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Corcoran v. CVS Health

United States District Court, N.D. California

September 5, 2017

Christopher Corcoran, ET AL., Plaintiffs,
CVS Health, ET AL., Defendants.


          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”); and common law claims for (ii) fraud, (iii) negligent misrepresentation, and (iv) unjust enrichment.

         Now before the Court are the following motions: First, plaintiffs have filed a renewed motion for class certification, significantly narrowing the classes and issues which they seek to certify. Second, defendants move to exclude certain opinions from Dr. Hay, submitted in support of plaintiffs' motion for class certification. And third, defendants' move for summary judgment on all claims in this action arguing that plaintiffs have failed to demonstrate either any misrepresentations or reliance, essential elements of their claims.[1]

         Having carefully reviewed the pleadings, the papers submitted on each motion, the parties oral arguments at the hearing held on July 18, 2017, and for the reasons set forth more fully below, the Court Orders as follows: The Court Grants in Part plaintiffs' motion for class certification, certifying a California, Florida, Illinois, and Massachusetts class, but limited only to the PBM that adjudicated each class representative's claim. The Court Denies the motion to certify a New York and Arizona class because the proposed class representatives fail to satisfy the typicality requirement of Rule 23(a). The Court Grants in Part defendants' motion to exclude certain opinions by Dr. Hay and Strikes Dr. Hay's opinion that CVS's Health Savings Pass (“HSP”) prices are the “Usual and Customary” (“U&C”) prices as defined in CVS's contracts. The Court Grants defendants' motion for summary judgment finding no triable issue of fact exists with regard to whether CVS misrepresented its U&C price to the PBMs.

         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 motions:

         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. at ¶ 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. at ¶ 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 contract with a PBM to administer their prescription benefits with a pharmacy.

         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. (Id. at ¶¶ 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. at ¶¶ 50-51.) One data field on NCPDP's standard layout is Field No. 426-DQ, the U&C price. (Id. at ¶ 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 as set 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.

         In 2008, CVS introduced its HSP program. (Id. at ¶ 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. at ¶ 62.)[2] 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. at ¶ 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. at ¶ 71.) As a result, in some instances, plaintiffs allege they paid copayments that exceeded the HSP price or the “true U&C price.” (Id. at ¶¶ 76, 80.) Defendants discontinued the HSP program on February 1, 2016.

         II. Legal Framework

         A. Motion for 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 plaintiffs establish that 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, 569 U.S. 27, 133 S.Ct. 1426, 1432 (2013). Here, plaintiffs seek certification under Rule 23(b)(3) only.

         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)).

         B. Motion to Exclude Expert Opinion

         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.” Id.

         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. 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., Ltd. 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: (1) the expert is qualified; (2) the evidence is relevant to the suit; and (3) the evidence is reliable. See Thompson v. Whirlpool Corp., No. 06-CV-1804-JCC, 2008 WL 2063549, at *3 (W.D. Wash. May 13, 2008) (citing Daubert, 509 U.S. at 589-94).

         C. Motion for Summary Judgment

         Summary judgment is appropriate when no genuine dispute as to any material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A party seeking summary judgment bears the initial burden of informing the court of the basis for its motion, and of identifying those portions of the pleadings, depositions, discovery responses, and affidavits that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Material facts are those that might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The “mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Id. at 247-48 (dispute as to a material fact is “genuine” if sufficient evidence exists for a reasonable jury to return a verdict for the non-moving party) (emphases in original).

         Where the moving party will have the burden of proof at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). On an issue where the opposing party will bear the burden of proof at trial, the moving party can prevail merely by pointing out to the district court that the opposing party lacks evidence to support its case. Id. If the moving party meets its initial burden, the opposing party must then set out “specific facts” showing a genuine issue for trial in order to defeat the motion. Id. (quoting Anderson, 477 U.S. at 250). The opposing party's evidence must be more than “merely colorable” and must be “significantly probative.” Anderson, 477 U.S. at 249-50. Further, that party may not rest upon mere allegations or denials of the adverse party's evidence, but instead must produce admissible evidence that shows a genuine issue of material fact exists for trial. Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102-03 (9th Cir. 2000); Nelson v. Pima Cmty. College, 83 F.3d 1075, 1081-82 (9th Cir. 1996) (“mere allegation and speculation do not create a factual dispute”); Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 922 (9th Cir. 2001) (“conclusory allegations unsupported by factual data are insufficient to defeat [defendants'] summary judgment motion”).

