United States District Court, N.D. Illinois, Eastern Division
WASHTENAW COUNTY EMPLOYEES' RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
WALGREEN CO., GREGORY D. WASSON, and WADE MIQUELON, Defendants.
MEMORANDUM OPINION AND ORDER
JOHNSON COLEMAN, United States District Court Judge.
Pensionforsikring A/S, acting as lead plaintiff on behalf of
itself and all others similarly situated, brings this class
action against defendants Walgreen Co.
(“Walgreens”), former Walgreens CEO Gregory D.
Wasson, and former Walgreens CFO Wade Miquelon, alleging
violations of sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. The plaintiffs now move for class
certification. For the reasons set forth herein, that motion
 is granted.
following is a general overview of those allegations relevant
to the present motion. A more complete description of the
allegations contained in the amended complaint may be found
in this Court's September 30, 2016, ruling on the
defendants' motions to dismiss.
is a retail drugstore chain that sells prescription and
non-prescription drugs. Prescription drugs represent
Walgreens' largest class of products and are the lead
driver of its revenue and profit. At the times relevant here
Gregory D. Wasson was Walgreens' CEO and a director on
the company's Board of Directors and Wade Miquelon was
substantial majority of prescription drugs that Walgreens
sold were generic drug versions of branded drugs, which
generated a higher profit margin than branded drugs due to
their lower production costs. That profit margin, however,
was dependent on the difference between the cost to procure
the generic drug and the reimbursement rate that Walgreens
received for supplying a customer with the drug.
Historically, generic drug prices had followed a deflationary
trend, but in 2014 that trend reversed. Walgreens'
contracts with several major Pharmacy Benefit Managers
(“PBMs”) provided for fixed maximum rates of
reimbursement for each drug over the term of the contract,
based on the assumption that generic drug prices would
continue to decline. If those prices instead rose, Walgreens
would be forced to absorb the additional cost of those drugs
beyond the contractually-capped rate of reimbursement.
2012, Walgreens announced that it was entering into a
strategic transaction with Alliance Boots GmbH
(“Alliance”). As part of this process, Walgreens
announced a set of goals for FY 2016 reflecting the expected
benefits of the new partnership, including generating $1
billion in combined synergies and between $9 and $9.5 billion
in adjusted earnings before interest and taxes
(“EBIT”). The EBIT goal was especially important
to investors because it was the only metric gauging the
potential profitability of the combined companies.
2013, Walgreens' internal long range planning process
revealed that the EBIT goal was tracking at under $8.5
billion. Miquelon, in a verified complaint filed in
a separate action (“the Miquelon complaint”),
admitted that by the end of 2013 the company had identified
the sources of that deficit as (1) the unprecedented level of
generic drug price inflation that the industry was
experiencing and (2) reimbursement contracts that failed to
provide meaningful inflationary relief. Nonetheless,
Walgreens restated the EBIT goal when it reported its first
quarter results for 2014. During the conference call
announcing the quarterly results, Miquelon admitted that
Walgreens was tracking “a bit below” the EBIT
goal, but asserted that the company was prepared to mitigate
the risks to achieving the goal and that it had the right
tools at its disposal to meet the target. During that call,
Miquelon also reassured analysts that “[q]uarter by
quarter we look at [the FY2016 goals], and say are these
still realistic based upon all the risk and opportunities we
have internally. If we ever feel that's not the case,
we'll certainly tell you.” By March 2014, the EBIT
goal was tracking around $7.5 billion dollars, $2 billion
less than the high end of the EBIT goal.
class period, which runs from March to August 2014,
encompasses the announcement of Walgreens second quarter
results and third quarter results and public statements made
in the interim. During that time, the defendants continued to
issue statements that allegedly downplayed the risk to the
EBIT goal and failed to acknowledge the impact of systematic
generic drug price inflation.
24, 2014, Walgreens issued its third quarter report and
withdrew its FY 2016 earnings targets, attributing the
decision to “Step 2 considerations” and
“current business performance.” Walgreens also
made reference to experiencing generic drug price inflation
and reimbursement pressures, although its statements could be
taken as downplaying the actual significance of those trends.
On August 6, 2014, Walgreens disclosed the extent of the
resulting EBIT shortfall, attributing it primarily to
“rapid and pronounced generic drug cost
inflation” and unfavorable contract terms. The August
6th disclosures caused Walgreens stock to plummet over 14% in
a single day and gave rise to the present litigation.
the plaintiffs initially sought to pursue a number of claims,
their claims were narrowed by a motion to dismiss and now
concern a period from March 25 to August 6, 2014, during
which the defendants purportedly concealed or failed to fully
disclose the impact of generic drug price inflation and
reimbursement pressures. Following the Court's ruling on
the motion to dismiss, the Court bifurcated discovery on the
defendants' motion, and the present motion for class
order to be certified, a proposed class must satisfy the
requirements of Federal Rule of Civil Procedure 23(a), as
well as one of the three alternatives set forth in Rule
23(b). Messner v. Northshore Univ. Health Sys., 669
F.3d 802, 811 (7th Cir. 2012). Rule 23(a) requires that a
proposed class meet requirements of numerosity, typicality,
commonality, and adequacy of representation. Id.
When certification is sought under Rule 23(b)(3), the
proponents of the class must also show that questions of law
or fact common to the members of the proposed class
predominate over questions affecting only individual class
members and, relatedly, that a class action is superior to
other available methods of resolving the controversy.
does not set forth a “mere pleading standard.”
Comcast Corp. v. Behrend, 569 U.S. 27, 33, 133 S.Ct.
1426, 185 L.Ed.2d 515 (2013). When factual disputes bear on
matters vital to certification, the Court must receive
evidence and resolve those disputes prior to certifying the
class. Parko v. Shell Oil Co., 739 F.3d 1083, 1085
(7th Cir. 2014). Certification is proper only if, after
rigorous analysis, the Court is satisfied that Rule 23's
prerequisites have been met. Comcast Corp., 569 U.S.
at 33. The Seventh Circuit, however, has repeatedly
reiterated that the focus of class certification must be on
Rule 23 and that class certification proceedings cannot be
allowed to turn into a preemptive determination of the
merits. Bell v. PNC Bank, Nat. Ass'n, 800 F.3d
360, 376 (7th Cir. 2015). Rule ...