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Sheet Metal Workers Local No. 20 Welfare and Benefit Fund v. CVS Health Corp.

United States District Court, D. Rhode Island

November 1, 2016

SHEET METAL WORKERS LOCAL NO. 20 WELFARE AND BENEFIT FUND; and INDIANA CARPENTERS WELFARE FUND, on behalf of themselves and all others similarly situated, Plaintiffs,


          WILLIAM E. SMITH, Chief Judge.

         Before the Court are Defendant's Motion to Dismiss (ECF No. 13) and Motion to Certify Question to the Indiana Supreme Court (ECF No. 24). Plaintiffs filed Oppositions to both motions (ECF Nos. 20 and 28) and Defendant filed Replies (ECF Nos. 22 and 31). For the reasons that follow, Defendant's Motions are DENIED.

         I. Background[1]

         Plaintiffs are suing CVS Health Corporation (“CVS”), on behalf of themselves and a nationwide putative class of entities providing prescription drug insurance (“Third-Party Payors” or “TPPs”), alleging that CVS perpetrated an eight-year fraud by reporting an inflated Usual and Customary (“U&C”) price for generic drugs, rather than the significantly cheaper price associated with CVS's Health Savings Pass (“HSP”) program.

         In 2006, “big-box” retailers with pharmacy departments, such as Wal-Mart and Target, began offering hundreds of generic prescription drugs at significantly reduced prices. (Compl. ¶¶ 18-19, ECF No. 1.) In November 2008, CVS responded by introducing its HSP program, which provided special pricing for approximately 400 generic prescription medications to individuals who paid an annual membership fee. (Id. ¶¶ 20-24.)

         CVS is required to “report[] to Third-Party Payors CVS's [U&C] price for the drug being dispensed. The U&C price is generally defined as the cash price to the general public, which is the amount charged cash customers for the prescription, exclusive of sales tax or other amounts claimed.” (Id. ¶ 16.) Plaintiffs claim that because “CVS offers the HSP price as the cash price to the general public and the HSP price is the most common price paid by CVS's cash-paying customers[, ] [t]he HSP price is CVS's U&C price.” (Id. ¶ 30.) However, instead of reporting the HSP price, “CVS has reported U&C prices for generic prescription drugs that are up to eleven (11) times the U&C prices reported by some of its most significant competitors and its own HSP prices.” (Id. ¶ 38.) In contrast, the “big-box” retailers “report the discounted price as the U&C price.” (Id. ¶ 37.) According to Plaintiffs, CVS's “fraudulent scheme” has resulted in CVS “overcharg[ing] hundreds or thousands of TPPs (including Plaintiffs and others similarly situated) which paid for some of the most commonly prescribed generic drugs from CVS Pharmacies around the country.” (Id. ¶ 41.)

         II. Discussion

         CVS argues that: (1) the Complaint does not satisfy the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure; (2) Plaintiffs have failed to state a claim under Indiana's Deceptive Consumer Sales Act (“IDCSA”), or in the alternative, the question of whether TPPs are “consumers” under the IDCSA should be certified to the Indiana Supreme Court; (3) named Plaintiffs, who are Indiana TPPs, do not have standing to assert state law claims on behalf of putative class members, and Plaintiffs have not properly pled the elements of the state consumer protection statutes they attempt to invoke; and (4) Plaintiffs' negligent misrepresentation and unjust enrichment claims fail because they are contract claims masquerading as tort claims. The Court will discuss each of these arguments in turn.

         A. Rule 9(b) of the Federal Rules of Civil Procedure

         Rule 9(b) of the Federal Rules of Civil Procedure requires that a pleading alleging fraud “must state with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b). The Complaint “must ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'” Suna v. Bailey Corp., 107 F.3d 64, 68 (1st Cir. 1997) (quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1127-28 (2d Cir. 1994)). In other words, Rule 9(b) requires plaintiffs to allege the “‘who, what, when, where, and how' of the alleged fraud.” United States ex rel. Ge v. Takeda Pharm. Co. Ltd., 737 F.3d 116, 123 (1st Cir. 2013) (quoting United States ex. rel Walsh v. Eastman Kodak Co., 98 F.Supp.2d 141, 147 (D. Mass. 2000)).

