Opinion
[Motion filed on June 14, 2004.]
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS
VIRGINIA PHILLIPS, District Judge.
The Court has received and considered all papers filed in support of, and in opposition to, the Motion to Dismiss The Motion is appropriate for resolution without oral argument See Fed. R. Civ P. 78; Local Rule 7-15. For the reasons set forth below, the Motion is GRANTED
I. BACKGROUND
A. PLAINTIFFS' ALLEGATIONS
Plaintiffs own five independent retail pharmacies licensed in California [Complaint ("Compl") ¶ 10] Each has a contractual relationship with, or has rendered pharmaceutical services to, a beneficiary of a client of one or more of the named defendants. [Id.]
Representative plaintiffs include Jerry Beeman and Pharmacy Services, Inc, doing business as Beeman's Pharmacy, Anthony Hutchinson and Rocida, Inc, doing business as Finley's Rexall Drug; Charles Miller, doing business as Medicine Shoppe, Jim Morisoli and American Surgical Pharmacy, Inc, doing business as American Surgical Pharmacy, and Bill Pearson and Pearson and House, doing business as Pearson's Medical Group Pharmacy.
Defendants are non-governmental entities that have contractual relationships with purchasers of prepaid or insured prescription drug benefits. [Compl. ¶ 12.] Defendants process, consult, advise on, or otherwise assist in the processing of prepaid or insured prescription drug benefit claims submitted by licensed California pharmacies or patrons thereof. [Id.]
Plaintiffs named the following as defendants in this action Caremark Inc.; TDI Managed Care Services, Inc, doing business as Eckerd Health Services, Medco Health Solutions, Inc, Express Scripts, Inc, and Advance PCS.
Plaintiffs allege that Defendants are "prescription drug claims processors" (also "pharmacy benefit managers" or "PBMs") that (1)(a) did not conduct or obtain the results of studies which identify the fees, separate from ingredient costs, of California pharmacies, for pharmaceutical dispensing services to private consumers and (b) failed to distribute reports of these studies to the insurers and other third-party payors on whose behalf Defendants interact with California pharmacies, or (2) conducted flawed studies, in violation of California Civil Code § 2527 [Compl. ¶¶ 27-32] Plaintiffs also allege that, based upon the above-described conduct, Defendants impermissibly entered into, engaged in, or performed contracts or transactions with Plaintiffs in the State of California. [Id ¶ 34.]
B. PROCEDURAL HISTORY
On December 5, 2002, Plaintiffs filed a Complaint alleging claims for: (1) violation of California Civil Code § 2527, (2) unlawful, unfair, and fraudulent business acts and practices in violation of California Business and Professions Code § 17200, and (3) declaratory relief and unjust enrichment.
On June 14, 2004, AdvancePCS, Inc., Express Scripts, Inc.; and Medco Health Solutions, Inc. filed a Motion to Dismiss ("Mot."), which was joined by TDI Managed Care Services, Inc. on June 29, 2004. The parties timely filed an Opposition ("Opp'n") and a Reply ("Reply")
II. LEGAL STANDARD
Under Rule 12(b)(6), a party may bring a motion to dismiss for failure to state a claim upon which relief can be granted. Dismissal is appropriate when it is clear that no relief could be granted under any set of facts that could be proven consistent with the allegations set forth in the complaint See Williamson v General Dynamics Corp , 208 F.3d 1144, 1149 (9th Cir. 2000), Big Bear Lodging Ass'n v. Snow Summit, Inc. , 182 F.3d 1096, 1101 (9th Cir 1999)
The Court must view all allegations in the complaint in the light most favorable to the non-movant and must accept all material allegations - as well as any reasonable inferences to be drawn from them - as true See Big Bear Lodging Ass'n , 182 F.3d at 1101; American Family Ass'n v City & County of San Francisco, 277 F.3d 1114, 1120 (9th Cir. 2002) The Court cannot grant the motion to dismiss "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson , 355 U S 41, 45-46 (1957)
"Failure to properly allege standing is a ground for dismissal under Rule 12(b)(6)" MAI Systems Corp. v UIPS , 856 F.Supp. 538, 539 (N D. Cal. 1994) (citing Western Mining Council v. Watt , 643 F.2d 618 (9th Cir 1980))
III. DISCUSSION
Standing is a threshold issue in every federal case Elk Grove Unified Sch. Dist. v Newdow , 524 U.S. ___, 124 S.Ct. 2301, No. 02-1624, slip. op at 7 (June 14, 2004) ("In every federal case, the party bringing the suit must establish standing to prosecute the action."), Wrath v. Seldin , 422 U S. 490, 517-18 (1975) "In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues." Newdow, No. 02-1624, slip op. at 7 (quoting Warth, 422 U S. at 498). Before the judicial process may be invoked, Plaintiffs must "show that the facts alleged present the court with a case or controversy' in the constitutional sense and that [they are the proper plaintiffs] to raise the issues sought to be litigated" McMichael v. County of Napa , 709 F.2d 1268, 1269 (9th Cir 1983) (quoting Linda R S v. Richard D , 410 U.S. 614, 616 (1973)).
