Opinion
No. 94-C-897
August 16, 1999
MEMORANDUM OPINION
This matter is before the court on several recommendations regarding the distribution of certain settlement proceeds recovered in this matter. Our opinion on this issue follows.
BACKGROUND
The factual background of this massive, multi-district litigation has been extensively recited in several prior decisions of this court and the Seventh Circuit. See, e.g., In re Brand Name Prescription Drugs Antitrust Litig., ___ F.3d ___, 1999 WL 487147 (7th Cir. July 13, 1999); In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599 (7th Cir. 1997). For this reason, we set out below only those background facts necessary to sufficiently address the distribution of settlement proceeds issue.
On behalf of a nation-wide class, the Class Plaintiffs alleged a price-fixing conspiracy in which the manufacturers and wholesalers of brand name prescription drugs ("the Manufacturers" or "the Manufacturer Defendants," and "the Wholesalers" or "the Wholesaler Defendants," respectively) (collectively referred to as "the Defendants"), agreed to keep the prices of brand name prescription drugs artificially high to retail pharmacies, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The plaintiff class is defined as follows:
All persons and entities in the United States who, at any time during the period from October 15, 1989 to [February 9, 1995], purchase or purchased prescription brand name drugs directly from any of the defendants. The class excludes defendants; other manufacturers of prescription brand name drugs; other wholesalers of prescription brand name drugs; co-conspirators of any of the foregoing entities; affiliates, parents and subsidiaries of any of the foregoing entities; governmental entities; mail order pharmacies; health maintenance organizations; hospitals; clinics; and nursing homes.
The class included pharmacies of all sizes, from large chain pharmacies, such as CVS, Walgreens and Walmart, to smaller independent pharmacies. The class opt-out deadline was March 10, 1995.
Several thousand independent pharmacies, drug store chains and grocery store chains chose to opt out of the nationwide class action to pursue their own individual Sherman Act claims ("Individual Plaintiffs"). Among the Individual Plaintiffs were two groups of independent pharmacies, the Malley's Discount Pharmacy Group and the Boies/Gravante Group. In addition to alleging Sherman Act conspiracy violations, the Individual Plaintiffs asserted claims pursuant to the Robinson-Patman Act, 15 U.S.C. § 13(a), (d) and (f). Although the vast majority of the Malley's Discount Pharmacy Group and the Boies/Gravante Group opted out of the class case, certain members of these pharmacy groups chose to remain in the class ("the Remaining Malley's-Boies/Gravante Plaintiffs"). After the opt-out date passed, these pharmacies, although members of the class, filed their own individual Robinson-Patman Act claims against the Manufacturer Defendants.
The Class Plaintiffs and the Defendants engaged in four years of exhaustive discovery and extensive motion practice based upon the alleged industry-wide conspiracy. Over the same four year period, we ruled on numerous motions and issued several written opinions in this matter. As the litigation progressed, the Class Plaintiffs settled with several Manufacturer Defendants. On June 21, 1996, we approved partial settlements between the Class Plaintiffs and the following 13 Manufacturer Defendants: American Cyanamid Company, American Home Products Corporation, Bristol-Myers Squibb Company, Burroughs Wellcome Co. (now merged into Glaxo Wellcome Inc.), Eli Lilly and Company, Glaxo Inc. (now merged into Glaxo Wellcome Inc.), Knoll Pharmaceutical Company, Merck Co., Inc., Pfizer Inc., Schering-Plough Corporation, SmithKline Beecham Corporation, Warner-Lambert Company, and Zeneca Inc. See In re Brand Name Prescription Drugs Antitrust Litig., 1996 WL 351180 (N.D.Ill. 1996). On or about September 9, 1998, we approved a settlement between the Class Plaintiffs and the following four Manufacturer Defendants: Abbott Laboratories, Hoeschst Marion Roussel, Rhone-Poulenc-Rorer and Pharmacia Upjohn. The proceeds from the two settlements totaled approximately $723 million. Over $700 million remain in the settlement fund to date ("the Settlement Proceeds").
We are presently faced with the task of approving a plan of distribution for the Settlement Proceeds. As was expected, some level of disagreement exists between certain members of the class as to the proper division of the Settlement Proceeds. The greatest disagreement exists between the National Association of Chain Drug Stores, Inc. ("NACDS"), a trade association representing the retail chain pharmacy industry, and the Pharmacy Freedom Fund ("PFF") and the National Association of Community Pharmacists ("NACP"), organizations that represent independent pharmacies. In addition, the Remaining Malley's-Boies/Gravante Plaintiffs are heard on the issue of the calculation of Settlement Proceeds shares. Our ruling follows.
