rely on the promise and if the promisee did actually rely on the promise to his or her detriment." Newton Tractor Sales, Inc. v. Kubota Tractor Corp.,
In the SAC's section on promissory estoppel, Rockford seeks relief under a promissory estoppel theory that is based on the "terms of the ESI PBM Agreement." SAC ¶ 395; see also id. ¶¶ 396-397, 399. This is fatal to Rockford's claim. However, Rockford may attempt to replead and plausibly allege alternatively that there is not an enforceable express contract and that Express Scripts is liable to Rockford under a cause of action for promissory estoppel. Cohen v. Am. Sec. Ins. Co.,
To state a claim for the common-law doctrine of promissory estoppel, a plaintiff must prove that "(1) defendant made an unambiguous promise to plaintiff, (2) plaintiff relied on such promise, (3) plaintiff's reliance was expected and foreseeable by defendants, and (4) plaintiff relied on the promise to its detriment." Newton Tractor Sales,
It is possible that Rockford may be able to point to an unambiguous promise made by Express Scripts within or outside the PBM Agreement that Rockford foreseeably relied on to its detriment. Thus, the court grants Express Scripts' motion to dismiss Count XIII without prejudice, and grants Rockford leave to replead if Rockford can properly do so.
F. Unjust Enrichment (Counts I-III)
Rockford brings claims against both Express Scripts (Count I) and Mallinckrodt (Count II) and Acument brings a claim against Mallinckrodt (Count III) for unjust enrichment. Specifically, plaintiffs allege
Unjust enrichment is a product of common law that enshrines the principle that no one ought to enrich himself unjustly at the expense of another. Vill. of Bloomingdale v. CDG Enters., Inc.,
Both Illinois and Tennessee permit a plaintiff to plead unjust enrichment as an alternative theory of liability. Cohen,
1. Rockford's Claims Under Illinois Law (Counts I and II)
In order to state an unjust enrichment claim under Illinois law, a plaintiff must allege "a benefit mistakenly conferred, a benefit procured through wrongful conduct, and a benefit to which plaintiff has a better claim than the defendant for some other reason." In re Sears, Roebuck & Co. Tools Mktg. & Sales Practices Litig., No.
2. Acument's Claim Under Tennessee Law (Count III)
Under Tennessee law, the elements of an unjust enrichment claim are "1) [a] benefit conferred upon the defendant by the plaintiff; 2) appreciation by the defendant of such benefit; and 3) acceptance of such benefit under such circumstances that it would be inequitable for him to retain the benefit without payment of the value thereof." Freeman Indus., LLC v. Eastman Chem. Co.,
With respect to the requirement that Acument must allege that it has exhausted all remedies against CVS (the entity with whom Acument may enjoy privity of contract), the court notes that the SAC does not describe any contract that Acument might have with CVS with anywhere near the amount of specificity that it details Rockford's agreement with Express Scripts. Although that level of specificity may not be required at this stage, an explanation of the contents of such a contract would certainly assist the court in assessing the issue of exhaustion. Assuming that Acument is in privity of contract with CVS, Acument does not allege that it has exhausted any remedies against CVS. This is fatal to Acument's claim. The exhaustion requirement may be lifted if plaintiffs plausibly allege that such an effort would be "futile," but Acument has not done so. Id.; see Bristol Pres., LLC v. IGC-Bristol, LLC, No. 2:16-CV-360-TAV-MCLC,
G. RICO (Counts IX-XI)
The following sections address plaintiffs' claims under RICO. For the reasons stated below, the court grants defendants' motions to dismiss Counts IX, X, and XI without prejudice.
1. § 1962(c) (Count IX)
In Count IX, plaintiffs allege that defendants violated
A claim of a pattern of racketerring activity "requires at least two [predicate] acts of racketeering activity within a ten-year period....'[R]acketeering activity' is defined to include, among other things, any act indictable under specified provisions of the United States Code, including
Here, plaintiffs allege predicate acts of mail fraud under
When ruling on a Rule 12(b)(6) motion, the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) apply to allegations of mail and wire fraud in a civil RICO complaint. See Sabrina,
The court agrees with defendants that plaintiffs' allegations concerning the predicate acts of mail or wire fraud are thin.
