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United Food and Commercial Workers Unions and v. Walgreen Company

July 26, 2012

UNITED FOOD AND COMMERCIAL WORKERS UNIONS AND EMPLOYERS MIDWEST HEALTH BENEFITS FUND, PLAINTIFF,
v.
WALGREEN COMPANY, ET. AL., DEFENDANTS.



The opinion of the court was delivered by: Samuel Der-yeghiayan, District Judge

MEMORANDUM OPINION

This matter is before the court on Defendant Walgreen Company's (Walgreens) motion to dismiss, and Defendant PAR Pharmaceutical Companies, Inc.'s and Defendant PAR Pharmaceutical, Inc.'s (collectively referred to as "PAR") motion to dismiss. For the reasons stated below, the motions to dismiss are granted.

BACKGROUND

Plaintiff United Food and Commercial Workers Unions and Employers Midwest Health Benefits Fund (Fund) allegedly provides health care benefits to approximately 15,000 participants and their family members (Fund Participants). The Fund, as a third-party payor (TPP), allegedly contracted with a pharmacy benefit manager (Manager) to establish, on behalf of the Fund, the rate at which the Fund would reimburse Walgreens for various prescriptions filled by Walgreens, including prescriptions for ranitidine and fluoxetine, which are the generic equivalents of Zantac and Prozac, respectively. PAR allegedly manufactures, markets, and sells the drugs ranitidine and fluoxetine. From July 1, 2001 to December 31, 2004 (Relevant Time Period), Walgreens allegedly purchased ranitidine capsules and fluoxetine tablets from PAR, and resold them to many Fund Participants. The Fund, through its Manager, allegedly paid Walgreens for the cost of the ranitidine capsules and fluoxetine tablets, minus any co-pays paid by Fund Participants.

According to the Fund, the price of many generic drugs is based upon, and controlled by, a Maximum Allowable Cost (MAC), which is set by the TPP or Manager, based upon the marketplace for any given generic drug. The MAC represents the maximum amount a TPP will pay a pharmacy for a particular generic drug, regardless of the manufacturer. When there is no MAC, a TPP instead agrees to pay the pharmacy the average wholesale price (AWP) of a drug. The AWP of any given drug is allegedly unrelated to pricing in the marketplace and higher than the MAC. Thus, a pharmacy allegedly makes a higher profit when it sells a generic drug not subject to MAC pricing restrictions.

Ranitidine is allegedly manufactured most often in tablet form, and ranitidine tablets are allegedly subject to MAC pricing restrictions. Fluoxetine is allegedly manufactured most often in capsule form, and fluoxetine capsules are also allegedly subject to MAC pricing restrictions. PAR allegedly manufactures ranitidine in capsule form and fluoxetine in tablet form. The ranitidine capsules and fluoxetine tablets manufactured by PAR are allegedly not subject to MAC pricing restrictions, and are instead allegedly priced based upon the AWP.

The Fund alleges that during the Relevant Time Period, Walgreens illegally filled prescriptions for ranitidine tablets and fluoxetine capsules using higher-priced ranitidine capsules and fluoxetine tablets, thus overcharging the Fund for such drugs. Walgreens' decision to fill prescriptions with higher-priced ranitidine capsules and fluoxetine tablets was allegedly made after meetings and discussions with PAR executives, who allegedly presented marketing materials to Walgreens showing the increased profits Walgreens could realize if Walgreens switched to filling prescriptions with ranitidine capsules and fluoxetine tablets manufactured by PAR. PAR also allegedly falsely marketed their ranitidine capsules and fluoxetine tablets as AB rated generic equivalents of the drugs regularly prescribed.

The Fund alleges that in July of 2001, Walgreens began automatically filling all generic ranitidine prescriptions with PAR manufactured ranitidine capsules. The Fund also alleges that in August of 2001, Walgreens began automatically filling all generic fluoxetine prescriptions with PAR manufactured fluoxetine tablets. In late July 2001, the Illinois Department of Public Health allegedly warned Walgreens that ranitidine capsules were not AB rated generic equivalents. Walgreens allegedly continued to substitute ranitidine capsules for ranitidine tablets until 2004, when Walgreens allegedly learned that it was allegedly under federal and state investigations as a result of this practice. After discontinuing the ranitidine and fluoxetine substitution programs, Walgreens allegedly received price reductions on various drugs, including ranitidine, from PAR, so that Walgreens could recover future lost profits. The Fund alleges that during the relevant time period, Walgreens and PAR participated in a conspiracy to evade price limits set on generic drugs and increase their profits at the expense of the Fund and other TPPs. The Fund includes in its complaint a claim brought against Walgreens alleging a violation of Section 1962(c) of the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. (Section 1962(c)) (Count I), a claim against PAR alleging a violation of Section 1962(c) (Count II), a claim against Walgreens alleging a violation of § 1962(d) of RICO (Section 1962(d)) (Count III), and a claim against PAR alleging a violation of Section 1962(d) (Count IV). Walgreens and PAR have each moved to dismiss the claims brought against them.

LEGAL STANDARD

In ruling on a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6) (Rule 12(b)(6)), a court must "accept as true all of the allegations contained in a complaint" and make reasonable inferences in favor of the plaintiff. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Thompson v. Ill. Dep't of Prof'l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). To defeat a Rule 12(b)(6) motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009)(internal quotations omitted)(quoting in part Twombly, 550 U.S. at 570). A complaint that contains factual allegations that are "merely consistent with a defendant's liability . . . stops short of the line between possibility and plausibility of entitlement to relief." Iqbal, 129 S.Ct. at 1949 (internal quotations omitted).

DISCUSSION

Defendants argue that the RICO claims brought against them must be dismissed (1) because the Fund's claims are based upon regulatory violations, (2) because the Fund had not adequately pled the elements of a Section 1962(c) claim, (3) because a claim for violation of Section 1962(d) cannot be sustained absent a valid Section 1962(c) claim, and (4) because any RICO claims are barred by the statute of limitations.

A. Regulatory Violation as the Basis for RICO Claims

Defendants argue that the alleged acts of substituting dosage forms when filling ranitidine and fluoxetine prescriptions constitute regulatory violations that cannot be used to support a RICO claim. Generally, federal courts have held that RICO claims cannot be predicated upon violations of state or federal laws that do not create a private cause of action and exclusively provide administrative remedies. See Brown v. Cassens Transport Co.,675 F.3d 946, 955 (6th Cir. 2012)(observing that "[c]courts have held RICO inapplicable to claims that should have been raised before federal agencies that had exclusive-remedy clauses in their enabling statutes")(emphasis in original)(citing McCulloch v. PNC Bank Inc., 298 F.3d 1217, 1226-27 (11th Cir. 2002)(addressing Higher Education Act); Ayres v. Gen. Motors Corp., 234 F.3d 514, 521-22 (11th Cir. 2000)(addressing National Traffic and Motor Vehicle Safety Act); Bodimetric Health Servs., Inc. v. Aetna Life & Cas., 903 F.2d 480, 486-87 (7th Cir. 1990) (addressing Social Security Act)); see also Danielsen v. Burnside-Ott Aviation Training Ctr., Inc., 941 F2d 1220, 1229 (D.C. Cir. 1991) (stating that "the statutory scheme for administrative relief set forth by Congress in the [Service Contract Act] leaves ...


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