United States District Court, D. Rhode Island
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,
v.
CVS PHARMACY, INC., Defendant. PLUMBERS WELFARE FUND, LOCAL 130, U.A., on behalf of itself and all others similarly situated, Plaintiffs,
v.
CVS PHARMACY, INC., Defendant.
MEMORANDUM AND ORDER
WILLIAM E. SMITH, CHIEF JUDGE.
Presently
before the Court is Plaintiffs' Motion for Leave to File
First Amended Complaint (ECF No. 56), in which they ask
permission to update their story about alleged fraud
spearheaded by Defendant CVS Pharmacy, Inc.,
(“CVS”). In particular, Plaintiffs would like to
revise their complaint to comport with information they
learned in discovery, namely, that Pharmacy Benefit Managers
(“PBMs”), who facilitated generic-drug purchases
between Plaintiffs and CVS, were allegedly aware of and
abetted CVS's fraud. But not only do Plaintiffs seek to
amend their factual allegations; they also hope to add two
claims under the Racketeer Influence and Corrupt
Organizations Act (“RICO”), 18 U.S.C.
§§ 1961-1968. For the reasons that follow,
Plaintiffs' Motion is GRANTED.
I.
Background[1]
Alleging
negligent misrepresentation, unjust enrichment, and
violations of state-consumer-protection acts, Plaintiffs had
it in their original complaint that CVS overcharged them by
collecting more for generic drugs than it was allowed under
the National Council for Prescription Drug Program
(“NCPDP”). See Sheet M Workers Local No. 20
Welfare and Benefit Fund v. CVS Health Corp., 221
F.Supp.3d 227, 229-31 (D.R.I. 2016) (denying CVS's motion
to dismiss). According to this complaint, a key component of
CVS's fraud was its Health Savings Pass
(“HSP”) program, which CVS developed to compete
with big-box retailers (e.g., Wal-Mart, Inc.) who had
recently slashed prices on certain generic drugs. See
Id. at 229-30.
Instituted
November 2008 and discontinued February 2016, the HSP program
allowed individual cash-paying CVS customers to access
discounted prices by paying an annual membership fee.
(Pls.' Proposed First Am. Compl. (“PAC”) 3,
ECF No. 58-1). Though nominal, the fee paid substantial
dividends. CVS saved large sums by purposefully structuring
the HSP program to prevent Plaintiffs, and others similarly
situated, from accessing the program's discounts while
remaining (or so it thought) in compliance with NCPDP's
requirement that CVS charge Plaintiffs no more than the
general public, that is, no more than the “Usual and
Customary” (“U&C”) price for drugs.
(Id. at 1-4, 43.) The thought was that because the
HSP price was not available to cash customers, but only to
HSP members, CVS was not required to offer that price to
Plaintiffs, but could instead report the higher price paid by
non-HSP-member cash customers as the U&C
price.[2] (Id. at 25.) This allowed CVS to
retain cash customers without passing on the price cut to
purchasers like Plaintiffs. (Id. at 20-24.)
Since
filing its original complaint, Plaintiffs claim discovery has
revealed a more complex scheme whereby CVS did not act alone,
but rather enlisted the help of various other entities to
develop and conceal the gambit described above to bilk
Plaintiffs and others out of billions of dollars.
(Id. at 31-43.) One of these entities was Caremark,
LLC, (“Caremark”). Caremark helped CVS design the
HSP program, and in particular, developed the
nominal-membership-fee feature as a way to compete with the
big-box stores for cash customers without offering similar
savings to Plaintiffs. (Id. at 20-24). Caremark also
administered the HSP program from its inception in 2008 to
2013, when Medical Security Card Company
(“ScriptSave”) took it over. (Id. at
26-27.) Both Caremark and ScriptSave recognized that the
program allowed CVS to “‘protect' loyalty
member price[s] from third parties.” (Id. at
29.) But, anticipating that these third parties would
consider such protection a bug, not a feature, of the
program, they worked with CVS to keep it a secret.
(Id. at 31.)
Plaintiffs
also allege that four of the country's largest PBMs -
Caremark, Express Scripts, Inc., OptumRx, Inc., and MedImpact
Healthcare Systems, Inc. - were in on the scheme, too.
(Id. at 31-43.) PBMs contract with health plans like
Plaintiffs to reimburse pharmacies like CVS when a plan's
members fill their prescriptions. (Id. at 4-5, 10.)
PBMs ostensibly work on behalf of their health-plan clients
to, among other things, negotiate low pharmacy drug prices.
(Id.) The interests of PBMs and health plans are not
perfectly aligned, however. (See id. at 15-17.)
Health plans want cheap drugs; PBMs want the difference
between what they pay pharmacies for drugs and what they
charge health plans for those drugs to be as large as
possible. (Id.) In other words, the difference
between what PBMs pay and what they charge is their gain, but
the health plans' loss. (See id.)
The
PBMs allegedly increased this spread by deliberately hiding
from health plans the fact that CVS was not reporting its HSP
price as its U&C price. (Id. at 31.) Each PBM
developed an internal policy interpreting definitions of
U&C price in their respective contracts with CVS as
excluding HSP prices. (Id. at 31-43.) Plaintiffs
allege that this was no coincidence - that CVS prompted the
PBMs to keep the ruse a secret, and that each PBM knew the
others had agreed to do so. (Id.) This assurance was
paramount to the scheme, for if any one PBM had confessed,
the health plans would have put a stop to it, insisting they
pay no more than CVS's cash customers in accordance with
their contracts with the PBMs. (Id. at 45.) Indeed,
Plaintiffs say that, in a competitive market, such insistence
would have been unnecessary, as one or more PBMs would have
adopted HSP prices sua sponte in an effort to attract plan
business. (Id. at 51-57.)
