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Corcoran v. CVS Health Corp.

United States District Court, N.D. California

March 21, 2017

Christopher Corcoran, et al., Plaintiffs,
v.
CVS Health, et al., Defendants.

          ORDER DENYING MOTION FOR CLASS CERTIFICATION; DENYING MOTIONS TO STRIKE AS MOOT DKT. NOS. 172, 185, 186

          Yvonne Gonzalez Rogers United States District Court Judge

         Plaintiffs bring this putative class action against defendants alleging that they knowingly overcharged millions of insured patients by submitting falsely inflated drug prices to pharmacy benefit managers (“PBMs”) and third-party payor insurance providers (“TPPs”), which resulted in higher copayment obligations for plaintiffs. Specifically, plaintiffs raise claims under the laws of eleven states: (i) each state's statutory laws proscribing unfair and deceptive acts and practices (“UDAP”);[1] and common law claims for (ii) fraud, (iii) negligent misrepresentation, and (iv) unjust enrichment.

         Plaintiffs now seek to certify eleven classes either as damages classes pursuant to Rule 23(b)(3) or injunctive relief classes pursuant to Rule 23(b)(2).[2] Specifically, plaintiffs define the class as follows:

All CVS customers in [the eleven states] who, between November 2008 and the present (the “Class Period”), (1) purchased one or more generic prescription drugs that were offered through CVS's Health Savings Pass (“HSP”) program at the time of the purchase; (2) were insured for the purchase(s) through a third-party payor plan (except those that did not use usual and customary pricing or expressly excluded discount programs from usual and customary pricing); and (3) paid CVS an out-of-pocket payment for the purchase greater than the HSP price for the 90-day supply of the prescription (or, greater than a price proportionate to the HSP price but for a prescription less than or greater than a 90-day supply).

         Defendants oppose plaintiffs' motion for class certification. Additionally, defendants have filed motions to strike the expert declarations of plaintiffs' experts, namely, Drs. Hay and Navarro.[3]

         Having carefully considered the pleadings and the papers submitted on the motions, and oral arguments held on March 7, 2017, and for the reasons set forth below, the Court Orders as follows: The Court Denies plaintiffs' motion for class certification. The Court Grants in Part defendants' motion to strike the declaration of Dr. Navarro. The Court Denies as moot defendants' motion to strike the declaration of Dr. Hay.[4]

         I. Background

         Plaintiffs seek to certify eleven state classes composed of individuals who “have filled prescriptions for generic drugs at CVS pharmacies using coverage provided by their [TPP] plans.” (Dkt. No. 101, Third Amended Complaint (“TAC”) ¶ 10.) The following facts and allegations relate to the instant motion for class certification:

         CVS is a national retail pharmacy chain with over seven thousand pharmacies operating under its trade name in the United States and Puerto Rico, managing more than one billion prescriptions annually. (Id. ¶ 4.) In 2014, CVS' retail pharmacy business generated more than $67 billion in revenues, 70% of which came from prescription drugs. Since 2008, CVS has captured more than one third of total prescription growth in the United States. (Id.) Approximately ninety percent of Americans-including plaintiffs- are enrolled in a private or public health care plan that shares prescription drug costs. (Id. ¶ 8.) Generally, when plan participants fill a prescription under one of these TPP health care plans, the plan “pays a portion of the cost, and the plan participant pays the remaining portion of the cost directly to the pharmacy in the form of a copayment or copay.” (Id.) Many TPPs typically contracted with a PBM to administer their prescription benefits with a pharmacy. (Dkt. No. 184-28, Jones Decl. ¶¶ 11-13.)

         When a plan participant fills a prescription at CVS, the pharmacist generates a claim by transmitting patient, prescription, and insurance information electronically to the customer's insurer directly or the PBM. (TAC ¶¶ 47-48.) The electronic CVS claims process utilizes standardized data fields developed by the National Council for Prescription Drug Programs (“NCPDP”), a standard-setting organization in the healthcare industry. (Id. ¶¶ 50-51.) One data field on NCPDP's standard layout is Field No. 426-DQ, the usual and customary (“U&C”) price. (Id. ¶ 53.) The U&C price is “generally defined as the cash price to the general public, which is the amount charged [to] cash customers for the prescription, exclusive of sales tax or other amounts claimed.” (Id.) Under most of CVS's contracts with TPPs and PBMs, the copayment must generally be the lower of the following: (a) the drug's average wholesale price established by the industry; (b) a maximum allowable cost determined by the pharmacy's contract with the PBM or TPP; or (c) the U&C price. Relevant to the instant motion, many of these contracts specifically define U&C, some expressly excluding or including discounts, and others facially silent on that issue. (See infra.)

