Fourth Circuit sends W.Va. AG's drug-pricing case to state court

John O'Brien May 23, 2011, 10:19am


RICHMOND, Va. (Legal Newsline) - A federal appeals court has ruled that West Virginia Attorney General Darrell McGraw's lawsuit against prescription drug retailers is not a class action and should be heard in state court.

Six drug stores -- including CVS, Wal-Mart and Target -- disagreed with McGraw, who says he is representing the interests of the state in his parens patriae capacity. They claimed he is representing consumers affected by their alleged pricing policies in a class action, and as such the lawsuit should be heard in federal court.

A three-judge panel of the U.S. Court of Appeals for the Fourth Circuit agreed with McGraw, though one of the judges dissented.

"This action was not brought under Federal Rule of Civil Procedure 23, nor under West Virginia's corresponding rule..." says the decision, filed Friday.

"Rather it was brought under a West Virginia statute regulating the practice of pharmacy and the West Virginia Consumer Credit Protection Act, neither of which includes provisions providing for a typical class action, such as provisions addressing the adequacy of representation, numerosity, commonality and typicality requirements."

McGraw hired two Charleston law firms to sue the drug stores, which he alleges did not pass savings on generic drugs onto consumers.

"Acting under the State's parens patriae authority to protect its sovereign and quasi-sovereign interests in enforcing its own laws, the state of West Virginia, by its Attorney General, is the real party in interest in this case," McGraw wrote.

McGraw had noted that the defendants have abandoned their three previous arguments for federal jurisdiction.

"This case was not filed under West Virginia Rule 23, and therefore it is not a class action," McGraw wrote. "Nor was this matter filed 'as a class action.'

"Rather, it was filed in the sovereign interest to carry out what the district court correctly described as the Attorney General's 'freestanding consumer-protection duty' and his 'broad powers to implement the (West Virginia Consumer Credit and Protection Act) and protect and promote consumer welfare in the process.'"

In its appeal brief, the group of pharmacies claimed McGraw's lawsuit satisfies the jurisdictional requirements of the federal Class Action Fairness Act.

"The AG's allegations make abundantly clear that more than $5 million and the interests of more than 100 persons are at issue. If the rightful interests of the West Virginia consumers on whose behalf the AG has brought suit are recognized, there also is undeniably minimal diversity between at least some plaintiffs (who are West Virginia citizens) and all defendants (as none of the defendants reside in or is a citizen of West Virginia."

The pharmacies added that any consumer who was allegedly overcharged is a real party in interest to the case.

The decision says the West Virginia statutes on which McGraw relies contain none of the essential requirements for a class action. McGraw is not designated as a member of the class and he is not required to give notice to overcharged customers, the decision says.

"Indeed, the West Virginia Attorney General's role here is more analogous to the role of the EEOC or other regulator when it brings an action on behalf of a large group of employees or a segment of the public," the decision says. "Yet, the Supreme Court has concluded that such a regulator's action is not a class action of the kind defined in Rule 23."

Judge Ronald Lee Gilman dissented. Even though the action was brought under state statutes, it doesn't take away the "essence" of the case, he wrote.

"(T)he elements of numerosity, commonality, typicality and adequacy of representation have not been specifically pleaded," Gilman wrote. "But I submit that these are subsidiary factors that do not detract from the essence of the action.

"They are, in other words, 'bells and whistles' whose absence in the pleadings do not prevent the Attorney General's suit from being considered a class action under CAFA."

Gilman wrote that similar lawsuits filed by McGraw's outside counsel in other states are undisputed class actions.

McGraw hired two private firms - Bailey & Glasser and DiTrapano Barrett & DiPiero - to pursue his case, and another one against Rite Aid. The two firms have contributed more than $60,000 to McGraw's campaign fund over the years, including $11,800 for his 2008 race against Republican Dan Greear.

Bailey & Glasser brought similar lawsuits in Michigan and Minnesota. The Michigan suits were dismissed by a state judge because the only specific pricing information was obtained by a West Virginia whistleblower who worked at Kroger.

The Minnesota lawsuit, brought on behalf of unions that provide health care for their members, was initially dismissed in November 2009 by U.S. District Judge James Rosenbaum, who had harsh words for the plaintiffs attorneys.

Rosenbaum was peeved that the complaint, filed against 13 defendants, only contained specific pricing information about two of them.

"(T)his Complaint utterly fails to state a cause of action on any basis. There are no, none, factual allegations touching any defendant other than CVS and Walgreen's," Rosenbaum said Nov. 20, 2009.

"There being no facts from which a fact finder could infer any liability concerning (the other defendants), and you asked me to sustain a complaint based upon that. It's not only laughable, it's absolutely reprehensible."

A federal magistrate judge is currently deciding if that lawsuit will be remanded to a Minnesota court.

Should the drug stores want to appeal Friday's decision in McGraw's case, they can ask for a rehearing before the entire roster of Fourth Circuit judges or appeal to the U.S. Supreme Court.

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