In the paragraph plaintiffs devote to delineating defendants' acts of mail fraud and wire fraud, plaintiffs allege that Express Scripts made fraudulent misrepresentations when it "explicitly advertised ... that the ASAP Program would [provide] lower and affordable prices"; when Mallinckrodt and Express Scripts fraudulently stated "over the internet and through the mail that Rockford and the Class would receive affordable healthcare and contained costs of Acthar"; and when despite its "explicit promises" Express Scripts "refused to use its market strength and related bargaining power to convince Mallinckrodt to lower the price of Acthar." SAC ¶ 366(a)-(c). Plaintiffs are fatally deficient in specifying "the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff." Vicom,
Plaintiffs fall short in describing the manner in which Express Scripts explicitly advertised that the ASAP would provide lower and affordable sales prices, SAC ¶ 366(a), or when, where, how, or to whom Express Scripts made explicit promises to use its market strength and bargaining power to influence Mallinckrodt, id. ¶ 366(c). Nor do plaintiffs adequately explain in what way defendants fraudulently stated over the internet and through the mail that Rockford would receive contained costs for Acthar. Id. ¶¶ 82-83, 366(b). The SAC does not clarify what specifically was done over the internet and through the mail. If the parties are referring to Rockford's PBM Agreement with Express Scripts, from a review of the court's discussion in the breach of contract section, they should be able to anticipate formidable obstacles in relying on the cost containment language in the PBM Agreement to support an allegation of misrepresentation.
For the reasons stated in this section, the court grants defendants' motions to dismiss plaintiffs' § 1962(c) claims in Count IX without prejudice. In order to assist the parties should plaintiffs opt to replead a RICO violation, the court will also address the issue of RICO causation.
Proximate cause is one of the requirements of a cause of action for a RICO violation. See
The proximate cause limitation of a properly-pled RICO violation requires "some direct relation between the injury asserted and the injurious conduct alleged." Hemi Grp., LLC v. City of New York, N.Y.,
2. § 1962(a) (Count X)
As to Count X, "[a] section 1962(a) claim requires a showing that a defendant: (1) received income from a pattern of racketeering activity; (2) used or invested that income in the operation of an enterprise; and (3) caused the injury complained of by the use or investment of racketeering income in an enterprise." Rao v. BP Prod. N. Am., Inc.,
3. § 1962(d) (Count XI)
To state a claim under § 1962(d), a plaintiff must allege the existence of an "agreement to participate in an endeavor which, if completed, would constitute a violation" of RICO. United Food & Commercial Workers Unions and Emp'rs Midw. Health Benefits Fund v. Walgreen Co.,
H. Fraud and Conspiracy to Defraud (Counts IV and V)
Plaintiffs allege that defendants have committed common law fraud by making "material misrepresentations" that the prices they allegedly advertised for Acthar"represented the actual value" of Acthar when, in reality, those prices were "artificial" and "created and manipulated by the Defendants for the purpose of generating exorbitant revenue, thus constituting false representations."
The heightened pleading standard of Rule 9(b)"forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims." Intercounty Nat'l,
Plaintiffs allege that defendants committed fraud in two different ways. First, plaintiffs allege that defendants misrepresented that the price for Acthar represented the real and fact-based prices for their drugs. SAC ¶ 204. Second, plaintiffs assert that defendants misrepresented the price for Acthar was a result of the efforts of Express Scripts-and, although it is not clear from the SAC, perhaps CVS-to provide cost containment. Id. ¶ 209.
As to the first manner of committing fraud, plaintiffs fail to sufficiently plead the factual information informing defendants of the "who, when, where, what, and how" components of a valid fraud claim. Instead, plaintiffs offer general allegations that because the "prices [for Acthar ] were artificial prices," id. ¶ 206, "[d]efendants made material misrepresentations that those prices represented a calculation of real and fact-based prices for their drugs, and that they represented the actual value
In regard to the second means of committing fraud, plaintiffs allege that the "cost containment" misrepresentations appear in Rockford's and the class' contracts with Express Scripts and Acument's and the class' contracts with CVS. Id. ¶ 209. As noted in the court's analysis of plaintiffs' breach of contract claim, Rockford's contract with Express Scripts furnishes only equivocal support for the proposition that Express Scripts assumed an obligation to provide for cost containment in its sale of Acthar to Rockford.
Further, in Count V, plaintiffs allege that defendants conspired to defraud plaintiffs and the class by causing them to pay more for Acthar than they otherwise would have paid. Under Illinois law, "to state a claim for civil conspiracy, the plaintiff must sufficiently allege that an underlying wrong existed." Platinumtel Commc'ns, LLC v. Zefcom, LLC, No. 08-CV-1062,
I. Declaratory Judgment (Count XIV)
Finally, regarding Rockford's claim for declaratory judgment in Count XIV, the declaratory judgment remedy "gives a means by which rights and obligations may be adjudicated in cases involving an actual controversy that has not reached the stage at which either party may seek a coercive remedy." 10A CHARLES ALAN WRIGHT & ARTHUR R. MILLER , FEDERAL PRACTICE AND PROCEDURE § 2751, pp. 568-70 (1983). Further, courts in this district routinely dismiss claims for declaratory judgment where the claim "substantially overlaps with Plaintiff's substantive claims."
