Opinion
Civ. Action No. 01-1652 (JAG) (Consolidated Cases), MDL Docket No. 1419.
February 27, 2004
OPINION
INTRODUCTION
This matter having come before the Court by way of objections filed by defendants Schering-Plough Corporation ("Schering"), Key Pharmaceuticals, Inc., Upsher-Smith Laboratories, Inc. ("Upsher"), American Home Products Corporation ("AHP"), Wyeth Ayerst Laboratories, and ESI Lederle ("ESI") (collectively "Defendants"), to a Report and Recommendation ("RR") of Magistrate Judge G. Donald Haneke ("Magistrate Judge Haneke"), filed May 28, 2003, recommending that Plaintiffs' motion to remand be granted (the Haneke RR).
Plaintiffs in some of the consolidated cases have named "ESI Lederle Incorporated, a division of American Home Products" as a defendant. ESI Lederle is no longer a separate legal entity, it is a wholly owned, non-incorporated business unit of a subsidiary of AHP.
This Court having engaged in a de novo review of Magistrate Judge Haneke's RR and the submissions of the parties, adopts Magistrate Judge Haneke's recommendation and grants Plaintiffs' omnibus motion to remand all actions.
Under the Federal and Local Rules, a Magistrate Judge's recommended disposition of a dispositive motion is subject tode novo review. See 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b); L. Civ. R. 72.1 (c)(2); see also Poveromo-Spring v. Exxon Corp., 968 F. Supp. 219, 221 n. 2 (D.N.J. 1997) (citation omitted).
The cases subject to Plaintiffs' omnibus motion to remand are; Alabama: Frances Irene Steadman v. Schering-Plough Corp., et al., CV-01-N-1263-S; Arizona: Pietsch v. Schering-Plough Corp., et al, CIV-01-1392-PHX-ROS; California: Estelle Travers v. Schering-Plough Corp., et al., C01-1971 WDB, Jaqueline Cundiff v. Schering-Plough Corp., et al., C01-1835 PJH, Natalie Sutin v. Schering-Plough Corp., et al., 01-CV-4182, Leonard Brown v. Schering-Plough Corp., et al., 3:01-CV-02432, Gloria Helling v. Schering-Plough Corp., et al., 01-CV-1186; Florida:Grossman v. Schering-Plough Corp., et al., 01-8418-CIV; Maine:Margaret Dentone v. Schering-Plough Corp., et al., 01-CV-169; Massachusetts: Agatha "Nikki" McCutchon v. Schering-Plough Corp., et al., 01-CV-40185; Minnesota: Janis Roseen v. Schering-Plough Corp., et al., 01-962 JRT/FLN; New Jersey:Leonard Brown v. Schering-Plough Corp., et al., 01-CV-3-196,John Kellar v. Schering-Plough Corp., et al., 01-CV-3379; New York: Anthony Debella v. Schering-Plough Corp., et al., 01 CIV-8834; North Dakota: Donald W. Hannu v. Schering-Plough Corp., et al., No. 01-CV-71; Tennessee: Rena Bellows v. Schering-Plough Corp., et al., 01-2403; West Virginia: Joseph Morgan v. Schering-Plough Corp., et al., 5:01CV84; Wisconsin:Elaine Feider v. Schering-Plough Corp., et al., 01-CV-641,Evelyn Barczak v. Schering-Plough Corp., et al., 01-CV-906.
FACTS
The facts of this matter are set forth in detail in Magistrate Haneke's Report and Recommendation (the "Haneke RR") and the parties' submissions. After considering all papers submitted in this matter, this court adopts the recitation of the facts set forth therein.STANDARD OF REVIEW
A state court action may be removed to federal court if the plaintiff could have brought the action in federal court originally. See 28 U.S.C. § 1441(a). The court is required to remand an action to the state court from which it came "if at any time before final judgment it appears that the district court lacks subject matter jurisdiction." 28 U.S.C. § 1447(c). The party requesting removal has the burden of demonstrating that the court has jurisdiction. See McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936); Boyer v. Snap-On Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990). Federal jurisdiction is to be strictly construed against removal and all doubts should be resolved in favor of remand. Id. (citations omitted).DISCUSSION
I. Federal Question Jurisdiction
District courts have original jurisdiction over claims relating to patents. See 28 U.S.C. § 1338(a). In Christianson v. Colt Industries Operating Corp., 486 U.S. 800 (1988), the Supreme Court established a two-part test to decide which cases "arise under" Section 1338. According to the test set out inChristianson: "§ 1338(a) jurisdiction . . . extend[s] only to those cases in which a well-pleaded complaint establishes either [1] that federal patent law creates the cause of action or [2] that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims." Id. at 808-09 (citation omitted).