As the Supreme Court recently explained, "our standing jurisprudence contains two strands Article III standing, which enforces the Constitution's case or controversy requirement, and prudential standing, which embodies judicially self-imposed limits on the exercise of federal jurisdiction'" Newdow, No. 02-1624, slip op. at 8 (citing Lujan v Defenders of Wildlife , 504 U.S. 555, 559-562 (1992); Allen , 468 U.S. at 751).
"The standing requirement is born partly of an idea, which is more than an intuition but less than a rigorous and explicit theory, about the constitutional and prudential limits to the powers of an unelected, unrepresentative judiciary in our kind of government'" Newdow, No 02-1624, slip op. at 7 (quoting Allen v Wright , 468 U S 737, 750 (1984))
To satisfy Article III's standing limitations, Plaintiffs must show that the conduct of which they complain has caused them to suffer an "injury in fact" that a favorable judgment will redress. Newdow, No 02-1624, slip op at 8 (citing Lujan , 504 U S at 560-561) In other words, Plaintiffs must demonstrate that (1) they have suffered an "injury in fact' - an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical"; (2) there is a causal connection between the injury and the conduct complained of - the injury is "fairly traceable" to the challenged action of Defendants, and not the result of the independent action of some third party not before the court, and (3) it is "likely, " as opposed to merely "speculative, " that the injury will be redressed by a favorable judicial decision Lujan , 504 U.S. at 560-61 (footnote, citations, and quotation marks omitted).
Article III's case or controversy requirement "insures the presence of the concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of difficult constitutional questions'" Diamond v Charles , 476 U.S. 54, 61-62 (1986) (quoting Baker v. Carr , 369 U S 186, 204 (1962)). "The presence of a disagreement, however sharp and acrimonious it may be, is insufficient by itself to meet Article III's requirements." Id. at 62
As the parties invoking federal jurisdiction here, Plaintiffs bear the burden of establishing the elements of standing. Lujan , 504 U S. at 561 (citing FW/PBS, Inc. v. Dallas , 493 U S. 215, 231 (1990); Warth, 422 U S. at 508). "Since these are not mere pleading requirements but rather an indispensable part of the plaintiffs' case, each element must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages in litigation." Id . (citing Lujan v National Wildlife Fed'n , 497 U.S. 871, 883-89 (1990); Gladstone, Realtors, 441 U S at 114-15 & n 31; Simon, 426 U.S. at 45 & n.25; Warth, 422 U.S. at 527 & n.6). "At the pleading stage, general factual allegations of injury resulting from [Defendants'] conduct may suffice" Id (citing National Wildlife Fed'n , 497 U.S. at 889).
To satisfy the prudential standing limitations (1) plaintiffs must assert their own rights and not rest their claims to relief on the legal rights or interests of third parties; (2) Plaintiffs' injury, although cognizable under Article III, must not be shared in equal measure by all or a large class of citizens so as to represent only a "generalized grievance"; and (3) Plaintiffs' interest arguably must fall within the "zone of interests" intended to be protected by the statute at issue McMichael , 709 F.2d at 1269 (citing Warth, 422 U.S. at 499; Valley Forge Christian Coll v. Americans United for Separation of Church & State , 454 U.S. 464, 760 (1982), Association of Data Processing Servs. Orgs, Inc v Camp , 397 U S. 150 (1970)). See also Newdow, No 02-1624, slip op. at 8 (explaining that prudential standing encompasses "the general prohibition on a litigant's raising another person's legal rights, the rule barring adjudication of generalized grievances more appropriately addressed in the representative branches, and the requirement that a plaintiff's complaint fall within the zone of interests protected by the law invoked") (quoting Allen , 468 U S. at 751).
