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King Drug Co. of Florence, Inc. v. Cephalon, Inc.

United States District Court, E.D. Pennsylvania

August 28, 2017

KING DRUG COMPANY OF FLORENCE, INC., et al., Plaintiffs,
v.
CEPHALON, INC., et al., Defendants.

          MEMORANDUM OPINION

         This case involves class action antitrust allegations stemming from several reverse payment patent settlements under the Hatch-Waxman Act, now commonly referred to as an Actavis claim. On remand from the United States Court of Appeals for the Third Circuit, I again address the numerosity analysis under Federal Rule of Civil Procedure 23(a)(1).

         Direct Purchaser Class Plaintiffs initially brought this antitrust lawsuit against the manufacturer of Provigil, Cephalon, Inc., as well as four generic pharmaceutical companies (collectively “Generic Defendants”).[1] The four Hatch-Waxman reverse-payment settlements at issue, executed in 2005 and 2006, were between Cephalon and each of the Generic Defendants, and were alleged to be anticompetitive for delaying the market entry of generic Provigil.

         Direct Purchaser Class Plaintiffs have filed a supplemental motion for class certification. The prospective class again includes drug wholesalers that purchased the brand-name drug, Provigil, directly from Cephalon, Inc. at any time between June 24, 2006 and August 31, 2012.

         This motion follows the Third Circuit's Opinion vacating my initial grant of class certification. See In re Modafinil Antitrust Litig., 837 F.3d 238 (3d Cir. 2016). Noting that it had “not had occasion to list relevant factors that are appropriate for district court judges to consider when determining whether joinder would be impracticable, ” the Third Circuit provided “a framework for district courts to apply when conducting their numerosity analyses.” Id. at 252- 53, 242.

         Based on the scope of the remand, the only question before me is whether the proposed class satisfies the numerosity requirement under Federal Rule of Civil Procedure 23(a)(1). For the reasons that follow, and applying the framework set out by the Third Circuit, I conclude that the numerosity requirement is not satisfied and, as a result, Direct Purchasers' supplemental motion for class certification will be denied.

         I. PROCEDURAL HISTORY

         On July 27, 2015, I granted Direct Purchasers' initial motion for class certification. Subsequently, Mylan and Ranbaxy sought and obtained appellate review of that decision pursuant to Federal Rule of Civil Procedure 23(f).

         On September 13, 2016, the United States Court of Appeals for the Third Circuit issued its opinion vacating my July 27, 2015 class certification ruling and remanding for further consideration of whether joinder of all class members is impracticable - i.e. the numerosity requirement under Federal Rule of Civil Procedure 23(a)(1).[2]

         Direct Purchasers have filed a supplemental motion for certification of a litigation class, proposing the same class definition as was proposed in their initial motion. They continue to seek certification of the following class:

All persons or entities in the United States and its territories and/or their assignees (partial or otherwise) who purchased Provigil in any form directly from Cephalon at any time during the period from June 24, 2006 through August 31, 2012 (the “Class”).
Excluded from the Class are Defendants, and their officers, directors, management, employees, subsidiaries, or affiliates, and all federal governmental entities.
Also excluded from the Class are Rite Aid Corporation, Rite Aid HDQTRS. Corp., JCG (PJC) USA, LLC, Eckerd Corporation, Maxi Drug, Inc. d/b/a Brooks Pharmacy, CVS Caremark Corporation, Walgreen Co., The Kroger Co., Safeway Inc., American Sales Co. Inc., HEB Grocery Company, LP, Supervalu, Inc., and Giant Eagle, Inc. and their officers, directors, management, employees, subsidiaries, or affiliates in their own right and as assignees from putative Direct Purchaser Class members (“Retailer Plaintiffs”). For purposes of clarity, Steven L. LaFrance Holdings, Inc. and Steven L. LaFrance Pharmacy, Inc. d/b/a SAJ Distributors (“SAJ”) is not a Retailer Plaintiff and is a member of the Class; while Retailer Plaintiff Walgreen Co. acquired SAJ in 2012, SAJ's case and claim have proceeded independently of Walgreen Co.