         When deciding a summary judgment motion, a court must view the evidence in the light most favorable to the non-moving party and draw all justifiable inferences in its favor. Anderson, 477 U.S. at 255; Hunt v. City of Los Angeles, 638 F.3d 703, 709 (9th Cir. 2011). However, in determining whether to grant or deny summary judgment, a court need not “scour the record in search of a genuine issue of triable fact.” Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996) (internal quotations and citation omitted). Rather, a court is entitled to “rely on the nonmoving party to identify with reasonable particularity the evidence that precludes summary judgment.” See id. (internal quotations and citation omitted); Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1031 (9th Cir. 2001) (“The district court need not examine the entire file for evidence establishing a genuine issue of fact, where the evidence is not set forth in the opposing papers with adequate references so that it could conveniently be found.”). Ultimately, “[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no ‘genuine issue for trial.'” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted).

         III. Motion for Class Certification

         Plaintiffs now seek to certify six state classes under Federal Rule of Civil Procedure 23(b)(3) defined as follows:

All CVS customers in [California, ] [Arizona, ] [Florida, ] [Illinois, ] [Massachusetts, ] [and New York] who, between November 2008 and July 31, 2015 (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 administered by one of the following pharmacy benefit managers: Caremark/PCS, Express Scripts, Medco, MedImpact, or Optum/Prescription Solutions (prior to January 29, 2015); and (3) paid CVS an out-of-pocket payment for the purchase greater than the HSP price for the prescription.

         Plaintiffs proffer the following representatives for each state class: California (Tyler Clark); Arizona (Zulema Avis); Florida (Debbie Barrett and Robert Jenks); Illinois (Robert Jenks and Carl Washington); Massachusetts (Robert Garber); and New York (Onnolee Samuelson).

         Defendants contend that certification of these classes is inappropriate because the classes and class representatives fail to satisfy the requirements for a Rule 23(b)(3) class, namely: (i) typicality; (ii) predominance and commonality;[3] and (iii) superiority.[4] The Court addresses each.

         A. Typicality

         Defendants raise three arguments with respect to typicality: first, each state representative is not typical of other class members in their state whose claims were adjudicated by a different PBM; second, given the limited time period, plaintiffs Avis (Arizona) and Samuelson (New York) have no qualifying transactions; and third, all plaintiffs except for Samuelson continued shopping at CVS after learning of the alleged deception. The Court previously rejected defendants' third argument, and, for the same reasons, does so again here. (Dkt. No. 249 at 14.) Thus, the Court addresses only defendants' first and second arguments.

         1. Different PBM Adjudicators

         Defendants argue that each class representative is atypical with respect to other potential class members whose claims were adjudicated by a different PBM. For instance, Clark is the sole representative of the California class, and he claims that he was overcharged on purchases adjudicated by Caremark. Defendants explain that Clark would be atypical of other California class members whose claims were adjudicated by ExpressScripts, Medco, MedImpact, or Optum.

         The Court agrees. “The test of typicality ‘is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct.'” Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir. 1992) (quoting Schwartz v. Harp, 108 F.R.D. 279, 282 (C.D. Cal. 1985)). Plaintiffs here are seeking to certify six different state classes to demonstrate that defendants submitted incorrect or false U&C prices to five different PBMs within each state. To illustrate, for instance, the Illinois class would seek to demonstrate that under Illinois' UDAP law, defendants breached their contracts to Caremark, Express Scripts, Medco, MedImpact, and Optum by failing to submit accurate U&C prices to each. However, plaintiffs put forward only two class representatives for Illinois-Washington and Jenks-and both of their claims were adjudicated by only one PBM, Caremark. The evidence with respect to Caremark- discussed in greater depth herein in the context of defendants' summary judgment motion-does not necessarily apply to the other PBMs. Whether defendants failed to honor their agreement with Caremark is not necessarily dispositive of whether they breached their agreement to other PBMs. Each of these agreements was carefully negotiated between highly sophisticated parties, and the nuances among them could induce varying results.

