Ninth Circuit Affirms Dismissal of Lawsuit Alleging Drug Pricing Inflation

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Nixon Peabody advises defendants/appellee Supervalu Inc. and New Albertson’s Inc.

February 21, 2012 // Franchising.com // Boston, MA. - In a lengthy published opinion, the U.S. Court of Appeals for the Ninth Circuit unanimously affirmed the district court’s dismissal of a putative class action filed against national pharmacy chains—Supervalu Inc., New Albertson’s Inc., Walgreens Co., Longs Drugs Stores Corp., The Kroger Co., Safeway Inc., Wal-Mart Stores Inc., CVS Caremark Corp., and Rite Aid Corp.—alleging the pharmacies’ participation in an unlawful scheme to artificially inflate drug prices. (Skilstaf Inc. v. CVS Caremark Corp. et al., No. 10-15338)

The Ninth Circuit’s decision affirmed a finding of the U.S. District Court for the Northern District of California, that plaintiff/appellant Skilstaf, an Alabama payroll service company, could not bring the suit because it was barred by provisions in a settlement agreement.

Prior to filing the complaint in this action, Skilstaf was part of a class action in Massachusetts that settled in early 2009. The settlement included a covenant not to sue and a stipulation that the plaintiffs agreed to release their claims against the defendants (a prescription drug distributor and a prescription drug information publisher) and “any other person seeking to establish liability based, in whole or in part,” on the released claims. Skilstaf lodged a limited objection to the settlement terms, but did not opt-out of the settlement and, instead, agreed to be bound by its terms.

Later that year, Skilstaf filed a putative class action in the U.S. District for the Northern District of California. The complaint was filed on behalf of the same putative class bound by the Massachusetts settlement and sought damages based, in large part, on the same facts alleged in the Massachusetts case; only the named defendants (the pharmacies) were unique to the California action. The pharmacies moved to dismiss the complaint, alleging that terms of the Massachusetts settlement precluded suit against “any other person,” including the pharmacies. The district court agreed, finding that the covenant not to sue found in the Massachusetts settlement was enforceable against Skilstaf. On February 9, 2012, the Ninth Circuit affirmed the district court’s decision to dismiss Skilstaf’s complaint.

The Nixon Peabody LLP legal team took primary responsibility for drafting the appellate briefs on behalf of all counsel for the pharmacies. The team was led by Boston commercial litigation partner Fred Kelly, who argued to the Ninth Circuit on behalf of all pharmacies, and included Los Angeles commercial litigation associate Sarah E. André.

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