         a. Prior Numerosity Ruling

         I previously determined that Direct Purchasers class members were so numerous as to make joinder impracticable. Regarding the number of members in the proposed class, I rejected Defendants' arguments that certain class members should be excluded because they (1) were proceeding by way of partial assignment, (2) ceased operations prior to generic entry and/or (3) made all purchases of branded Provigil after generic Provigil had already entered the market. Thus, I determined that the proposed class contained two-twenty members. See King Drug Co. of Florence v. Cephalon, Inc., 309 F.R.D. 195, 204-06 (E.D. Pa. 2015).

         Regarding the impracticability of joinder, I examined the following five factors: “(1) judicial economy, (2) geographic dispersion, (3) financial resources of class members, (4) the claimants' ability to institute individual suits, and (5) requests for injunctive relief that could affect future class members.” King Drug, 309 F.R.D. at 203-04 (citing In re Wellbutrin XL Antitrust Litig., 2011 WL 3563385, at *3 (E.D. Pa. Aug. 11, 2011)). In applying those factors, I stated:

Considering the extensive history of this litigation and the exhaustive discovery that has been conducted, I conclude that judicial economy is best served by trying this case as a class action. Joinder of the absent class members would likely require additional rounds of discovery, which would only further delay a trial date. Further, if cases were brought within other jurisdictions, additional discovery is certainly a possibility, and separate trials could result in inconsistent verdicts. . . .
Plaintiffs have also demonstrated that the class members are geographically diverse, which has the potential to create problems if all class members were to join the litigation. It is undisputed that the prospective class members are spread out over thirteen states and Puerto Rico. The considerable geographic dispersion of the parties would certainly present challenges to Plaintiffs in attempting to coordinate the litigation if all class members were joined, particularly if additional discovery was required. . . . Therefore, geographic dispersion weighs in favor of a finding that joinder is impracticable.
Two factors that may weigh against Plaintiffs are the financial resources of the class members and the parties' abilities to bring individual suits. Plaintiffs do not dispute that the prospective class members are all sophisticated corporations that have experience conducting litigation. Additionally, while Plaintiffs argue that the ongoing business relationships between the class members and Defendants warrants certifying a class due to fear of retaliation, there is no evidence to support Plaintiffs' theory.
Plaintiffs do convincingly respond, however, that some of the prospective class members' claims are relatively small, such that there may not be an economic incentive to engage in expensive antitrust litigation. For example, using data derived from Defendants' economic expert, Dr. Ordover, six class members may have claims below $1 million. (See Ordover Supp. Exp. Rep., Ex. 1; Pls.' Reply, p. 9 n. 36.) These prospective class members likely do not have the same incentive to engage in costly antitrust litigation on their own.
The complexity and extensive history of this case, the expansive discovery conducted, and the geographic dispersion of the parties all favor class treatment. While some factors weigh in Defendants' favor, I find those factors less compelling. Accordingly, Plaintiffs have demonstrated by a preponderance of the evidence that the parties are sufficiently numerous so as to make joinder impracticable.

Id. at 206-07.

         b. United States Court of Appeals for the Third Circuit's Opinion

         The Third Circuit concluded that I abused my discretion for two primary reasons: in certifying the class, my numerosity analysis (1) “improperly emphasiz[ed] the late stage of the proceeding, ” and (2) I did not consider the “ability of individual class members to pursue their cases through the use of joinder” as opposed to individual cases. In re Modafinil Antitrust Litig., 837 F.3d at 249.

         Regarding the size of the class, the Third Circuit held that Defendants had waived their arguments regarding the propriety of members proceeding by way of assignment.[3] Even though the argument was waived, the Third Circuit nonetheless found it “appropriate” to consider the partial assignment issue because they were remanding on the numerosity issue. Id. at 251. The Third Circuit agreed with my conclusion that “unless there is evidence that the class plaintiffs are seeking to artificially inflate the number of claimants, partial assignees may properly be treated as class members.” Id. at 252. As such, for purposes of conducting the impracticability analysis, the Third Circuit assumed, as I found, that the class consisted of twenty-two members. Id.