"Without such limitations - closely related to Art III concerns but essentially matters of judicial self-governance - the courts would be called upon to decide abstract questions of wide public significance even though other governmental institutions may be more competent to address the questions and even though judicial intervention may be unnecessary to protect individual rights." Newdow, No. 02-1624, slip op at 8 (quoting Warth, 422 U S at 500).
Plaintiffs must satisfy Article III's standing requirements to assert each of their claims in federal court As Plaintiffs' claims are founded upon the same alleged injuries, the Court's analysis applies equally to them all
For example, "[a] party seeking relief in federal court pursuant to California's unfair competition statute must satisfy Article III standing requirements, even though California's unfair competition statute may be enforced in state court by a variety of public entities and by any person acting for the interests of itself, its members or the general public'" Sony Pictures Entm't, Inc v. Fireworks Entm't Group, Inc. , 156 F.Supp.2d 1148, 1168 (C.D Cal. 2001) (quoting Cal Bus. & Prof. Code § 17204) (dismissing unfair business practices counterclaim without leave to amend because defendants had not shown that they had suffered distinct injury of their own). See also Lee v. Am Nat'l Ins Co , 260 F.3d 997, 1001-02 (9th Cir. 2001) (explaining that "a plaintiff whose [unfair business practices] cause of action is perfectly viable in state court under state law may nonetheless be foreclosed from litigating the same cause of action in federal court, if he cannot demonstrate the requisite injury" for Article III purposes)
To satisfy the "injury in fact" requirement, Plaintiffs claim a direct injury resulting from the deprivation of two statutorily-created rights: (1) the right, guaranteed by California Civil Code § 2527(d), to be provided the studies contemplated in that section, and (2) the right, provided by California Civil Code § 2527(a), to be free from having to do business with PBMs that do not comply with the information disclosures mandated by that section. Alternatively, Plaintiffs assert that they suffer a direct injury when California Civil Code §§ 2527(c) and (d) are violated because plaintiffs are deprived of "benefits" they would otherwise receive.
A. CALIFORNIA CIVIL CODE § 2527(d)
Section 2527(c) of the California Civil Code provides that
[E]very prescription drug claims processor shall have conducted or obtained the results of a study or studies which identifies the fees, separate from ingredient costs, of all, or of a statistically significant sample, of California pharmacies, for pharmaceutical dispensing services to private consumers.
Cal Civ. Code § 2527 (c).
Section 2527(d) obliges each prescription drug claims processor to transmit by certified mail "[t]he study report or reports obtained pursuant to subdivision (c). to the chief executive officer or designee, of each client for whom it performs claims processing services" Cal. Civ. Code § 2527(d) (emphasis added).
Plaintiffs argue that they, themselves, are "clients" of PBMs, and thus, entitled to the § 2527 reports To determine the meaning of the term "client" in this context, the Court looks to California law on statutory construction See Viceroy Gold Corp v. Aubry , 75 F.3d 482, 490 (9th Cir. 1996).
"Under California law, statutory construction begins with the language of the statute" Viceroy Gold Corp v. Aubry , 75 F.3d 482, 490 (9th Cir 1996) (citing Delaney v. Superior Court , 50 Cal.3d 785, 798 (1990)). "If the language of the statute is clear and unambiguous, the statutory analysis ends." Id . (citing Delaney , 50 Cal 3d at 798). "[W]ords must be construed in context, and statutes must be harmonized, both internally and with each other, to the extent possible" Id (quoting Woods v. Young , 53 Cal.3d 315, 323 (1991)). "Interpretations that lead to absurd results or render words surplusage are to be avoided" Id . (quoting Woods , 53 Cal.3d at 323).
