Arguments heard over jurisdictional debate in McGraw case

By John O'Brien | Mar 22, 2011


RICHMOND, Va. (Legal Newsline) - Six prescription drug retailers made their case to a federal appellate court Tuesday that West Virginia Attorney General Darrell McGraw has filed a class action lawsuit against them.

Those drug stores - which include CVS, Wal-Mart and Target - disagree with McGraw, who says he is representing the interests of the state in his parens patriae capacity. They claim 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.

McGraw wants the case remanded to Boone County Circuit Court. He says the drug stores have not passed savings on generic drugs on to consumer and has called some of the stores' arguments "weak" and "absurd."

McGraw recently notified the U.S. Court of Appeals for the Fourth Circuit of two decisions from other jurisdictions this year that prove his case. A district judge in Charleston, W.Va., has already ruled for McGraw.

McGraw says arguments made by the defendants have been shot down in a California federal court decision entered on Feb. 15 and in a Connecticut federal court's decision entered on Jan. 5.

It was written in the California decision that, "The fact that private parties may benefit from (California's and Washington's) actions does not negate the states' substantial interests in these cases."

In Connecticut's case against Moody's Corp., the decision found that the State was a real party in interest because of its sovereign interest in enforcing its laws, McGraw's attorneys wrote.

"These on-point decisions strongly and persuasively support the conclusion that (the Class Action Fairness Act) does not confer subject matter jurisdiction in this case," wrote John Barrett of Charleston firm, W.Va., Bailey & Glasser.

In a response filed Wednesday, the drug stores disagreed with the meanings of the decisions.

In the California decision, the complaints sought damages owed to the respective states and their agencies. "(U)nder the California statute at issue... once damages were paid to the state, the agencies had discretion to distribute retributive funds to California consumers, but any excess funds escheated to the state. By contrast, the West Virginia Credit Consumer Protection Act requires that any recovered excess charges be paid from the defendant to consumers directly."

The drug stores say the state of Connecticut had a direct pecuniary interest in the other lawsuit and that the court concluded that it had an "interest apart from the interests of particular private parties."

"Again, in contrast, the WVCCPA directs that restitution payments are made directly from liable defendants to the private consumers," the drug stores wrote. "No share of this restitution award is split with the state or otherwise funds state agencies.

McGraw hired two private firms - Bailey & Glasser and DiTrapano Barrett & DiPiero - to pursue the 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.

The pharmacies brought up McGraw's use of outside counsel in their appeal brief.

"First, and at the outset, the defendants' premise - that the State's use of outside counsel somehow affects the jurisdictional analysis - is absurd," McGraw wrote in response. "The text of the statute makes no distinction between state enforcement actions brought exclusively by state attorneys general and actions brought by attorneys general with the support of private counsel."

John Barrett of Bailey & Glasser argued the case for McGraw. The three judges of the Fourth Circuit hearing the appeal are judges Paul Niemeyer, Andre Davis and Ronald Lee Gilman.

The losing party will have the options of asking for a rehearing of the issue by the full roster of Fourth Circuit judges or appealing to the U.S. Supreme Court.

From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.

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