The Court made clear that to be a "necessary element" of one of the well-pleaded claims, the patent law question must be essential to every theory upon which the claim relies. Id. at 810. A claim supported by alternative theories which do not rely on the resolution of a question of patent law will not form the basis for Section 1338(a) jurisdiction. Id. Thus, "if there is any way that plaintiff could prevail without resolving a substantial question of federal patent law, the complaint must be remanded." Altman v. Bayer Corp., 125 F. Supp. 2d 666, 670 (S.D.N.Y. 2000).
Defendants object to Magistrate Judge Haneke's findings, contending that federal question jurisdiction exists in this case because plaintiff's claims regarding the "`illegality' of the [settlement] agreements under state antitrust laws turns upon resolution of issues of federal patent law." (See Def. Obj. at 4.) Specifically, Defendants argue that "the only way for Plaintiffs to prove that they suffered [antitrust] injury is to demonstrate that Upsher-Smith and ESI would have successfully defended the patent suits, and entered the market before the license dates. Therefore, proof that Schering's patent was invalid or not infringed is essential to Plaintiffs' claim that they suffered injury as a result of the settlement agreements." (See Def. Obj. at 6.)
"Def. Obj." refers to Defendants' Objections to Magistrate Judge Haneke's May 28, 2003 Report and Recommendation, dated June 13, 2003.
Magistrate Judge Haneke found that, contrary to Defendants' arguments, this Court does not have federal question jurisdiction over Plaintiffs' state claims. Magistrate Judge Haneke framed the issue as "whether, regardless of the potential outcome of the patent litigation, the defendants entered into collusive agreements intending to restrain competition for K-Dur, which agreements are in violation of various state laws" (emphasis in original). Applying the rule established by Christianson and precedents from other district courts, Magistrate Judge Haneke determined "that patent issues are tangential to the main thrust of plaintiffs' complaints" (Haneke RR at 5), and held that remand was appropriate because Plaintiffs' theory of relief did not depend on the validity or enforceability of Schering's patent. (See Haneke RR at 5-7.)
This Court agrees with Magistrate Judge Haneke and is in accord with the majority of district courts that have considered this question in similar contexts and ruled in favor of remand. The issue here is not the validity or enforceability of Schering's patent, but whether the settlement agreements entered into between Schering and Upsher, and Schering and ESI, were unlawful restraints on trade, regardless of whether the patent was valid and enforceable.
See, e.g., Ciprofloxacin Hydrochloride Antitrust Litig., 166 F. Supp. 2d 740 (E.D.N.Y. 2001); McGrew v. Schering-Plough Corp., Civ. No. 01-2311-GTV, 2001 U.S. Dist. LEXIS 12205 (D. Kan. Aug. 6, 2001); Altman v. Bayer Corp., 125 F. Supp. 2d 666 (S.D.N.Y. 2000); Drug Mart Pharmacy Corp. v. Abbott Labs., No. 00-631-CV, slip op. (E.D.N.Y. Aug. 28, 2000);In re Cardizem CD Antitrust Litig., 90 F. Supp. 2d 819 (E.D. Mich. 1999); Aetna U.S. Healthcare v. Hoechst Aktiengesellschaft, 54 F. Supp. 2d 1042 (D. Kan. 1999).
Defendants correctly point out that as the holder of a " presumptively valid, federally issued patent, [Schering had] a legal right under federal law to exclude generic products from the market until that patent expired, and to grant licenses restricting the date of market entry within the term of that patent." (Def. Obj. at 5) (citing Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969)). However, while "a patent holder is permitted to maintain his patent monopoly through conduct permissible under the patent laws," SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1204 (2d Cir. 1981), a patent holder may not protect a lawful patent through unlawful, anticompetitive means. Plaintiffs do not challenge Defendants' lawful patent rights or contend that Defendants breached a duty to license those rights. Instead, Plaintiffs allege that the settlement agreements themselves were unlawful restraints on trade. Contrary to Defendants' assertions, the question of whether the settlement agreements were designed to unlawfully restrain trade by delaying generic entry into the market may be decided without determining the validity of Schering's patent. Thus, it is possible that Plaintiffs may succeed on this claim without proving the invalidity or unenforceability of Schering's patent. Whether Plaintiffs are able to succeed eventually on their claims is not the question here.
The fact that the settlement agreements allowed entry before the expiration of Schering's patent does not mean that the settlement agreements did not delay entry beyond when the generic manufacturers might have entered the market. For example, it is possible that Upsher may have entered the market in May 1998 when the FDA 30 month stay expired. Whether this would have been prudent because of the outstanding patent litigation, and the prospect of damages if Upsher lost the patent suit, is not our concern on this motion.