See In re County of Orange , 31 F.Supp.2d 768, 774 (C.D. Cal. 1998) ("If the clear and unambiguous language can resolve a question of statutory interpretation, California law requires the court look no further to search for legislative intent.") (citing Delaney , 50 Cal 3d at 798; Brown v. Kelly Broad Co , 48 Cal.3d 711, 724 (1989)).
With these principles in mind, the Court turns to the language of the statute Civil Code § 2527 requires each "prescription drug claims processor" to transmit by certified mail "[t]he study report or reports obtained pursuant to subdivision (c).. to the chief executive officer or designee, of each client for whom it performs claims processing services" Cal. Civ. Code § 2527(d) (emphasis added)
The California legislature explicitly defines "prescription drug claims processor" (or "PBM") to include "any nongovernmental entity which has a contractual relationship with purchasers of prepaid or insured prescription drug benefits, and which processes, consults, advises on, or otherwise assists in the processing of prepaid or insured prescription drug benefit claims submitted by a licensed California pharmacy or patron thereof" Cal. Civ. Code § 2527(b) (emphasis added) Through this definition, the legislature distinguished between those with whom PBMs contract, i e, purchasers of prepaid or insured prescription drug benefits, and those who submit prepaid or insured prescription drug benefit claims to PBMs, i e., licensed California pharmacies or patron thereof In other words, the legislature took care to differentiate between those for whom PBMs perform claims processing services (again, purchasers of prepaid or insured prescription drug benefits), and those who submit claims so that PBMs may perform this function (i e., California pharmacies).
Within this context, the definition of "client" cannot be understood to include both purchasers of prepaid or insured prescription drug benefits and pharmacies, as Plaintiffs suggest. PBM "clients" are not pharmacies, they are purchasers of prepaid or insured prescription drug benefits who have contracts with PBMs.
This understanding of the term "client" is consistent throughout the statutory scheme For example, Civil Code § 2528 provides, in pertinent part:
Any owner of a licensed California pharmacy shall have standing to bring an action seeking a civil remedy pursuant to this section so long as his or her pharmacy has a contractual relationship with, or renders pharmaceutical services to, a beneficiary of a client of the prescription drug claims processor, against whom the action is brought.
Cal. Civ. Code § 2528 (emphasis added). If California pharmacies qualify as PBM "clients" within the meaning of the statute, the use of the term "client" in this provision would be rendered surplusage, an interpretation the Court must avoid under California's rules of statutory construction. Viceroy Gold Corp , 75 F.3d at 490, Woods , 53 Cal.3d at 323 If this result is to be avoided, the term "client" cannot be understood to include pharmacies.
The Court is not persuaded that the legislature intended the term "client" to have different meanings in different sections of the statute Under California law, "statutes must be harmonized, both internally and with each other, to the extent possible." Viceroy Gold Corp , 75 F.3d at 490 (quoting Woods , 53 Cal.3d at 323).
The statutory language is clear and unambiguous. the term "client" refers, not to pharmacies, but to purchasers of prepaid or insured prescription drug benefits who have contracts with PBMs. Thus, the Court can "look no further to search for legislative intent." In re County of Orange , 31 F.Supp.2d at 774 (citing Delaney , 50 Cal 3d at 798).
Plaintiffs' Complaint reflects this understanding of the term "client" as well [See Compl ¶¶ 10, 27] For example, the Complaint describes each Plaintiff as a pharmacy that "had a contractual relationship with or rendered pharmaceutical services to a beneficiary of a client of one or more of the defendants" [Id ¶ 10 (emphasis added) ] In addition, it explains that under California Civil Code § 2527, PBMs were "required to supply copies of [the studies at issue] to the insurers and other third-party payors on whose behalf the PBMs interact with California pharmacies." [Id (emphasis added) ] Similarly, the Complaint alleges
By requiring PBMs to supply that information to third-party payors, the Legislature hoped to supply those who actually paid for pharmaceuticals purchased from California pharmacies with accurate information regarding free market pricing for those drugs, such that pharmacies would receive full reimbursement for such products Armed with that information, third-party payors could make informed decisions about fair reimbursement rates they should pay to California pharmacies for dispensing pharmaceuticals to their plan participants, as compared to the charges PBMs were imposing.