III. CONCLUSION
For the above reasons, defendants' motions to dismiss are granted in part and denied in part. Count XIV is dismissed with prejudice. Counts I through V, IX through XIII, and XV are dismissed without prejudice. The court denies defendants' motions to dismiss Counts VI, VII, and VIII with respect to Rockford. Counts VI, VII, and VIII are dismissed without prejudice with respect to Acument. The court grants plaintiffs leave to replead within 45 days of the date of this order to correct the deficiencies as noted in this opinion.
Notes
At times the SAC refers to Mallinckrodt when it actually meant Questcor. For example, plaintiffs allege that Mallinckrodt acquired the Acthar monopoly from Aventis, SAC ¶ 9, when in actuality Questcor purchased Acthar. Because the SAC alleges that Mallinckrodt is responsible for Questcor's actions before 2014-a proposition which neither Mallinckrodt plc nor Mallinckrodt ARD, Inc. contest-the court will treat Questcor's actions as Mallinckrodt's actions for purposes of these motions to dismiss. The court's references to Mallinckrodt before 2014 refer to Questcor's conduct.
Express Scripts argues that the various Express Scripts entities named in this action are distinct corporate entities, and accordingly, plaintiffs cannot "group plead" their allegations against all of the Express Scripts entities because "[a] complaint based on a theory of collective responsibility must be dismissed," even in cases of alleged conspiracy, where plaintiffs do not allege that each particular defendant joined the conspiracy and knew of its scope. Bank of Am., N.A. v. Knight,
In ¶ 48 of the SAC, plaintiffs allege that Mallinckrodt's announcement of the "new strategy" was "[e]ffective August 1, 2001," when it appears that plaintiffs meant August 1, 2007.
Plaintiffs allege that Express Scripts Holding Company announced on November 27, 2017, that it sold UBC to a private equity firm.
Express Scripts notes in their motion to dismiss that CuraScript, Inc. is actually a specialty pharmacy, whereas the pertinent entity is Priority Healthcare Distribution, Inc., doing business as CuraScript SD.
The consent order between the FTC and Mallinckrodt notes: "This Order shall not be used as evidence in any proceedings other than a proceeding by Plaintiffs or the Synacthen Sublicensee regarding enforcement or modification of this Order." Order for Permanent Injunction and Equitable Monetary Relief, FTC v. Mallinckrodt ARD Inc., F.T.C. No. 1310172, at 8 (D.D.C. Jan 30, 2017). Accordingly, the court does not consider the Order for its analysis in this opinion, but does consider the FTC and Retrophin complaints.
Plaintiffs also filed supplemental authority they believe support their positions; defendants filed briefs disputing that these cases militate in favor of plaintiffs. The court acknowledges these cases and has considered them in its analysis.
For purposes of this opinion only, references to a "conspiracy" in the opinion's sections on plaintiffs' federal and state antitrust claims refer specifically to an "antitrust conspiracy," whereas references to a "conspiracy" in the other sections refers instead to common-law conspiracy, the principle difference being that the court applies Rule 9(b)'s heightened pleading standard to the latter but not the former.
The court leaves open the possibility after discovery that Rockford can prove that it stands in a direct purchasing relationship with Mallinckrodt, depending on what the evidence uncovers about the structure of the exclusive distribution arrangement-for example, if plaintiffs can prove that Express Scripts is really Mallinckrodt's agent.
Defendants do not argue that plaintiffs fail to meet the AGC factors with respect to their federal antitrust claims.