DISCUSSION
The disagreements between the parties of interest can be separated under two headings: Core Distribution Issues and Additional Relevant Issues. We begin with our analysis of the Core Distribution Issues.
Core Distribution Issues Source of Distribution Data
As noted above, the Class Plaintiffs allege the Manufacturer Defendants violated the Sherman Act by conspiring to keep the prices of brand name prescription drugs artificially high to retail pharmacies. During the alleged conspiracy period, the Class Plaintiffs, as a group, made millions of purchases of brand name prescription drugs, from either the Manufacturer or Wholesaler Defendants. The first question we must answer, therefore, is how to effectively and efficiently trace these millions of purchases so as to most fairly and accurately allocate the Settlement Proceeds among the class members.
The answer lies deep within the massive database of IMS Health, a leading provider of pharmaceutical purchase and sales information. According to its proposal submitted to the court, IMS Health will be able to "establish the total dollar universe of all brand name drugs (as defined in the class) purchased by all retail pharmacies during the relevant time period." IMS Health will accomplish this task using its DDD database, which contains sales and purchase information for approximately 99% of the pharmacies within the class. The DDD database "tracks almost every unit of sales-through wholesalers, mail service distributors, warehousing claims, re-packagers and manufacturer direct sales-for more than 90 pharmaceutical companies, including all manufacturers involved with the lawsuit." It is the consensus of the Class Plaintiffs that the IMS Health database is the most effective and cost-efficient method available to accurately determine each class member's purchase of brand name prescription drugs for the relevant time period. We are similarly convinced that IMS Health can best provide the information necessary to accurately distribute the Settlement Proceeds. We set forth below the parameters that will guide IMS Health in its task.
Method of Apportioning the Distribution Proceeds
NACDS and NCPA/PFF agree that the utilization of the IMS Health data is essential to accurately and efficiently distribute the Settlement Proceeds. The organizations are at odds, however, over several components of the distribution process.
First, NACDS and NCPA/PFF disagree over the manner by which each class member's share of damages shall be calculated. NACDS argues in favor of pro rata or proportional distribution, based upon each class member's purchases as a percentage of all brand name prescription drug purchases, by all class members, for the relevant time period. NCPA and PFF assert that independent pharmacies are entitled to 90% of the Settlement Proceeds. The logic behind this argument is as follows: (1) independents paid approximately 10% more than chain pharmacies for brand name prescription drugs; (2) the Manufacturer Defendants charged the Class Plaintiffs, on average, 11% more for brand name prescription drugs than they charged the favored buyers; and (3) because they paid 10% more on an 11% overcharge, independent pharmacies are entitled to approximately 90% (10/11) of the Settlement Proceeds. In the alternative, NCPA and PFF propose a "per capita" distribution to be based solely upon the length of time a pharmacy operated during the class period.
The Remaining Malley's-Boies/Gravante Plaintiffs also propose a plan to distribute the Settlement Proceeds. These pharmacies argue that they are entitled to a 25% premium on their damages claims because, based upon the terms of the settlement agreements, they forfeited the individual Robinson-Patman Act claims each filed after the class opt-out date. As the Remaining Malley's-Boise/Gravante Plaintiffs correctly note, they requested to be allowed to opt out of the settlement class so that they would not be forced to release their Robinson-Patman claims. In April 1996, we rejected their requests. See In re Brand Name Prescription Drugs Antitrust Litig., 1996 WL 167347 *2-3 (N.D.Ill. 1996). The Remaining Malley's-Boies/Gravante Plaintiffs argue that their Robinson-Patman Act claims had considerable value and that each of them incurred significant costs in the pursuit of these claims, including engaging in considerable discovery and preparing a test Robinson-Patman Act case for trial, thereby entitling them to the 25% premium.