         In light of the relatively small class, the Third Circuit noted that “inquiry into impracticability should be particularly rigorous when the putative class consists of fewer than forty members.” Id. at 250. The Third Circuit then articulated, for the first time, the following non-exhaustive list of factors relevant to the impracticability analysis: “judicial economy, the claimants' ability and motivation to litigate as joined plaintiffs, the financial resources of class members, the geographic dispersion of class members, the ability to identify future claimants, and whether the claims are for injunctive relief or for damages.” Id. at 253. The Third Circuit stressed that judicial economy and ability to litigate as joined parties are of primary importance. Id. The court emphasized that it is improper to consider the possibility that plaintiffs may bring individual lawsuits as the relevant choice is a binary one: between a class and joinder of all interested parties. Id.

         i. Judicial Economy

         Applying this new impracticability standard, the Third Circuit concluded that my judicial economy analysis was incorrect because it placed “great weight” on the late stage of the proceedings. The Court held that “the late stage of litigation” - including sunk costs, the need for additional discovery and the risk of postponing trial - “is not by itself an appropriate consideration to take into account as part of a numerosity analysis.” Id. at 254. The court reasoned that if the late stage of litigation were an appropriate consideration it “would place a thumb on the scale in favor of a numerosity finding for no reason other than the fact that the complex nature of a case resulted in the class certification decision being deferred for years.” Id. at 255. The Third Circuit instructed that the judicial economy analysis is primarily concerned with “docket control, taking into account practicalities as simple as that of every attorney making an appearance on the record.” Id. at 256-257.

         ii. Ability and Motivation to be Joined as Plaintiffs

         The Third Circuit also concluded that I did not fully explore the ability and motivation of class members to be joined as plaintiffs because I improperly focused on whether class members could have brought their own, individual suits. The court instructed that this factor “primarily involves an examination of the stakes at issue for the individual claims and the complexity of the litigation, which will typically correlate with the costs of pursuing these claims.” Id. at 257.

         The Third Circuit then recounted the record regarding the ability and motivation of the twenty-two putative class members to litigate as joined parties. The court first stressed that “the class members, based on the record before us, appear likely to have the ability and incentive to bring suit as joined parties, thus preventing the alleged wrongdoers from escaping liability.” Id. at 258 (emphasis added). To amplify this point, the Court noted that three class members have claims estimated at over $1 billion and that those claims make up over 97% of the total value of the class claims. The court further stated that while this factor could nonetheless weigh in favor of class certification if the other class members had very small claims, that was “simply not the case.” Id. The court reasoned that thirteen of the remaining class members had claims in excess of $1 million, the figure that the parties “seem to agree is the appropriate figure at which point bringing one's own suit become economical” and there was no showing that it would in fact be uneconomical for the other six class members to be joined as parties. Id. at 258-259.

         After concluding that remand was warranted for further consideration of the numerosity requirement, the Third Circuit stated “the judges in the majority have never seen a class action where three class members, each with billions of dollars at stake and close to 100% of the total value of class claims between them, have been allowed to sit on the sidelines as unnamed class members.” Id. at 259.

         The class certification issue is before me via remand and consideration of whether the putative class members have “the ability and incentive to bring suit as joined parties, ” id. at 258. However, the conclusions by the Third Circuit set forth above, leave little room for “consideration” and create an uphill battle for the Direct Purchasers to now convince me that certification is appropriate.

         II. LEGAL STANDARD

         “The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.” Wal-Mart Stores v. Dukes, 131 S.Ct. 2541, 2550 (2011) (quoting Califano v. Yamasaki, 442 U.S. 682, 700-01 (1979)) (quotation marks omitted). In order to certify a class action, the plaintiffs bear the burden of proving by a preponderance of the evidence that the putative class satisfies all of the prerequisites identified in Federal Rule of Civil Procedure 23(a) ...


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