The Ninth Circuit Court of Appeals has affirmed the dismissal of a proposed class action against several pharmacy chains — including CVS Caremark Corp., Rite Aid Corp. and Walgreen Co. — over the companies’ alleged participation in a scheme to artificially inflate drug prices. The court affirmed California U.S. District Judge Susan Illston ruling that lead plaintiff Skilstaf Inc., an Alabama payroll service company, was not permitted to bring the suit because a previous settlement in Massachusetts federal court against McKesson barred it from bringing claims against that defendant “or any other person.”
Prior to filing a proposed class action against retail pharmacies in June 2009 in California federal court, Skilstaf was part of a class action in Massachusetts federal court alleging that drug price publisher First Data-Bank Inc. had conspired with leading distributor McKesson Corp. to artificially boost average wholesale prices for hundreds of drugs. McKesson agreed to pay $350 million to settle the case. In January 2009, a judge preliminarily approved the settlement, which included a stipulation that the settling plaintiffs would be prevented from suing McKesson or “any other person” over the claims laid out in that suit. Skilstaf lodged a limited objection to the settlement terms, but during an August 2009 fairness hearing, the Massachusetts court denied the company’s motion to strike the words “or any other person.” The judge did provide Skilstaf a second opportunity to opt out of the class, but Skilstaf declined and later collected its share of the settlement funds.
After the fairness hearing, retail pharmacies in the California suit — CVS, Walgreens, Longs Drugs Stores Corp., The Kroger Co., New Albertson’s Inc., Safeway Inc., Supervalu Inc. and Wal-Mart Stores Inc. — moved to dismiss.
In January 2010, Judge Illston granted the motions, finding Skilstaf’s claims were precluded by the Massachusetts settlement terms under which Skilstaf agreed not to sue.
Skilstaf appealed, arguing that court erred in dismissing the case without allowing for discovery. Skilstaf also contended that the agreement not to sue violated the Alabama company’s due process rights.
The Ninth Circuit held that California law did not require discovery and the retail pharmacies properly asserted that the settlement agreement in Massachusetts protected them from Skilstaf’s claims in California. Skilstaf voluntarily remained in the suit and took its share of the proceeds, preventing it from collaterally attacking the enforceability of the settlement provisions in California. “Skilstaf,” the court explained, “does ‘not get a second bite at the apple.’”
The Ninth Circuit also shot down Skilstaf’s due process claims on the ground that the company’s rights were satisfied when the Massachusetts judge provided an opportunity to opt out.