Of the distribution methods proposed, we think the pro rata or proportional method is the most appropriate here. The Class Plaintiffs alleged that they paid inflated prices for brand name prescription drugs. Assuming the truth of this allegation, for purposes of distribution only, each class member's damages are in direct proportion to the amount of brand name prescription drugs each purchased. Each class member, therefore, is entitled to damages measured as follows: its purchases of brand name prescription drugs as a percentage of all class members' brand name prescription drug purchases for the relevant time period. We note that courts have utilized the pro rata distribution method in several prior price-fixing class actions. See, e.g., In re Airline Ticket Commission Antitrust Litig., 953 F. Supp. 280, 284-85 (D.Minn. 1997) (proposed pro rata distribution plan was "cost-effective, simple and fundamentally fair."); In re Corrugated Container Antitrust Litig., 556 F. Supp. 1117, 1129 (S.D.Tex. 1982) (approval of class action settlement that provided for pro rata distribution based upon valid claims of allowable purchases), aff'd, 687 F.2d 52 (5th Cir. 1982). IMS Health possesses data for millions of brand name prescription drug purchases for the time period in question, including information on 99% of the class members, and represented to us that it is capable of measuring each class member's drug purchases as a percentage of all class members' purchases for the relevant time period. We think this method will provide the most accurate measure of the damages suffered by each class member and, for this reason, we endorse the pro rata distribution method.
We reject NCPA's and PFF's assertion that independent pharmacies are entitled to 90% of the Settlement Proceeds. Simply, no evidence exists that the settling Manufacturers charged independent pharmacies 10% more for brand name prescription drugs than they charged chain pharmacies. We likewise reject NCPA and PFF's suggested "per capita" distribution method. The pro rata method provides a significantly more precise and accurate indication of damages, particularly where it considers every brand name prescription drug purchase for each class member. As long as this purchase information is available, and because IMS Health can analyze the information in an effective and cost-efficient manner, no reason exists not to utilize this data when measuring the Class Plaintiffs' damages.
We also reject the Remaining Malley's-Boies/Gravante Plaintiffs' argument that they are entitled to a 25% premium on their damages claims. These pharmacies made the tactical decision to remain in the class. Likewise, armed with the understanding that the class was pursuing only Sherman Act claims, these pharmacies made the tactical decision to file individual Robinson-Patman Act claims and to expend time and resources developing those claims. The simple fact remains, however, that each of the class members could have, had they been so inclined, filed their own Robinson-Patman Act claims. They simply chose not to do so. Although we previously expressed our sympathy that the settlements in this matter required the Remaining Malley's-Boies/Gravante Plaintiffs to forfeit their Robinson-Patman Act claims, see In re Brand Name Prescription Drugs Antitrust Litig., 1996 WL 167347 at *2, any premium granted to the Remaining Malley's-Boies/Gravante Plaintiffs would effectively penalize those class members who chose not to pursue such claims. Based upon all the facts before us, we do not think the premium sought is appropriate.
The next issue is whether the universe of brand name prescription drug purchases to be considered by IMS Health in its data compilation shall include purchases from all Manufacturer Defendants, including the non-settling Manufacturers, or shall include only those purchases from the settling Manufacturers. It is the consensus of a majority of the class members that IMS Health should utilize the former method, rather than the latter. Furthermore, class counsel, armed with years of experience on the topic of distribution of class settlements, informed us that in similar circumstances, most courts consider purchases from all defendants, including non-settling defendants, when distributing settlement proceeds. For these reasons, IMS Health shall include in its calculations purchases made from each of the Manufacturer Defendants, including the non-settling Manufacturers, for its determination of the universe of brand name prescription drug purchases to be considered when determining each class member's share of the Settlement Proceeds.
Lastly, NACDS and NCPA/PFF disagree over the period for which the universe of drug purchases shall be calculated. NCPA and PFF argue that the period should be limited to the class period, namely October 15, 1989 to February 9, 1995. NACDS, on the other hand, argues that because the terms of the settlement agreements required the Class Plaintiffs to forfeit the right to seek damages arising out of any overcharges paid by the Class Plaintiffs through the effective dates of the settlement agreements, the universe of drug purchases to be considered for damages purposes should include all purchases made through those effective dates. While we understand the logic behind NACDS's argument, we think for purposes of efficiency and ease, a single damages period should be established, rather than several periods based upon the effective dates of multiple settlement agreements. If we were to adopt NACDS's proposal, IMS Health would be required to calculate Class Plaintiffs' purchases from settling Manufacturer 1 through Date X, Class Plaintiffs' purchases from settling Manufacturer 2 through Date Y, Class Plaintiffs' purchases from settling Manufacturer 3 through Date Z, and so on and so forth. Such accuracy is not necessary here, given the millions of purchases made during the class period. We hold, therefore, that the universe of drug purchases to be considered for damages purposes are to be measured from October 13, 1989 through February 9, 1995.