Taking plaintiffs' allegations as true, the assertions that Acument paid CVS for Acthar appear to contradict the exclusivity of ESI as the only PBM as part of the alleged ASAP. Additionally, Acument's explanation of CVS' role in defendants' alleged scheme is cryptic. Acument alleges that it had a contract with CVS which provided prescription drug insurance coverage for its employee's spouse. SAC ¶ 71. But it is unclear whether CVS is acting as a prescription drug insurance carrier or something else. CVS is elsewhere described as an entity which performs a function similar to that of ESI. Id. ¶¶ 66, 70, 233. The SAC states that CVS is required to collect payments for the purchase of Acthar, but figures 1 and 2, which are presumably designed to clarify the text, shows that patient payments go directly from the patient to ESI. This situation is further muddled by plaintiffs' allegation that CVS deducts an agreed-upon share of money it receives before forwarding it to Mallinckrodt, while figures 1 and 2 of the SAC show money from the health plans, which may or may not refer to CVS, going to ESI. See id. ¶ 233. Notably, Acument's role is not shown on the figures at all. Rockford is self-insured, but it is unclear how in this scenario in which Acument's employee's spouse has prescription insurance coverage that Acument still pays 80% of the cost of the spouse's specialty pharmacy drugs, which comes to $ 894,617.75, to obtain Acthar. Id. ¶¶ 10, 21. The dearth of information makes it difficult to understand the precise relationship of Acument, CVS, and the patient. Curiously, the SAC claims that payments for Acthar flow directly from Acument to CVS, id. ¶ 233, which is described as one of the "co-conspirators," id. ¶ 234, yet no details are provided anywhere else in the SAC as to how CVS participates in the alleged conspiracy.
Defendants argue that the court should not exercise its discretion and allow plaintiffs to replead for a third time. The court notes that while another amended complaint will be plaintiffs' fourth total complaint filed in this action, a subsequent complaint would be the first incident to the court's ruling on a Rule 12(b) motion. As plaintiffs requested leave to amend in their oppositions to defendants' motions to dismiss, the court will allow plaintiffs to replead to correct the deficiencies detailed in this opinion if counsel can do so in accordance with the obligations imposed by Rule 11 of the Federal Rules of Civil Procedure.
The remainder of this opinion's analysis of plaintiffs' federal antitrust claims deals only with Rockford because the court has found that Acument has not shown that it has antitrust standing to bring its federal antitrust claims. However, Acument may have viable claims should it choose to sufficiently replead antitrust standing to bring its federal antitrust claims. The court makes no finding at this stage as to whether Acument has adequately stated a claim.
Section 2 claims may be plead under three different theories: (1) monopolization, (2) attempted monopolization, and (3) conspiracy to monopolize. Plaintiffs proceed under the third theory only.
Plaintiffs also seek injunctive relief under § 16 of the Clayton Act, SAC ¶ 12, which provides in part that "[a]ny person, firm, corporation, or association shall be entitled to sue for and have injunctive relief ... against threatened loss or damage by a violation of the antitrust laws."
Plaintiffs are correct to point out that Illinois Brick does not foreclose plaintiffs' equitable relief claims. See In re Broiler Chicken Antitrust Litig.,
In California v. ARC Am. Corp.,
The parties agree that Rockford and Acument have Article III standing to pursue state-law antitrust and consumer protection claims of Illinois and Tennessee, respectively.
The parties put forth no argument that AGC is irrelevant to state-law consumer protection claims. For purposes of this order only, the court considers all of the state laws invoked by the SAC as state laws that implicate plaintiffs' antitrust standing.
Without any analysis or citation to authority by any of the parties, the court notes in passing its strong skepticism that any state that passed an "Illinois Brick repealer" statute to make indirect-purchaser standing easier would have made that indirect-purchaser's antitrust standing harder under a "proximate cause" analysis. Thus, the court assumes that the federal AGC standard represents the most stringent "proper party" standard that could apply to a state's "proximate cause" analysis for a plaintiff's antitrust standing. See Lithium,
The court couches the language in this section as applying to both Rockford and Acument, but it is relevant to Acument only if it chooses to replead.
The parties' arguments concerning these requirements are styled as arguments about whether plaintiffs have plausibly "stated a claim" with respect to each states' antitrust laws. Cf. Broiler Chicken,
For Kansas and Oregon, defendants offer no state-specific limitations.
As noted earlier in this opinion, plaintiffs make only scant references to their requests for injunctive relief. Relatedly, the court does not construe the SAC to be making any claims for injunctive relief pursuant to any of the state-law antitrust and consumer protection statutes invoked in the SAC.
Rockford uses the names Express Scripts and ESI interchangeably in Counts XII through XV. Recognizing that ESI is the only defendant signatory to the PBM Agreement, the court will use the name Express Scripts to include ESI.
Section 2.4(a) of the PBM Agreement reads:
Formulary Adherence and Clinical Programs. ESI may provide clinical, safety, adherence, and other like programs as appropriate. The Clinical Addendum described in Exhibit A-2 sets forth certain available adherence, clinical, safety and/or trend programs that require additional fees hereunder. ESI will not implement any program for which Sponsor may incur an additional fee without Sponsor's prior written approval and election of such program.
