Opinion
Civil No. 03-3397(PAM/RLE)
May 13, 2004
MEMORANDUM AND ORDER
This matter is before the Court on Plaintiffs' Motion for Class Certification. For the following reasons, the Court grants the Motion.
BACKGROUND
A. Facts
In June 2003, Plaintiffs Robin Drug Company and the Apothecary Shop ("Plaintiffs"), brought suit on behalf of themselves and all others similarly situated for breach of contract and injunctive relief against Defendant PharmaCare Management Service, Inc. ("PharmaCare"). PharmaCare is one of approximately 60 "pharmaceutical benefit managers" ("PBMs") in the United States. Insurers, HMOs, and self-insured employers hired these PBMs to administer their health plans and prescription drug benefit programs. PharmaCare is the fifth largest PBM in the United States, retaining clients such as Health Partners, Blue Cross Blue Shield of Rhode Island, and Fallon Health Plan. PharmaCare's corporate parent is pharmacy giant CVS Corporation.
Pharmacies contract with PharmaCare to be a part of their network. PharmaCare has two primary pharmacy networks: (1) the PPO network, and (2) the Gold network. These networks include nearly 100,000 pharmacies in the United States, with about 2000 pharmacies in Minnesota alone. PharmaCare also has created more than 25 small "custom" networks for specific clients. PharmaCare uses a standard contract in its negotiations and dealing with each of the different pharmacies in each of the different networks.
In order to participate in PharmaCare's networks, each network pharmacies installs its own computer software that allows it to communicate all claims in "real time" to PharmaCare. As the pharmacist processes each individual prescription and relays the relevant information through the system, PharmaCare processes the claim in a matter of seconds. This instant response tells the pharmacist whether the individual is a plan member, whether the drug is covered, how much copay to collect, and how much the pharmacy will be paid in the transaction. The amount the pharmacy receives on each prescription depends on a common formula in the prescription drug industry and uniform in the PharmaCare network contracts. A term in this formula is Average Wholesale Price ("AWP"). At issue in this lawsuit is the construction of this term.
Plaintiffs maintain that the contract provides that the AWP "is the Average Wholesale Price as defined by MediSpan, as of the Date of Service." Plaintiffs claim that MediSpan, a company that is the source for AWP pricing, offers daily, weekly and monthly price updates. Although the contract provides that PharmaCare uses the AWP "as of the Date of Service," Plaintiffs claim that PharmaCare's system only uses weekly instead of daily AWPs. Therefore, Plaintiffs claim that "seven or eight days of increased prices . . . are lost to network pharmacies, despite their contractual entitlement to receive the benefit of those prices increases." (Pls.' Mem. in Supp. of Class Cert. at 9.) Plaintiffs seek both monetary and injunctive relief.
DISCUSSION
A. Standard of Review
Federal Rule of Civil Procedure 23 governs the certification of a class, and Plaintiffs have the burden to establish that they can satisfy all of Rule 23's requirements. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 161 (1982). When evaluating whether Plaintiffs have met the Rule's requirements, the Court must accept as true the substantive allegations in the Complaint. In re Potash Antitrust Litig., 159 F.R.D. 682, 688 (D. Minn. 1995) (Kyle, J.). The Court may only certify the class when it is satisfied "after rigorous analysis" that the requirements of Rule 23 have been met. Jenson v. Eveleth Taconite Co., 139 F.R.D. 657, 659 (D. Minn. 1991) (Rosenbaum, J.).
B. Rule 23(a)
Plaintiffs must first establish that they meet the four prerequisites of Rule 23(a). Plaintiffs must show that: (1) the class is so numerous that joinder 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). PharmaCare only disputes the typicality and adequacy requirements of Rule 23(a).
1. Typicality
PharmaCare disputes that Plaintiffs can satisfy the typicality requirement. Typicality requires that Plaintiffs demonstrate that they have the same or similar grievances as the members of the class. In re Workers Compensation, 130 F.R.D. at 105; Tate v. Weyerhauser Co., 723 F.2d 598, 608 (8th Cir. 1983). PharmaCare contends that the grievances among the class members are different. The proposed class includes large pharmacy chains such as Walgreens, medium size chains such as Robins Drug, and independent single pharmacies. PharmaCare asserts that these size and market-share differences lead to different negotiations and thus different contracts between PharmaCare and the customer pharmacy. The Court disagrees. There is one master contract that was used by PharmaCare with the putative class members, and the claim pertains to the interpretation of one clause in the master contract. Because the claims arise out of PharmaCare's alleged breach of the same master contract and are premised on the same legal theories, Plaintiffs' claims are typical.