Additional Relevant Issues
Certain additional issues remain. First, we must address the appointment of an administrator to oversee the distribution process. It is the consensus of the class that they shall employ an experienced claims administrator to work with class counsel to oversee the distribution of the Settlement Proceeds. In addition, the Class Plaintiffs and class counsel agree that they shall employ one individual with experience in the pharmaceutical industry to assist the claims administrator with any industry-specific questions or disputes that arise in the distribution process.
The next issue involves the method of notifying the class members of their right to Settlement Proceeds. The parties in interest agree that, as an initial matter, notices must be sent to each pharmacy within the class to determine, inter alia, whether within the class period, October 1, 1989 through February 9, 1995, any class pharmacy was purchased by or from a fellow class member. This will determine how a particular pharmacy's share of the Settlement Proceeds is to be divided, if at all. Non-class members will be entitled to Settlement Proceeds only for those class pharmacies that were purchased (along with the right to Settlement Proceeds) from a class member after the opt-out date. These initial notices will be returnable thirty days after their receipt, unless circumstances require additional time for a particular pharmacy or former pharmacy to respond.
Once the administrator compiles a list of all pharmacies entitled to a portion of the Settlement Proceeds, the administrator will work with IMS Health to prepare each class member's claims notice. This notice will include, inter alia, the ratio of the particular pharmacy's brand name prescription drug purchases to the total purchases by all class members. IMS Health will calculate these ratios on a month-by-month basis for the class period. When IMS Health and the administrator complete the calculations for all class members, they will mail the notices to class members and the pharmacies shall review their claims for validity and accuracy. The claims notices will be returnable to the administrator ninety days after their receipt, unless circumstances require additional time for a particular class member to respond.
Pursuant to certain of the settlement agreements, 5% of a portion of the settlements, approximately $18,500,000, will be utilized to establish a Pharmacy Foundation to benefit community pharmacies. NACDS and NCPA/PFF agree that the Pharmacy Foundation should establish a five person Board of Trustees. NACDS will select two of the board members and NCPA/PFF will select two members. The selection of the fifth and final board member will be left to the discretion of the four board members selected by the pharmacy organizations. If the four members cannot agree upon the fifth board member, the court will choose the fifth member, after receiving input from NACDS, NCPA and PFF.
Three issues raised by the parties are premature for determination. First, NACDS and NCPA/PFF disagree on the handling of any unclaimed settlement funds. NACDS claims that unclaimed funds should be distributed to the class members on a pro rata basis, much in the same way each pharmacy will obtain its appropriate share of the damages. NCPA and PFF, on the other hand, argue that if any settlement funds remain unclaimed for three years, those funds should be given to the Pharmacy Foundation. It is far too early to reach a final resolution of this issue. We cannot begin to speculate on how much or how little of the Settlement Proceeds will remain unclaimed. Certainly, the aggregate amount of unclaimed funds will go a long way towards determining how those funds shall be treated, particularly in light of certain considerations, such as distribution expenses.
We also think it premature to determine what amount of the Settlement Proceeds shall be set aside for administrative expenses. NACDS asserts that we should set aside a total of 20% of the Settlement Proceeds to pay late claims, to satisfy class counsels' petition for attorneys' fees and for all administrative expenses. NCPA and PFF argue in favor of setting aside 1.5% of the gross Settlement Proceeds to satisfy all administrative expenses other than legal fees and "other direct costs of the litigation." Particularly because class counsel have yet to file their petition for attorneys' fees, we think it premature to determine what percentage of the Settlement Proceeds shall be set aside for administrative expenses and attorneys' fees. These issues will certainly be addressed in the months to come.
Also premature are the parties' arguments regarding the establishment of a Dispute Resolution Committee to address substantive distribution disputes between class members and the administrator. Although prudence may suggest that such a committee be established before disputes arise, we are confident that class counsel, or others, can and will bring to our attention the need for such committee in the future, if such need arises.
Lastly, we reject NCPA's and PFF's recommendation in favor of establishing a fund to enforce the settlement agreements. We have no present reason to anticipate that any of the settling Defendants will violate its respective settlement agreement and no good reason exists to tie up any of the Settlement Proceeds for this purpose. Furthermore, any violation of a settlement agreement can be addressed in a subsequent independent legal action.
CONCLUSION
The Settlement Proceeds shall be distributed to the Class Plaintiffs in a manner consistent with our opinion above.