Finally, to the extent that Defendants contend that federal question jurisdiction exists because Plaintiffs' causes of action are created by patent law, this Court agrees with Magistrate Judge Haneke's rejection of this assertion. Plaintiffs' claims, as pled, are based on state law and "references to Schering's patent as a factual backdrop do not turn the matters into federal question cases so as to justify removal." (Haneke RR at 8.) (citing Aetna U.S Healthcare, Inc. v. Hoechst Aktrengelsellschaft, 54 F. Supp. 2d 1042, 1053-54 (D. Kan. 1999). Furthermore, the Hatch-Waxman Act does not create Plaintiffs' claims because Plaintiffs do not seek a determination that Defendants violated the Hatch-Waxman Act. See McGrew v. Schering-Plough Corp., Civ. No. 01-2311-GTV, 2001 U.S. Dist LEXIS 12205, at *10 (D. Kansas August 6, 2001). Here, the Hatch-Waxman Act simply serves as factual context for the process governing the interaction between Plaintiffs and Defendants regarding the marketing and sale of their patented and generic drugs.
II. Diversity Jurisdiction
Defendants assert that, in addition to federal question jurisdiction, this Court also has diversity jurisdiction over eleven of the actions subject to the omnibus motion to remand. (See Def. Obj. at 12.)
The diversity statute provides, "the district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different States. . . ." 28 U.S.C. § 1332. It is undisputed that there is diversity of citizenship among the parties in each of the lawsuits Defendants seek to remand. Thus, the question for this Court is whether the amounts in controversy exceed $75,000 as required by the diversity statute.
Here, Defendants argue that the $75,000 threshold can be met by aggregating the Plaintiffs' claims for damages, injunctive relief, disgorgement, and counsel fees. Specifically, Defendants contend that the $75,000 jurisdictional requirement is satisfied because "these actions seek to enforce a single title or right independent of the individual losses allegedly suffered by the putative class members." (Def. Obj. at 12.) Defendants state that the jurisdictional requirement can be met because "these complaints seek disgorgement of the $60 and $30 million payments from Schering to Upsher-Smith and ESI, respectively, in addition to damages allegedly suffered by the individual class members as a result of overpayments for K-Dur." (Def. Obj. at 12) (citations omitted) (emphasis in original).
According to Defendants, aggregation is appropriate in this case because "[b]y seeking disgorgement of benefits from the `sale and refusal to pursue' a generic, the putative class members have purported to unite to obtain recovery of a single sum [and] [u]nder such circumstances, the full amount for which plaintiffs seek disgorgement must be considered for the purpose of determining the amount in controversy. (See Def. Opp. Memo at 30.) Basically, Defendants argue that, if awarded, this relief would create a common fund exceeding $75,000 in which plaintiffs would have a single, undivided interest.
"Def. Opp. Memo" refers to Defendants' Memorandum of Law in Opposition to Plaintiffs' Omnibus Motion to Remand, filed January 31, 2002.
Although it is well-settled that, in order for this Court to have diversity jurisdiction, each plaintiff in a class action must independently satisfy the $75,000 jurisdictional requirement, see Zahn v. International Paper Co., 414 U.S. 291, 301-02 (1973), when plaintiffs unite to recover a fund in which they have an undivided common interest, the entire amount of the fund is properly considered when deciding whether the threshold for diversity jurisdiction has been satisfied. See id., at 294 (1973).
Magistrate Judge Haneke ruled that the "`single title or right' exception to [the non-aggregation] principle is not applicable to the situation presently before this Court." (See Haneke RR at 9) (citation omitted). This Court agrees, and is in accord with other courts that have held that seeking disgorgement does not create a single undivided interest. See, e.g., Packard v. Provident Nat. Bank, 994 F.2d 1039, 1050 (3d Cir. 1993) (finding exception to non-aggregation rule inapplicable where each class member was injured individually, and in a unique amount, that in theory must be proved separately); Lennon v. Bridgestone/Firestone, Inc., Civ. No. 00-4469, 2000 U.S. Dist. LEXIS 15405, at *9 (E.D. Pa. October 19, 2000) (declining to aggregate claims where plaintiffs failed to show that they sought anything other than a recovery by each individual class member of defendants' realized profits); Aetna U.S. Healthcare, Inc., 54 F. Supp. 2d at 1050 (holding disgorgement claim inappropriately characterized as collective right or interest where each plaintiff could have brought a separate independent claim to recover overpayments unjustly conferred on defendants, and where each plaintiff would only be entitled to recover their own share of the overpayment).
Accordingly, Plaintiffs' claims do not satisfy the $75,000 jurisdictional threshold and this Court does not have diversity jurisdiction over these actions.
CONCLUSION
For the foregoing reasons, Plaintiffs' motion to remand is granted.