According
to Plaintiffs, fraud operated here on more than a wink and a
nod. Plaintiffs allege that it “was orchestrated out of
the corporate headquarters of CVS, Caremark, each remaining
PBM, and ScriptSave” and “required those
headquarters to communicate directly and frequently by U.S.
Mail and interstate wire facilities.” (Id. at
60-61.) Plaintiffs aver that these parties “share[d]
information regarding various cash discount programs, the
structure of those programs, and whether they [were]
reporting those prices as U&C prices.”
(Id. at 66.) For example, in a back-and-forth
between CVS executives and executives at Indiana Carpenters
Welfare Fund's PBM, Medco Health Solutions, Inc., (now
owned by Express Scripts), Medco assured CVS that it would
interpret its definition of U&C price - “the lowest
net cash price a cash . . . customer would have paid . . .
inclusive of all applicable discounts” - as excluding
CVS's HSP price, even though Medco had previously
determined that it would consider Wal-Mart, Inc., 's
discounted price for generics as its U&C price.
(Id. at 33-38.) Unsuccessful in its attempt to have
Medco modify its definition of U&C price to explicitly
exclude discounts associated with “card programs such
as CVS' Health Savings Pass, ” CVS settled for
Medco's sotto voce amendment. (Id.) CVS then
notified an ostensible competitor of Medco's - Caremark -
of Medco's decision when a vice president at CVS, Tina
Egan, forwarded an email to Caremark's senior legal
counsel, Roderick Bergin, containing Medco's discreet
capitulation. (Id. at 37 (“Ms. Egan forwarded
Medco's response to Roderick Bergin . . . as an
‘FYI.'”).)
Plaintiffs
believe that the foregoing, if proved, supports the two RICO
claims in their PAC. In the first of these claims, Plaintiffs
allege that CVS and Caremark shepherded a RICO enterprise
that included the aforementioned PBMs and ScriptSave, all of
whom Plaintiffs want as defendants. (Id. at 51-64.)
This enterprise worked together to defraud Plaintiffs by
disguising the fact that CVS failed to report HSP prices as
its U&C prices for certain generic drugs. (Id.)
The second claim is similar to the first, except that it
splits the enterprise alleged in the first claim into three,
each including CVS, Caremark, ScriptSave, and one of the
three other PBMs. (Id. at 64-78.) Plaintiffs also
have a standalone fraud claim in their PAC, which relies on
the same alleged fraud underlying their RICO claims.
(Id. at 82-83.) The remaining claims - negligent
misrepresentation, unjust enrichment, and violations of
state-consumer-protection acts - are holdovers from the
original complaint. See Sheet M Workers, 221
F.Supp.3d at 230.
II.
Discussion
A.
Legal Standard
The
parties disagree as to whether Federal Rule of Civil
Procedure 15(a) or 16(b) supplies the standard by which the
Court must evaluate Plaintiffs' Motion. But, in fact,
both apply.
The
First Circuit has made plain that where, as here, a plaintiff
seeks to amend its complaint after the deadline for doing so
set by the district court's scheduling order has passed,
Rule 16(b)'s “good cause” standard applies.
O'Connell v. Hyatt Hotels of P.R., 357
F.3d 152, 154 (1st Cir. 2004).[3] This standard - “[u]nlike
Rule 15(a)'s ‘freely given' standard, which
focuses mostly on the bad faith of the moving party and the
prejudice to the opposing party” - “emphasizes
the diligence of the party seeking the amendment.”
Id. at 155. Under Rule 16(b), “[p]rejudice to
the opposing party remains relevant but is not the dominant
criterion.” Id.
If a
plaintiff makes it over the hurdle set by Rule 16(b), the
district court must then evaluate a contested motion to amend
under Rule 15(a)'s “freely give[n]” standard.
See Leary v. Daeschner, 349 F.3d 888, 909 (6th Cir.
2006) (“Once the scheduling order's deadline
passes, a plaintiff first must show good cause under Rule
16(b) for failure earlier to seek leave to amend before a
court will consider whether amendment is proper under Rule
15(a).”); 6A Charles Alan Wright & Arthur R.
Miller, Federal Practice and Procedure § 1522.2
(3d ed. 1998) (same). That is, the district court must ask
whether a plaintiff's amendment would cause undue delay,
was brought in bad faith, or with a dilatory motive, or if
the amendment would be futile. Grant v. News Grp. Bos.,
Inc., 55 F.3d 1, 5 (1st Cir. 1995).
Particularly
salient at the moment are questions of undue
delay[4] and futility. Undue delay, on its own, can
be a basis for denying amendment in the First Circuit.
Acosta-Mestre v. Hilton Int'l of P.R., Inc., 156
F.3d 49, 52 (1st Cir. 1998). But see Wright &
Miller, supra, at § 1488 (“In most cases,
delay alone is not a sufficient reason for denying
leave.”). There is no delay that is per se undue.
Wright & Miller, supra, at § 1488
(“Quite appropriately the courts have not imposed any
arbitrary timing restrictions on requests for leave to amend
and permission has been granted under Rule 15(a) at various
stages of the litigation.”). Rather, a district court
mulling a motion to amend in a particular case must consider
any alleged delay with that case's specific history in
mind. Id. (“The policy of allowing amendments
to be made at any time during the litigation is sound. It
would be unreasonable to restrict a party's ability to
amend to a particular stage of the action inasmuch as the
need to amend may not appear until after discovery has been
completed or testimony has been taken at trial.”).
However, the First Circuit has not hesitated to affirm the
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