2. Adequacy
Plaintiffs must demonstrate that it "will fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4). Plaintiffs must establish that: (1) their counsel is competent to pursue the action; and (2) their interests are not antagonistic to the interests of the class.In re Workers Compensation, 130 F.R.D. at 107. PharmaCare argues that Plaintiffs are not adequate class representatives because there is a conflict of interest between their interests and five of the class members they seek to represent.
Five of the pharmacy class members own their own PBMs, just like CVS Corporation owns PharmaCare. The contracts used by these pharmacies' PBMs does not explicitly provide for the frequency of the AWP updates. Because PharmaCare asserts that Plaintiffs are seeking to invalidate all PBM contracts that fail to provide for daily AWP updates, PharmaCare contends that these pharmacies' interests conflict with Plaintiffs' interests. PharmaCare mischaracterizes Plaintiffs' claim. Plaintiffs' Complaint asserts that PharmaCare breached its written PBM contract with its pharmacies by failing to update the AWP "as of the Date of Service." Plaintiffs do not seek to invalidate every contract entered into by every PBM, but rather this particular contract used by PharmaCare with its customer pharmacies. Thus, this argument fails.
PharmaCare alternatively asserts that the "potential" for negative effects against these five pharmacies resulting from judgment in favor of Plaintiffs should preclude class certification. However, the claims before the Court deal with PharmaCare and its specific contract with its customer pharmacies. The claims do not include any other PBM nor any other contract. If some of the class members own their own PBMs and those PBMs have contracts with their own pharmacies, whether or not claims exist in those situations depend on those contracts. Those contracts and those issues are not before the Court in this Complaint. Plaintiffs are adequate representatives of the class.
C. Rule 23(b)
Plaintiffs must also satisfy the requirements under one subsection of Rule 23(b). Plaintiffs assert that they satisfy both Rule 23(b)(2) and (b)(3). In pertinent part, Rule 23(b) provides that:
[a]n action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition: . . . (2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or (3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.
Fed.R.Civ.P. 23(b)(3). PharmaCare argues that Plaintiffs cannot satisfy Rule 23(b)(2) because the demand for monetary relief predominates over any request for equitable relief. PharmaCare also argues that Plaintiffs cannot satisfy Rule 23(b)(3) because individualized issues predominate as to the application of each putative class member's agreement with PharmaCare.
1. Rule 23(b)(2)
Injunctive relief is not "appropriate" when the "final relief relates exclusively or predominately to money damages." Fed.R.Civ.P. 23(b)(2) advisory comm. note. Plaintiffs do request both injunctive relief and monetary damages for the alleged breach of contract. A request for monetary damages does not automatically preclude class certification. However, Plaintiffs must demonstrate that their request for injunctive relief predominates over their request for monetary relief.
If Plaintiffs prevail, monetary damages will be significant. An injunction will only require that PharmaCare receive daily updates of the AWP to conform with the contract. In breach of contract cases, courts are reluctant to grant injunctive relief because monetary relief is an adequate legal remedy. The monetary damages at issue may be hundreds of millions of dollars and predominates over Plaintiffs' claim for injunctive relief. Plaintiffs rely heavily on Smith v. United HealthCare Servs., Inc., File No. 00-1163, 2002 WL 192565, at *5 (D. Minn. Feb. 5, 2002) (Montgomery, J.). In Smith, the putative class was comprised of millions of ERISA plan participants who were challenging copayment calculations by their HMO.Id. The plaintiffs sought both monetary relief and an injunction requiring that the defendant correctly calculate co-payments in the future. The court ultimately concluded that the plaintiffs' request for monetary relief did not predominate over their claim for injunctive relief because the request for monetary relief was "incidental" to the request for injunctive relief. Id. at 5.