[Id (emphasis added) ] As these allegations demonstrate, Plaintiffs, themselves, have understood the term "client" to refer to third-party payors and not to California pharmacies
Plaintiffs are not "clients" within the meaning of California Civil Code § 2527, they do not have a statutorily-created right to the disclosure of the reports which, they allege, have not been produced
Plaintiffs' alleged "injury" is based solely upon the invasion of a third-party's statutory right, that is, a right of PBM clients Although the invasion of a statutorily-created right, alone, is a cognizable interest under Article III, "[t]he injury in fact' test requires more than an injury to a cognizable interest It requires that the party seeking review be himself among the injured" Lujan , 504 U.S. at 562-63 (citing Sierra Club v. Morton , 405 U.S. 727, 734-35 (1972)) Plaintiffs cite no authority - and the Court has found none - which suggests that they can be injured by the invasion of a third-party right, alone
"[S]tate law can create interests that support standing in federal courts" Cantrell v. City of Long Beach , 241 F.3d 674, 684 (9th Cir 2001).
Plaintiffs argue that the deprivation of a statutorily-created right to the disclosure of information is an "injury in fact" for purposes of Article III standing The cases Plaintiffs cite in support of this argument, however, establish only that "a plaintiff suffers an injury in fact' when the plaintiff fails to obtain information which must be publicly disclosed pursuant to a statute." Federal Election Comm'n v Akins, 524 U S. 11, 21 (1998) (citing Public Citizen v. Department of Justice , 491 U.S. 440, 449 (1989), Havens Realty Corp. v. Coleman , 455 U S 363, 373-74 (1982)) (emphasis added) This is not the case here. Plaintiffs do not fall into the class of persons that are to be provided with the reports under the statute; they cannot assert an injury based solely upon the invasion of a right they do not possess.
Only PBM clients are injured by the invasion, in and of itself, of their right to the disclosure of the reports at issue. Therefore, Plaintiffs must allege a direct injury to themselves, beyond the mere violation of that third-party right, in order to overcome Article III's standing limitations
Plaintiffs argue that, "beyond the otherwise sufficient loss of a statutory right to disclosure'" under California Civil Code § 2527(d), "[t]here can be no doubt that the information required to be disclosed will be useful and beneficial to the plaintiff pharmacies" and that "the loss of these benefits" confers Article III standing upon them Plaintiffs, however, rest this argument upon an assertion that "all recipients can use this information to evaluate what actual market prices should be, negotiate fairer reimbursement rates, [] lobby for legislative intervention should that be necessary, and to check payments made to PBMs against those amounts the PBMs pass on to pharmacists."
Plaintiffs' theory is that they would somehow benefit if those who are entitled to receive the reports at issue, PBM clients, actually receive them As a preliminary matter, PBM clients are not obliged to do anything with the reports if and when they are provided to them, and Plaintiffs' theory acknowledges this fact For Plaintiffs to benefit from the disclosure of the studies to PBM clients, then, the Court would have to assume not only that the PBMs would use this information, but that they would do so to benefit California pharmacies (as opposed to themselves) This chain of inferences is simply too speculative to support Article III standing
Plaintiffs' alleged injury is neither actual nor imminent, but instead, can only be characterized as conjectural and hypothetical. Accordingly, it cannot serve as the basis of Plaintiffs' "injury in fact" for Article III purposes The Court, therefore, considers the second statutorily-created right Plaintiffs allege to demonstrate an "injury in fact" for Article III purposes
Even assuming this alleged deprivation of benefits could satisfy Article III's "injury in fact" requirement, it is unlikely Plaintiffs could overcome the prudential limitations on standing See McMichael , 709 F.2d at 1269 (stating that plaintiffs' injury, although cognizable under Article III, must not be shared in equal measure by all or a large class of citizens so as to represent only a "generalized grievance")
B. CALIFORNIA CIVIL CODE § 2527 (a)
Section 2527(a) of the California Civil Code declares that a prescription drug claims processor that fails to comply with subsections (c) and (d) shall not enter into or perform any provision of any new or existing contract with a licensed California pharmacy, or process or assist in the processing of any prescription drug claim submitted by or otherwise involving a service of a licensed California pharmacy Cal. Civ. Code § 2527(a)
Plaintiffs assert that, based upon this provision, they have the right "to be free from having to do business with PBMs.. that do not comply with the information disclosures mandated" by Civil Code § 2527(c), and that, "[a]s part of that right, [they] have the right to compel PBMs to disclose certain survey information as a condition of doing business with [Plaintiffs] in California"
Plaintiffs do not cite any authority, and again the Court has found none, that implies pharmacies have a right to compel PBMs to disclose the reports at issue. Likewise, Civil Code § 2527(a) does not create for Plaintiffs a right "to be free from having to do business with PBMs. that do not comply with the information disclosures mandated" by subsection (c) Section 2527(a) prohibits PBMs from conducting business with California pharmacies; it confers upon those pharmacies neither an affirmative right to be free from PBMs that violate this statute, nor an interest in the enforcement of the statute See Diamond v Charles , 476 U S 54, 64 (1986) (quoting Linda R S. v. Richard D. , 410 U.S. 614, 619 (1973)) ("[A] private citizen lacks a judicially cognizable interest in the prosecution or nonprosecution of another.").
