In re EpiPen ERISA Litigation
- Paul Magnuson
- 0:17-cv-01884
- U.S. District Court · District of Minnesota
- 11
In re EpiPen ERISA Litigation, Judge Magnuson granted the PBMs’ dismissal motions in part and denied them in part, allowing ERISA duty claims but rejecting self-dealing claims.
Participants in ERISA-covered health plans and the pharmacy benefit managers CVS Caremark, Express Scripts, Optum, and Prime Therapeutics.
What happened
In In re EpiPen ERISA Litigation (Klein v. Prime Therapeutics, LLC), participants in health insurance plans alleged that pharmacy benefit managers’ dealings with EpiPen’s manufacturer helped drive up prices and their out-of-pocket costs. They claimed the managers violated duties imposed by the Employee Retirement Income Security Act, a federal law governing employee benefit plans.
The pharmacy benefit managers argued that the participants lacked standing because their injuries were not caused by the managers and could not be fixed by an injunction. They also argued that they were not ERISA fiduciaries and that the participants had not adequately pleaded violations of fiduciary-duty and self-dealing rules.
Judge Magnuson ruled that the participants had adequately alleged an injury that could be traced to the managers and remedied by an injunction. He allowed the ERISA fiduciary-duty claims to proceed but ruled that the self-dealing claims were not adequately pleaded. He therefore granted in part and denied in part each defendant’s motion to dismiss.
The detailed version
- In re EpiPen ERISA Litigation · No. 0:17-cv-01884
- Paul Magnuson
- Oct. 26, 2018
Background
The individual plaintiffs in consolidated proposed class actions participated in health insurance plans covered by the Employee Retirement Income Security Act (ERISA). They alleged that they or their dependents needed EpiPens to manage serious allergic reactions. According to the complaint, the list price for two EpiPens rose from less than $100 in 2007 to more than $600 over the following decade, and the plaintiffs often had to pay nearly the full list price because of their plans’ deductibles and the conduct challenged in the lawsuit.
The defendants were CVS Caremark, Express Scripts, Optum, and Prime Therapeutics. They were pharmacy benefit managers, which the opinion described as intermediaries in the prescription-drug-benefit market. The plaintiffs alleged that the defendants negotiated rebates and other payments from Mylan Pharmaceuticals and related entities, that those negotiations caused Mylan to raise EpiPen’s price, and that the defendants kept millions of dollars in payments. The plaintiffs asserted claims for breach of fiduciary duties under ERISA § 404 and fiduciary self-dealing under ERISA § 406(b).
Standing
The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that the plaintiffs lacked standing. Standing requires a plaintiff to show, among other things, an injury fairly traceable to the defendant and capable of being addressed by the requested relief.
The court held that the plaintiffs plausibly alleged that the defendants’ demands for rebates and other payments caused Mylan to raise EpiPen prices, increasing the plaintiffs’ copayments and deductible costs. The court also found it plausible that an injunction against the defendants could lead Mylan to lower EpiPen prices. The court therefore denied the defendants’ Rule 12(b)(1) motion.
ERISA fiduciary-duty claims
ERISA requires plan fiduciaries to act prudently and loyally. A party may be an ERISA fiduciary even if it is not formally named as one when it exercises discretionary authority or control over plan management, administration, or assets. Fiduciary status applies only to the extent the party acted as a fiduciary in the conduct being challenged.
The defendants argued that their compensation was fixed by contracts negotiated at arm’s length and that they therefore lacked the discretion needed to be fiduciaries. The plaintiffs disputed that reading, alleging that the defendants changed how they characterized payments from Mylan—as rebates, administrative fees, or other payments—to keep more money and pay less to the plans.
At the motion-to-dismiss stage, the court declined to resolve the meaning of the defendants’ complicated contracts or consider disputed evidence. It held that the plaintiffs plausibly alleged that the defendants controlled the amount of their compensation from Mylan and how much was paid to the plans. The plaintiffs also plausibly alleged that the defendants’ rebate and payment arrangements increased their out-of-pocket EpiPen costs. The court therefore allowed the fiduciary-duty claims under ERISA § 404 to proceed.
Self-dealing claims
The plaintiffs also alleged that the defendants violated ERISA § 406(b) by dealing with plan assets for their own benefit, acting for parties whose interests were adverse to the plans or their participants, or receiving money in connection with transactions involving plan assets.
The court concluded that the plaintiffs had not plausibly alleged the required involvement of plan assets. It ruled that the defendants’ formularies, the plaintiffs’ and plans’ excess EpiPen payments, the agreements between the defendants and Mylan, and the administrative-services agreements between plans and insurers were not plan assets for these claims. The court identified the contracts between the defendants and the plans as the only possible plan assets, but concluded that the alleged conduct was extra-contractual and therefore did not involve plan assets or transactions for purposes of ERISA’s self-dealing prohibitions. The plaintiffs’ § 406 claims therefore failed.
Disposition
The court ordered that CVS Caremark’s motion to dismiss was granted in part and denied in part; Express Script’s motion to dismiss was granted in part and denied in part; Optum’s motion to dismiss was granted in part and denied in part; and Prime Therapeutics’s motion to dismiss was granted in part and denied in part.
Read the full 11-page opinion on CourtListener, the free public archive maintained by the Free Law Project.