Smith is distinguishable from this case. In Smith, the monetary damages resulted from a computer glitch that occurred over a short period of time and involved insignificant differences in co-payment charges. In contrast, the damages alleged in this case are significant. Moreover, this breach of contract case lies in federal court based on diversity jurisdiction, which requires that each class member satisfy the $75,000 amount in controversy. The Court finds that monetary damages predominate over Plaintiffs' claims for injunctive relief. Plaintiffs cannot satisfy Rule 23(b)(2).
2. Rule 23(b)(3)
In an action certified under 23(b)(3), Plaintiffs must show that common questions predominate over individual questions, and that the class action is superior to other methods of litigating the case. Fed.R.Civ.P. 23(b)(3). This rule "encompasses those cases in which a class action would achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results." Fed.R.Civ.P. 23, advisory committee's note to 1966 amendments.
a. Predominance
Rule 23(b)(3) requires that questions of law or fact common to members of the class predominate over those only affecting the individual members. Whether issues common to the class predominate must be evaluated on a case-by-case basis. This inquiry may require the Court to consider facts relevant to the merits of the case. Coopers Lybrand v. Livesay, 437 U.S. 463, 469 (1978).
It is undisputed that PharmaCare used the same master contract with pharmacies. This contract presents the question of whether its terms required PharmaCare to provide daily AWP updates. This is the predominant issue and is common to all class members. However, PharmaCare maintains that the interpretation of the contract and any applicable defenses will nonetheless vary among the class members, and therefore individual issues predominate. PharmaCare asserts that the market share and size of the putative class members undoubtedly affected negotiations of the contract, and therefore it is necessary to interpret the contract in light of parol evidence and each of the parties' negotiations. Thus, the contract cannot be interpreted as applied to the entire class, but rather on an individual basis. PharmaCare also contends that its defense of waiver must to be individually applied to each pharmacy. PharmaCare asserts that many of the putative class members knew that PharmaCare did not use daily AWP updates and never acted to enforce such rights. Thus, PharmaCare maintains that these members voluntarily waived their right to be reimbursed by the use of daily updates. (Def.'s Mem. in Opp'n to Class Cert. at 40.) Essentially, PharmaCare asserts that each pharmacy must prove its agreement with PharmaCare by reference to its subjective state of mind at the time of the contract and that each pharmacy knew that PharmaCare did not provide daily AWP updates, waiving that right.
Although the putative class includes large pharmacies like Wal-Mart and individually independent pharmacies, the AWP term of the contract is standard. Any ambiguity in this standardized provision can be interpreted on a class-wide basis. Moreover, if any of the words in this provision have a particular meaning defined by industry standards, that meaning would be the same regardless of the subjective understanding of the contracting parties. See Kleiner v. First Nat'l Bank of Atlanta, 97 F.R.D. 683, 694 (N.D. Ga. 1983). Finally, the terms of the contract require interpretation under Rhode Island law. The Court is unpersuaded that the interpretation of a standard provision in a contract used with all customer pharmacies is an individual issue that predominates over issues common to the class.
PharmaCare also maintains that some class members knew that PharmaCare did not issue AWP updates on a daily basis. As a result, PharmaCare asserts that these class members have effectively waived the right to daily updates. To support this assertion, PharmaCare submits evidence from two AWP publishers that identifies seven pharmacies that subscribe to daily AWP updates. (Biber Aff. Ex. 20-21.) PharmaCare also submits that 22 other pharmacies knew that daily AWP updates could be obtained from other claims processing vendors. (Id. Exs. 2, 5.) It appears that PharmaCare maintains that because there were alternative methods for obtaining daily AWP information, class members "could determine that PharmaCare was not implementing daily AWP increases for prescription reimbursement." (Def.'s Mem. in Opp'n to Class Cert. at 11.) Thus, PharmaCare contends that these pharmacies should be charged with knowing that PharmaCare did not provide daily AWP updates and therefore waiver their rights.
The principal question is whether PharmaCare's affirmative defense of waiver requires a separate determination on each class member's knowledge. This case presents a The Court finds that the determining factor in this case is the applicability of this defense to numerous members of the class. The evidence submitted by PharmaCare indicates that only seven pharmacies directly subscribed to daily AWP updates from AWP publishers, and that only 22 pharmacies had access to daily AWP updates through their own claims processors. In light of a proposed class of 55,000 pharmacies, the Court cannot say that numerous class members possessed knowledge that PharmaCare did not issue daily AWP updates. Moreover, the evidence that pharmacies had other avenues to obtain daily AWP updates does not support PharmaCare's contention that pharmacies knew that this standardized contract did not provide for daily AWP updates. Although the Court acknowledges that the affirmative defense of waiver may present individual issues, the Court cannot say that these individual issues predominate over those common to the class. See Smilow v. Southwestern Bell Mobile Sys., Inc., 323 F.3d 32, 39 (1st Cir. 2003) (finding that common issues predominated despite that individual waiver determinations might have been necessary). Here, because all Plaintiffs assert the same breach of the same provision of the same form contract, common questions applicable to the class predominate.
