Graphic Communications Local 1B Health & Welfare Fund “A”, etc. v. CVS Caremark Corp., et al., Case No. 09-CV-2203 (D. Minn. July 19, 2010)
Unless you are like the late Anna Nicole Smith or the late Michael Jackson, you probably get your prescription drugs from your local pharmacy. Doing so helped saved the plaintiffs in this case from litigating in federal court because CAFA’s local controversy exception applied.
In Graphic Communications, various union-sponsored health benefit plans alleged that certain pharmacies violated Minn. Stat. sec. 151.21 and consumer fraud statutes by failing to pass on to consumers the difference between the cost of brand name and generic drugs when filling prescriptions.
The defendant pharmacies removed under CAFA, alleging that there was minimal diversity and the aggregate amount in controversy exceeded $5 million.
The plaintiffs conceded those requirements were met, but argued that CAFA’s local controversy exception applied.
The United States District Court for the District of Minnesota agreed with the plaintiffs, declined to exercise jurisdiction, and remanded the case to state court. The District Court held that the local controversy exception applied because (1) more than two-thirds of the proposed class members are Minnesota citizens; (2) at least one defendant was a Minnesota citizen whose alleged conduct formed a “significant basis” for the class claims and from whom “significant relief” was sought; and (3) no similar class action has been filed in the preceding three years. See, 28 U.S.C. §1332(d)(4)(A).
The defendants challenged the first and second prongs of the local controversy test.
In considering whether more than two-thirds of the proposed class were Minnesotans, the Court relied on census data submitted by the plaintiffs showing 87% of prescription drug sales to individual consumers in Minnesota occur within the state’s most populous region, the Twin Cities metropolitan area, and concluded that this evidence permitted an inference that individuals who purchase prescription drugs tend to do so close to home. Accordingly, the Court concluded that plaintiffs could make a prima facie case that more than two-thirds of individuals buying prescription drugs in Minnesota lived in Minnesota at the time, and were likely to be citizens of Minnesota.
The defendants responded by pointing out that over 90% of Minnesotans have some health insurance coverage, suggesting that prescription benefits may be provided by out-of-state insurers, who are also potential class members.
The Court did not find the defendants’ argument to be persuasive. The Court assumed, first, that none of the insured Minnesotans pay a co-payment for prescriptions, and held, therefore, that all Minnesotans with insurance were excluded from the class definition. Next, the Court assumed that every private, non-farm business in Minnesota gets its employees’ prescription benefits though an out-of-state insurer. Even with these assumptions, both of which favored the defendants, the Court found (based on the census data) that the potential class would consist of 595,259 prescription drug purchasers, of which about 75% (the uninsureds) were Minnesota residents, and 25% (the employers’ insurers) were residents of other states. Hence, the Court concluded that more than two-thirds of the class were likely to be Minnesota citizens.
Regarding the second prong of the local controversy test, the Court agreed with the plaintiffs’ position that “significant relief” was sought from at least three Minnesota defendants – Target, Coborn’s and Snyders, which collectively owned 43% of the Minnesota pharmacies of concern. The Court held that such a percentage was facially sufficient to demonstrate these Minnesota defendants may have engaged in a “significant part of the alleged conduct of all defendants,” thus meeting the second prong of the local controversy test.