Another Blow to the “Disguised Class Action” Theory

Earlier this year, the Fourth Circuit rejected a bid by a group of pharmacies to refashion an action brought by the West Virginia attorney general as a “disguised class action” filed on behalf of West Virginia citizens. A recent decision dealt a similar blow to the seller of the prescription pain medication OxyContin in a lawsuit brought by the Kentucky attorney general, though for different reasons.

In In re Oxycontin Antitrust Litigation, the Commonwealth of Kentucky brought a variety of state law claims alleging that Purdue—the company that designs, sells, and distributes OxyContin—misled and deceived consumers, medical providers, and government officials regarding the drug, particularly with respect to risks of addiction. The Commonwealth sought damages on its own behalf, in the form of restitution for Medicaid reimbursements it made to Kentucky residents for prescriptions the Commonwealth claims would never have been written but for Purdue’s deceptive marketing campaign. The Commonwealth also sought equitable and injunctive relief in its parens patriae capacity, i.e., to vindicate a “quasi-sovereign” interest on behalf of its citizens.

Purdue removed the case to federal court, in part on the ground that because Kentucky sought relief on behalf of consumers who purchased the drug, the purchasers were the real parties in interest, and the lawsuit was a class action subject to CAFA. The United States Judicial Panel on Multidistrict Litigation transferred the action to the Southern District of New York for inclusion in an existing MDL antitrust proceeding involving OxyContin. Kentucky then moved the federal court in New York to remand the case to Kentucky state court.

In granting the Commonwealth’s motion, the court described three capacities in which a state may bring a suit. First, a state may bring a suit in which it alleges a direct, tangible injury to the state itself. Second, a state may bring a parens patriae suit to protect the health and well-being of its residents generally. Third, the state may bring a claim to vindicate the interests of a distinct group of private parties. The court ruled that only in this final type of case is the state merely a nominal party and not the real party in interest.

In this case, Kentucky’s claim for equitable and injunctive relief was a parens patriae claim. Furthermore, the Commonwealth’s damages claim, the court held, was for direct, tangible injury it suffered in connection with Medicaid payouts. Therefore, the Commonwealth, with respect to both claims, was the real party in interest.

Purdue argued that only a distinct group of citizens, and not Kentucky itself, had standing to bring some of the claims involved. That fact, they argued, showed that those citizens were the real parties in interest. The court rejected this argument, however, saying that the Commonwealth’s standing was a separate issue from determining the real party in interest. While some of the Commonwealth’s actions might ultimately be dismissed for lack of standing, this possibility did not entitle Purdue to transform those claims into a class action.

In making its ruling, the court assumed, without deciding, that CAFA applies to suits brought by a state and that a real party in interest analysis is appropriate in such suits. The OxyContin decision, together with the Fourth Circuit pharmacy case, suggest that defendants seeking to use CAFA to bring such cases into federal court will face an uphill battle.

Contributing author:  Brian Kint

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