         Thus, the classes here must necessarily be limited in scope to the PBMs, which adjudicated the class representative's claims. See O'Connor v. Boeing N. Am., Inc., 197 F.R.D. 404, 412 (C.D. Cal. 2000) (“The premise of the typicality requirement is simply stated: as goes the claim of the named plaintiff, so go the claims of the class. Where the premise does not hold true, class treatment is inappropriate.” (citations omitted)); see also In re WellPoint, Inc. Out-of-Network “UCR” Rates Litig., No. 09-MDL-2074-PSG, 2014 WL 6888549, at *4 (C.D. Cal. Sept. 3, 2014) (finding certification not appropriate because “[usual, customary, and reasonable] obligations are governed by its contracts, and the relevant terms of those contracts vary across the proposed classes” even where a standard, industry definition existed); Westways World Travel, Inc. v. AMR Corp., No. 99-CV-386, 2005 WL 6523266, at *9 (C.D. Cal. Feb. 24, 2005) (denying certification where the “sheer number of additional agreements, even though many are form contracts, suggests that individualized issues would predominate”). However, that these limits are necessary does not require denial of plaintiffs' motion for class certification. Rather, to the extent that the proposed classes satisfy the remaining requirements for class certification, the Court narrows each class to the specific PBMs, which adjudicated the claims of the class representatives.

         Thus, the proposed classes are so narrowed and limited to the following: (i) California limited only to Caremark; (ii) Arizona to Caremark; (iii) Florida to Optum and Caremark; (iv) Illinois to Caremark; (v) Massachusetts to Express Scripts and MedImpact;[5] and (vi) New York to MedImpact.

         2. Lack of Qualifying Transactions

         Defendants have proffered evidence demonstrating that plaintiffs Avis and Samuelson- the named representatives for the Arizona and New York classes, respectively-have no transactions adjudicated by any of the five PBMs at issue for purposes of class certification during the Class Period. Plaintiffs' expert Dr. Hay disclosed the following regarding what plaintiffs considered the relevant purchases for Samuelson and Avis during the Class Period: first, twenty-five purchases by Samuelson from January 19, 2010 to November 14, 2011, bearing Condor Code 7434; second, four purchases by Avis from May 25, 2009 to June 18, 2010, bearing Condor Code 15800. (Dkt. No. 272-6 at 105-108.) With regard to Samuelson, claims bearing Condor Code 7434 pertained to Excellus as the relevant PBM. (Dkt. No. 277-8 at 6.)[6] With regard to Avis, claims bearing the Condor Code 15800 pertained to transactions between CVS and Aetna until January 1, 2011. (Dkt. No. 283-18 at 5-6; see also Dkt. No. 277-8 at 6.)

         Plaintiffs' only rebuttal is that defendants' current assertion is inconsistent with their prior discovery responses identifying Caremark and MedImpact contracts as applicable to Avis and Samuelson. However, those discovery responses were issued prior to this Court's first order denying class certification and plaintiffs' renewed motion narrowing the class definition. In this context, plaintiffs' own expert identified the relevant transactions. Defendants' evidence, the accuracy and reliability of which plaintiffs do not dispute, demonstrates that Avis and Samuelson do not have any qualifying transactions under the new class definition. Thus, the Court finds that neither is typical of the classes, which they seek to represent. See McKinnon v. Dollar Thrifty Automotive Grp., Inc., No. 12-CV-4457-YGR, 2016 WL 879784, at *9 (N.D. Cal. Mar. 8, 2016) (finding proposed representative atypical because he lacked a qualifying purchase).

         Accordingly, the Court Denies without Prejudice plaintiffs' motion to certify a New York and Arizona class because they lack proper class representatives.

         B. Predominance and Commonality

         Defendants raise four categories of arguments explaining why individual issues predominate rendering class certification untenable. First, the evidence as to whether a misrepresentation was made to a PBM is not common because five different PBMs administered each class member's prescriptions under plaintiffs' proposed class definition. Second, whether plaintiffs are third-party beneficiaries of the defendants' contracts with the PBMs varies depending on the state and the contract at issue. Third, evidence of reliance as to each class member must be considered. And finally, fourth, evidence of damages differs among each class member.

         As an initial matter, the Court finds that defendants' first two arguments are mooted by the Court's decisions herein. With regard to their first argument, the Court has already narrowed the class definition such that each class relates only to the PBMs that adjudicated a named representative's prescriptions. (See supra.) With regard to their second argument regarding third-party beneficiary provisions, as discussed below, the Court finds that those concerns are immaterial to plaintiffs' claims. The Court next turns to defendants' remaining arguments.