         In 2008, CVS introduced a Health Savings Pass (“HSP”) program. (Id. ¶ 60.) The HSP program provides discounted pricing on hundreds of generic prescription medications, including some of the most commonly prescribed drugs for cardiovascular, allergy, and diabetes conditions, among others. (Id. ¶ 62.)[5] Plaintiffs allege that the price charged by CVS under the HSP program for the HSP generics was the true U&C price for those drugs. (Id. ¶ 70.) However, CVS continued to submit amounts higher than the HSP price for all HSP generics (rather than the HSP program price) as the U&C price to TPPs and PBMs. (Id. ¶ 71.) As a result, in some instances, plaintiffs allege they paid copayments that exceeded the HSP price or the “true U&C price.” (Id. ¶¶ 76, 80.) Defendants discontinued the HSP program on February 1, 2016. (Dkt. No. 187-23, Gibbons Decl. ¶ 9.)

         Plaintiffs have offered the expert declarations of Drs. Hay and Navarro in support of their positions. Dr. Hay opines thus: (i) CVS's claim adjudication process has multiple common, standard features that apply across the transactions of class members; (ii) CVS's HSP prices properly should be considered CVS's true U&C prices; (iii) transaction data for named plaintiffs' relevant purchases indicate that plaintiffs meet the class definition; (iv) plaintiffs exceed 37 million class members whom CVS charged copayments above CVS's true U&C prices; and (v) calculation of damages is common and uniform and totals at least $1.23 billion.

         Dr. Navarro opines thus: (i) the requirement that pharmacies cannot charge insured patients more than its U&C price is a standard feature throughout the industry and CVS in particular; (ii) U&C should be the lowest cash price and should include discounts offered to the general public, as indicated by contracts, regulations, and policies; and (iii) by excluding HSP prices, CVS submitted an inflated U&C; which (iv) as a result, injured patients.

         II. Legal Standard

         A. Class Certification

         Under Federal Rule of Civil Procedure 23(a), the Court may certify a class only where “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a). Courts refer to these four requirements as “numerosity, commonality, typicality[, ] and adequacy of representation.” Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581, 588 (9th Cir. 2012).

         Once the threshold requirements of Rule 23(a) are met, plaintiffs must then show “through evidentiary proof” that a class is appropriate for certification under one of the provisions in Rule 23(b). Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1432 (2013). Here, plaintiffs seek certification under Rule 23(b)(2) and Rule 23(b)(3).

         Rule 23(b)(2) requires plaintiffs to establish that the “party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Fed.R.Civ.P. 23(b)(2). “Class certification under Rule 23(b)(2) is appropriate only where the primary relief is declaratory or injunctive.” Ellis v. Costco Wholesale Corp., 657 F.3d 970, 986 (9th Cir. 2011) (citation omitted). In a class action “predominately for money damages . . . th[e] absence of notice and opt-out violates due process” and renders certification of a Rule 23(b)(2) class inappropriate. Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 363 (2011).

         Rule 23(b)(3) requires plaintiffs to establish “that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23(b)(3). The predominance inquiry focuses on “whether proposed classes are sufficiently cohesive to warrant adjudication by representation.” Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. 1998) (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997)).

         “[A] court's class-certification analysis must be ‘rigorous' and may ‘entail some overlap with the merits of the plaintiff's underlying claim.'” Amgen, Inc. v. Conn. Ret. Plans & Trust Funds, 133 S.Ct. 1184, 1194 (2013) (quoting Wal-Mart, 564 U.S. at 351); see also Mazza, 666 F.3d at 588. The Court considers the merits to the extent they overlap with the Rule 23 requirements. Ellis, 657 F.3d at 983. The Court must resolve factual disputes as “necessary to determine whether there was a common pattern and practice that could affect the class as a whole.” Id. (emphasis in original). “When resolving such factual disputes in the context of a motion for class certification, district courts must consider ‘the persuasiveness of the evidence presented.'” Aburto v. Verizon Cal., Inc., No. 11-CV-03683, 2012 WL 10381, at *2 (C.D. Cal. Jan. 3, 2012) (quoting Ellis, 657 F.3d at 982), abrogated on other grounds as recognized by Shiferaw v. Sunrise Sen. Living Mgmt., Inc., No. 13-CV-2171, 2014 WL 12585796, at * 24n. 16 (C.D. Cal. June 11, 2014). “A party seeking class certification must affirmatively demonstrate [its] compliance with the Rule.” Wal-Mart, 564 U.S. at 350. Ultimately, the Court exercises its discretion to determine whether a class should be certified. Califano v. Yamasaki, 442 U.S. 682, 703 (1979).