Even McMahon, on which Express Scripts relies, was not decided on a motion to dismiss.
Further, Section III(c) of Exhibit A-1of the PBM Agreement notes that "Specialty Products will be excluded from any price guarantees set forth in the agreement," and Acthar is listed as a Specialty Product. Should Rockford choose to replead, the court expects Rockford to clarify that this Section does not operate to preclude its breach of contract claim in the event that Rockford can plausibly allege that "cost containment" is an actionable obligation contained within the PBM Agreement.
Along these same lines, in order to conserve time and effort, the court wishes to draw the parties attention to two other thorny issues in the breach of contract claim. The SAC charges that "ESI's failure to provide 'cost containment' repudiated its obligations under the ESI PBM Agreement." SAC ¶ 391 (emphasis added). Yet § 2.4(a) of the Agreement states only that "ESI may provide clinical, safety, adherence, and other like programs as appropriate." (emphasis added). Also, it is important to remember that the PBM Agreement applies to numerous other drugs besides Acthar. If Express Scripts engages in cost containment programs (whatever they may be) related to drugs other than Acthar, the question arises whether such involvement with other drugs would satisfy any "cost containment" obligation Express Scripts has under the PBM Agreement. At this point the court takes no position as to the parameters of Express Scripts' duties under the Agreement, but these are matters which should be addressed as soon as possible.
Section 2.4(a) of the PBM Agreement notes that Express Scripts "may provide clinical, safety, adherence, and other like programs as appropriate." The Recitals section of the PBM Agreement suggests that these are the kinds of things that Express Scripts does. If Rockford can plausibly allege that these (or different) sections of the PBM Agreement imparts discretion upon Express Scripts, and such discretion specifically includes "cost containment," Rockford may be able to state a claim under the implied covenant theory. Of course, an unenforceable provision in a contract cannot be made enforceable by the application of the implied covenant of good faith and fair dealing. As a result, Rockford still faces some of the obstacles noted in the previous breach of contract section related to the enforceability of the cost containment provisions of the PBM Agreement.
The court notes in passing that plaintiffs' arguments offer little in support of their unjust enrichment actions. Should plaintiffs choose to replead these claims, plaintiffs should offer more fully-developed arguments or else run the risk of the court finding that they have abandoned their claims.
The SAC labels its wire fraud claims as under 18 U.S.C. § "1345." However, that section provides for the Attorney General to commence civil actions to enjoin alleged RICO violations. This is inapplicable to plaintiffs' complaint. Accordingly, the court construes this to be a claim pursuant to § 1343.
In all of the counts of the SAC, plaintiffs incorporate every allegation of every preceding paragraph, and in Counts XIII and XIV, every allegation of every following paragraph. In the RICO context, this is an improper method of satisfying the heightened pleading requirement. See Slaney v. The Int'l Amateur Athletic Fed'n,
In ¶ 203 of the SAC, plaintiffs also allege that defendants' acts "violate the common law against negligent misrepresentation" in addition to fraud. "Negligent misrepresentation" is a separate cause of action from fraud in both Illinois and Tennessee. However, neither party addresses this claim in their briefs. Thus, the court concludes that neither plaintiff is pursuing a cause of action for negligent misrepresentation.
As to Acument, the SAC suggests that Acument has "contracts" with CVS that provide for cost containment, SAC ¶ 209, that presumably support their contention that defendants made false representations that amount to fraud. Although it is unclear whether Acument is holding Express Scripts, Mallinckrodt, or perhaps a non-defendant, CVS, responsible for making the false representations. Plaintiffs have not provided any of these contracts and thus the court is unable to make any determination as to whether plaintiffs' allegations satisfy the heightened pleading requirements of Rule 9(b).
Defendants also argue that plaintiffs have not adequately pled reliance. Plaintiffs allege that they and the class "justifiably relied upon false misrepresentations in purchasing and/or reimbursing Acthar at the amount charged by Express Scripts and CVS Caremark based on the price set by Mallinckrodt." SAC ¶ 208. But in this factual scenario that concerns only one manufacturer and one drug, the issue of the reasonableness of plaintiffs' reliance is problematic. Plaintiffs assert that they would not have paid or reimbursed the cost of Acthar if they were aware of the alleged misrepresentations. Id. ¶ 210. Are plaintiffs saying that rather than pay exorbitant prices they would have left the Acthar patients without treatment? Regardless, at this juncture the court concludes that reliance is sufficiently pled.