In Re Namenda Direct Purchaser Antitrust Litigation

Background

Direct Purchaser Class Plaintiffs—J M Smith Corp. doing business as Smith Drug Co., Rochester Drug Co-Operative, Inc., and the direct purchaser class—settled their antitrust case against Forest for $750 million. The opinion describes the settlement as the largest ever involving a single defendant in an antitrust case alleging suppressed generic competition under Section 4 of the Clayton Act.

The parties signed the settlement agreement on December 24, 2019. The court preliminarily approved it on January 6, 2020, approved notice to class members, and set a final fairness hearing. Notice was mailed on February 12, 2020. No objections to the settlement were filed by the deadline or afterward. Eight class members submitted letters supporting the settlement. Humana sought clarification about whether the release covered its indirect-purchase claims, and that issue was resolved by stipulation. The National Wholesalers challenged only the attorneys’ fees sought by class counsel.

The case had proceeded through fact and expert discovery and was scheduled for trial in two phases. The parties reached an agreement in principle on October 27, 2019, the night before the first day of trial, after years of negotiations and mediation efforts.

Legal standard

Under Federal Rule of Civil Procedure 23(e)(2), a court may approve a class-action settlement only if it is fair, reasonable, and adequate. The court also applied the nine factors from City of Detroit v. Grinnell Corp., which address issues such as the complexity and risks of continued litigation, the class’s reaction, the stage of the case, the risks of proving liability and damages, and whether the settlement falls within a reasonable range.

Why the court approved the settlement

The court found that the settlement was reached through arm’s-length negotiations by experienced counsel after extensive litigation and mediation. It concluded that the case would have been complex, expensive, and lengthy if it proceeded through trial and appeals.

The court also found substantial litigation risks. Plaintiffs might have failed to prove Forest’s liability, causation, classwide injury, or damages concerning the alleged reverse-payment and product-switch claims. Even if Plaintiffs established liability, the amount of damages would have been disputed. The court determined that the $750 million cash settlement provided immediate and definite relief and was reasonable in light of those risks. It found the risk of maintaining the class through trial and Forest’s ability to withstand a larger judgment to be neutral factors.

Plan of allocation

The court approved the plan for distributing the net settlement fund. Class members who submitted timely and valid claims would receive pro rata shares based on their purchases of brand and/or generic Namenda IR and brand Namenda XR during the relevant period. Brand purchases would receive greater weight because the alleged overcharges on brand units were higher than those on generic units.

The plan used transaction data produced during discovery to create individualized claim forms. It also described how claims would be calculated, reviewed, processed, challenged, and paid. The court found that the plan fairly and reasonably matched each class member’s share of the fund to the relative overcharges that class member allegedly suffered.

Ruling

Chief Judge McMahon granted the motion for Final Judgment and Order of Dismissal Approving Direct Purchaser Class Settlement and Dismissing Direct Purchaser Class Claims. The court granted final approval of the settlement, approved the plan of allocation, and dismissed all claims against Forest. It directed the clerk to close the motions at Docket Number 941 and terminate the case.

The court stated that requests for incentive awards of $150,000 each for Smith Drug and RDC, reimbursement of $5,823,928.91 in expenses, and attorneys’ fees of $157,500,000 would be addressed in a separate order.