         1. Reliance

         Defendants contend that reliance and materiality cannot be presumed in this action because, as the transaction data demonstrates, many potential class members knew about HSP pricing as some of them were HSP members. Specifically, the data reflects that 96, 800 members of the putative class were enrolled in HSP at some time, of which 69, 786 were either enrolled in HSP at the same time that they carried insurance or purchased insurance after having been an HSP member. Thus, defendants contend, the issue of reliance must be determined on a case-by-case basis. See In re ConAgra Foods, Inc., 90 F.Supp.3d 919, 982 (C.D. Cal. 2015) (“[T]he Ninth Circuit has held that if a misrepresentation is not material to all class members, the issue of reliance varies from consumer to consumer, and no classwide inference arises.” (internal quotations omitted)).

         Defendants do not persuade. Putting aside the fact that not all of the statutes at issue here require a showing of reliance, [7] the evidence proffered by defendants does not sufficiently demonstrate that potential class members, even those who were members of HSP, knew of the allegedly deceptive practices. The copayment adjudication process from the perspective of the consumer is opaque, as one of defendants' experts concedes: “A pharmacy customer has limited insight into the processes that occur ‘behind the scenes' when they have a prescription filled at their local retail pharmacy.” (Dkt. No. 313-2 at 4.) Putative class members likely did not understand the relationship between the pharmacy's U&C and what the pharmacy charges them, which may be at times less than or more than the HSP program prices. Thus, that a small percentage of putative class members were also HSP members does not necessarily demonstrate that putative class members were aware of the fraudulent acts alleged here.

         2. Damages

         In this regard, defendants argue that there is no common evidence establishing a class member's damages because Dr. Hay's calculation is dependent on their individual insurance plans. Specifically, defendants proffer evidence demonstrating that several named plaintiffs had insurance coverage that provided for caps on individual members' out-of-pocket expenditures, and the transaction data suggests that many other potential class members also had out-of-pocket caps as part of their insurance coverage.

         Defendants present a hypothetical situation wherein a patient's out-of-pocket expenses are capped at $100 per annum. If, for instance, the proper U&C for that patient's medication was set at $10, in years when that patient filled that prescription ten or more times, that patient would have suffered no injury even if defendants had charged them more than $10 because the cap would have been reached. Defendants' expert Dr. Barlag observed that 7.7% of the putative class members made at least one purchase where the patient's copayment was $0.00, suggesting that those patients had, and reached, an out-of-pocket cap during the Class Period.

         The Court disagrees. The Ninth Circuit has held that “differences in damage calculations” among class members does “not defeat class certification.” Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 987 (9th Cir. 2015). Rather, plaintiffs need only demonstrate that their damages stemmed from the defendants' actions that created the legal liability. Id. (citations omitted). Here, assuming that defendants are liable, plaintiffs' damages calculations are tied to the delta between what plaintiffs were charged by defendants and defendants' true U&C price, which plaintiffs allege is the HSP program price for each drug. For the percentage of putative class members whose insurance provided them with out-of-pocket caps, damages can be determined by calculating the difference between those caps and what they would have paid had defendants submitted the correct U&C price. That some of these calculations will involve individualized and fact-specific determinations is insufficient to defeat class certification. Id.[8]

         C. Superiority

         To make this determination, the Court considers the following four non-exhaustive factors: (1) the interests of members of the class in individually controlling the prosecution or defense of separate actions; (2) the extent and nature of any litigation concerning the controversy already commenced by or against the members of the class; (3) the desirability of concentrating the litigation of the claims in the particular forum; and (4) the difficulties likely to be encountered in the management of a class action. Fed.R.Civ.P. 23(b)(3)(A)-(D). “Where classwide litigation of common issues will reduce litigation costs and promote greater efficiency, a class action may be superior to other methods of litigation.” Valentino v. Carter-Wallace, Inc., 97 F.3d. 1227, 1235 (9th Cir. 1996).

         Defendants' arguments focus on the fourth factor outlined above, namely the difficulties likely to be encountered in the management of the class action. Specifically, defendants argue that plaintiffs have failed to demonstrate how a trial could proceed with six classes under seven relevant statutes, on top of each states' jurisprudence on contract interpretation applied to five different PBM-CVS contracts. Moreover, defendants complain that the trial plan reveals inadequate planning and lack of thoughtfulness as to how the case could actually be tried to a jury. For instance, defendants argue, plaintiffs represented that ...

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