Plaintiffs could, perhaps, assert a defense based upon Civil Code § 2527(a) if they had ceased performing under contracts with the PBMs and were sued for breach of those contracts While it is conceivable that this statute may provide a shield for the pharmacies, however, the Court cannot construe the statute to provide a sword as well and Plaintiffs offer no authority suggesting that the statute may be interpreted in this manner.
Furthermore, even assuming § 2527(a) creates the right for Plaintiffs to be free from conducting business with PBMs which do not comply with subsection (c), Plaintiffs cannot claim an injury based upon the invasion of this right that is attributable to Defendants. Plaintiffs do not (and could not) allege that Defendants' conduct compels them to conduct business with PBMs which violate sections 2527(c) and (d). Plaintiffs may choose to conduct business with PBMs which violate the statute - and their choice may be limited, as a practical matter, given the realities of the market in which they operate - but Plaintiffs' choice remains voluntary
Plaintiffs assert that they may be entitled to restitution as a result of Defendants' alleged violations of § 2527(a), and that a "claim for restitution is sufficient for Article III purposes" [Opp'n at 6-7 (citing Vongrabe v. Sprint PCS , 312 F.Supp.2d 1313 (S D. Cal. 2004)) ] While a claim for restitution may confer standing upon one who has personally suffered an injury that is traceable to a defendant's actions, Plaintiffs have not alleged such an injury here
Plaintiffs, then, have not alleged an injury, let alone an injury fairly traceable to the challenged action of Defendants, sufficient to satisfy Article III's standing requirements
C. SUMMARY
Plaintiffs do not assert, and the Court cannot discern, a direct "injury in fact" upon which their claims may be founded As a result, Plaintiffs cannot satisfy the elements of Article III standing. Accordingly, Plaintiffs' claims must be dismissed
Plaintiffs' counsel seeks leave to amend to allege with greater specificity that PBM clients would have employed alternative methods of decreasing costs rather than reducing reimbursement rates to pharmacies if armed with the information disclosures mandated by § 2527. Allowing Plaintiffs to amend their Complaint to add greater specificity with regard to this theory will not cure the theory's (or the Complaint's) deficiencies As discussed above, Plaintiffs' chain of inferences is simply too speculative to support Article III standing Therefore, the Court denies Plaintiffs' request for leave to amend
IV. CONCLUSION
For the aforementioned reasons, Plaintiffs lack standing to pursue their claims in federal court. Thus, Defendants' Motion to Dismiss is granted without leave to amend
IT IS SO ORDERED.
Likewise, the Declaratory Judgment Act provides "In a case of actual controversy within its jurisdiction.. any court of the United States.. may declare the rights and other legal relations of any interested party seeking such declaration. " 28 U S.C § 2201 (a) "The actual controversy' requirement is the same as case or controversy' requirement of Article III." Toxic Injuries Corp. v Safety-Kleen Corp , 57 F.Supp.2d 947, 955 n 1 (C D Cal. 1999) (citing Aetna Life Insurance Co v Haworth , 300 U.S. 227, 239-40 (1937); Societe de Conditionnement v Hunter Eng. Co, Inc. , 655 F.2d 938, 942 (9th Cir 1981)).