If evidence later shows that waiver is likely to bar the claimof at least some class members, the Court can dismiss or sever those claims at that time.
b. Superiority
Rule 23(b)(3) also requires that a class action "is superior" to other methods for fair and efficient adjudication of this controversy. Four factors are pertinent to the Court's inquiry: (1) the interests of individual class members in controlling their own, separate litigation; (2) the nature and extent of any relevant, pending litigation brought by or against members of the class; (3) the desirability of concentrating the litigation in the particular forum; and (4) any management difficulties the class action is likely to present. Fed.R.Civ.P. 23(b)(3). Here, one master contract has been used by PharmaCare with various different pharmacies around the country. There is a choice-of-law provision in the contract that specifies that the law of Rhode Island applies. At issue is the interpretation of the same provision of this master contract, which will determine PharmaCare's liability under the contract. There is no evidence that any putative class members have filed their own individual suits.
The Court acknowledges that the named Plaintiffs have filed a state court action against another PBM. However, for the purposes of superiority, the inquiry is whether other putative class members have filed their own individual lawsuits in order to control their own litigation.
PharmaCare asserts that because the potential damages for the larger pharmacies are likely to be large, the putative class members have "sufficient incentive to bring their own claims." However, as Plaintiffs point out, damages in this case will not be difficult to calculate due to computer records. (Woods Aff. ¶ 10; Ex. 7 at 28, 89-90.) Thus, class certification is appropriate.
CONCLUSION
Plaintiffs have satisfied the requirements of Rule 23 to permit class certification. Accordingly, IT IS HEREBY ORDERED that:
1. Plaintiffs' Motion for Class Certification (Clerk Doc. No. 17) is GRANTED;
2. The Court certifies the class as follows:
All licensed pharmacies that, within 10 years immediately preceding the commencement of this action, and thereafter
A. Received reimbursements for single-source brand name drugs under one or more contracts with PharmaCare;
B. The terms of which provided in part that PharmaCare would reimburse the pharmacy(ies) at a stated percentage of the AWP on "the date on which a Covered Drug is dispensed to an Eligible Member;"
C. Where PharmaCare failed to include in such reimbursements AWP price increases that were in effect on the date on which the prescription was dispensed.
Excluded from this class are the following:
A. CVS pharmacies and any and all other pharmacies owned or operated by PharmaCare, CVS, or any affiliate corporation or entity of either.
B. Pharmacies owned or directly controlled by PharmaCare clients as identified in PharmaCare's answer to Interrogatory 10(a), Plaintiffs' Interrogatories to PharmaCare (Set II).
For the purpose of this class description, the following types of claims, contracts and contract provisions are not considered contracts "the terms of which provided in part that PharmaCare would reimburse the pharmacy(ies) at a stated percentage of the AWP on "the date on which a Covered Drug is dispensed to an Eligible Member"; and accordingly are not part of Plaintiffs' claims:
A. Claims processed under any "ClaimsPro Pharmacy Agreement" of the type marked as Deposition Exhibit 64;
B. Claims processed under paragraph I ("Capitated Reimbursement Rate") of any "Exhibit B-l" to any PharmaCare Pharmacy Network Agreement or any paragraph of any "Exhibit B-2" to any "Managed Care Pharmacy Participation Agreement;"
C. Claims processed under any addendum to any PharmaCare Network Pharmacy Agreement pertaining to (i) the PharmaCare Indemnity network, (ii) the PharmaCare Non-funded Network, or (iii) the PharmaCare Partially Funded Network;
D. Claims processed under any PharmaCare/United Provider Services (United PharmaCare Service LP) provider network contract;
E. Claims processed under any network provider agreement that is, by its terms, required to be construed according to the laws of the State of Alabama.