         Here, CVS argues that “the Complaint does not allege that CVS (or anyone) ever communicated an alleged false statement, a U&C price, to the Indiana Funds, ” which “is the most basic requirement of Rule 9(b).” (Def.'s Mot. to Dismiss 8, ECF No. 13 (emphasis in original).) Moreover, Plaintiffs supposedly

do not allege their plan beneficiaries actually purchased overpriced prescriptions from CVS pharmacies; or when, where, and how frequently any such (unalleged) purchases took place; or what U&C prices CVS supposedly reported during those purchases; or what amount the Indiana Funds purportedly overpaid for the purchases; or any details describing when or how CVS obtained such overpayments.

(Id. (emphases in original).)

         Plaintiffs cite a recent decision in Corcoran v. CVS Health Corporation & CVS Pharmacy Inc., 169 F.Supp.3d 970, 986 (N.D. Cal. 2016), in which the court denied a motion to dismiss in a similar case. They argue that, like the plaintiffs in Corcoran, they have satisfied the “who, what, where, and when” required by Rule 9(b).

         The Court finds that Plaintiffs' Complaint satisfies Rule 9(b). It is clear from the Complaint that the alleged false statement to the Indiana Funds was the reported U&C price, which Plaintiffs claim was inflated. (See Compl. ¶¶ 16-30, ECF No. 1.) While it is true that Plaintiffs do not provide certain details - such as the specific amount of drugs purchased - that level of specificity is not required. A complaint need not “allege specific shipments to specific customers at specific times with a specific dollar amount of improperly recognized revenue.” Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997). As long as “the complaint ‘identifies the circumstances of the alleged fraud so that defendants can prepare an adequate answer, '” it is sufficient under Rule 9(b). Id. (quoting Warshaw v. Xoma Corp., 74 F.3d 955, 960 (9th Cir. 1996)); see also W. Reserve Life Assur. Co. of Ohio v. Conreal LLC, 715 F.Supp.2d 270, 283 (D.R.I. 2010) (stating that allegations are sufficient if they “serve the goals of Rule 9(b) to ‘provide a defendant with fair notice' of the claim and discourage baseless actions” (quoting Suna, 107 F.3d at 68)). Here, Plaintiffs' allegations are clear:

[T]he fraud occurred each time CVS electronically submitted a claim to TPPs using the [National Council for Prescription Drug Program (“NCPDP”)] reporting system wherein it misrepresented the price for a prescription generic drug to be the U&C price when, in fact, CVS cash-paying customers were charged substantially lower prices for the same drug.

(Pls.' Opp'n to Mot. to Dismiss 11, ECF No. 20-1.) The Complaint adequately puts CVS on notice of the details of the alleged fraud. This is particularly true given that “all of the missing details are likely in the possession of CVS.” Corcoran, 169 F.Supp.3d at 986.[2]

         B. Plaintiffs' Claims under the IDCSA

         1. Definition of “Consumer” under the IDCSA

         One of the purposes of the IDCSA is to “protect consumers from suppliers who commit deceptive and unconscionable sales acts.” Ind. Code § 24-5-0.5-1(b)(2). The statute prohibits deceptive acts “in connection with a consumer transaction, ” which is defined as a “sale . . . to a person for purposes that are primarily personal, familial, charitable, agricultural, or household, or a solicitation to supply any of these things.” Id. §§ 24-5-0.5-2(a)(1), 24-5-0.5-3(a). “Person” is defined as “an individual, corporation, the state of Indiana or its subdivisions or agencies, business trust, estate, trust, partnership, association, nonprofit corporation or organization, or cooperative or any other legal entity.” Id. § 24-5-0.5-2(a)(2). The statute empowers Indiana's Attorney General to enjoin a supplier's deceptive or unconscionable acts and authorizes courts to order, among other things, restitution for “aggrieved consumers.” Id. § 24-5-0.5-4(c). It also creates a civil remedy for a consumer claiming injury from conduct prohibited by the statute: “A person relying upon an uncured or incurable deceptive act may bring an action for the damages actually suffered as a consumer as a result of the deceptive act . . . .” Id. § 24-5-0.5-4(a). The question is thus whether the TPPs suffered damages “as a consumer.”

         Although the IDCSA defines “consumer transaction, ” it does not define “consumer, ” which leaves some ambiguity as to what is meant by “as a consumer.” CVS argues that because consumer is not defined, it must be given its “plain meaning, ” which is “someone who ‘uses' or ‘utilizes' a purchased item.” (Def.'s Mot. to Dismiss 16, ECF No. 13.) CVS also points out that Indiana law has codified CVS's proposed definition in other areas, such as products liability law. ...

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