         B. Daubert Standard for Expert Declarations

         Rule 702 permits opinion testimony by an expert as long as the witness is qualified and their opinion is relevant and reliable.” Fed.R.Evid. 702. An expert witness may be qualified by “knowledge, skill, experience, training, or education.” Fed.R.Evid. 702.

         At the class certification stage, courts analyze challenges to expert testimony under the standards set forth in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). See Ellis, 657 F.3d at 982. “[A]t this early stage, robust gatekeeping of expert evidence is not required; rather, the court should ask only if expert evidence is useful in evaluating whether class certification requirements have been met.” Culley v. Lincare, Inc., No. 2:15-CV-00081-MCE-CMK, 2016 WL 4208567, at *1 (E.D. Cal. Aug. 10, 2016) (quoting Tait v. BSH Home Appliances Corp., 289 F.R.D. 466, 492-93 (C.D. Cal. 2012). The trial judge has discretion to determine reasonable measures of reliability. Kumho Tire Co. v. Carmichael, 526 U.S. 137, 153 (1999).

         The proponent of expert testimony has the burden of proving admissibility in accordance with Rule 702. Fed.R.Evid. 702, Advisory Committee Notes (2000 amendments). An expert should be permitted to testify if the proponent demonstrates that: (i) the expert is qualified; (ii) the evidence is relevant to the suit; and (iii) the evidence is reliable. See Thompson v. Whirlpool Corp., No. C06-1804-JCC, 2008 WL 2063549, at *3 (W.D. Wash. May 13, 2008) (citing Daubert, 509 U.S. at 589-90).

         III. Motion for Class Certification

         Defendants raise two categories of challenges to plaintiffs' motion for class certification: first, that certain plaintiffs lack standing; and, second, that plaintiffs have failed to meet the requirements of Federal Rule of Civil Procedure 23.

         A. Standing

         Defendants claim the following plaintiffs lack standing: (i) Caine because he did not use insurance but rather cash discount cards; and (ii) Brown, Hagert, Odorisio, and Wulff because they purchased only 30- and 60-day supplies, which are not part of the allegedly fraudulent HSP program at issue here.[6]

         With regard to Caine, defendants argue that Caine's interrogatory responses reveal that he utilized a cash discount card, rather than insurance, in his prescription purchases from defendants.[7]This action, as explained in the class definition, involves purchases of certain prescription drugs using health insurance policies. Thus, defendants argue, because Caine did not utilize such a policy, he lacks standing in this action. Plaintiffs counter, relying on Dr. Hay's opinion, that each named representative engaged in at least one qualifying purchase using insurance. Dr. Hay, in turn, relied on additional transactional data provided by plaintiffs that were apparently inconsistent with Caine's interrogatory responses. Such opinion was the subject of defendants' motion to strike Dr. Hay's opinions due to certain discovery violations. As discussed above, the Court has denied such motion as moot. Defendants do not otherwise argue that the information upon which Dr. Hay relied somehow provides false data or information. The Court therefore does not find that Caine lacks standing to represent a class of plaintiffs on this ground.

         With regard to Brown, Hagert, Odorisio, and Wulff, defendants argue that none were actually overcharged. Specifically, defendants argue that plaintiffs' claims are founded on the disparity between the U&C price reported by the pharmacies to the PBMs and TPPs and the HSP price for that drug. Defendants note that the HSP program, however, was limited to the purchase of 90-day supplies for certain drugs, and that plaintiffs Brown, Hagert, Odorisio, and Wulff, only purchased 30- or 60-day supplies. Thus, the drugs purchased by such plaintiffs do not fall within the scope of plaintiffs' theories of damages. Fundamentally, this argument is more aptly addressed as one of typicality, not standing. Plaintiffs assert an actual injury on the theory that U&C price submitted by defendants to the PBMs and TPPs remained inflated with ...


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