Legal Newsline

Sunday, October 13, 2019

Alabama SC: Lower court didn’t have jurisdiction to force Caremark to produce info on class members

By Jessica Karmasek | Mar 14, 2017

MONTGOMERY, Ala. (Legal Newsline) - The Alabama Supreme Court, in a ruling last month, said a trial court didn’t have the jurisdiction to grant a request ordering Caremark to produce certain information regarding class members to use in a separate class action lawsuit pending against the company.

The state’s high court, in an opinion released Feb. 24, granted Caremark Rx LLC’s petition for writ of mandamus and issued a writ directing the Franklin Circuit Court to vacate its Aug. 1, 2016 order.

Justice Lyn Stuart, who is the current acting chief justice after Roy Moore was suspended last year, authored the court’s 23-page ruling.

Stuart explained that the question is whether it was within the Franklin Circuit Court’s residual jurisdiction to issue the order requiring Caremark to produce the requested information.

The court concluded it was not.

“Although it is true that the trial court’s statement of retained jurisdiction might be read in a manner that would allow the trial court to require Caremark to now disclose the information sought by Taff class counsel -- inasmuch as the identities of the Taff class members is in some way ‘related’ to the settlement agreement -- the trial court’s residual jurisdiction cannot be extended that far,” Stuart wrote for the court.

“A court cannot broaden by mere declaration the residual jurisdiction it necessarily holds to allow it to interpret or enforce its judgments.”

In September 1997, MedPartners Inc., a physician-practice-management/pharmacy-benefits-management corporation that was the predecessor in interest to Caremark Inc., and Caremark, began issuing to investors a type of convertible security known as threshold-appreciation-price securities, or TAPS.

TAPS holders were entitled to receive interest payments through the final settlement date, Aug. 31, 2000, at which time they would receive a yield-enhancement payment and all their TAPS would be converted into shares of MedPartners common stock.

The funds received by MedPartners in exchange for the TAPS were to be held in escrow until the final settlement date, when they would be released to MedPartners; however, if certain “termination events” indicating that MedPartners had become financially distressed occurred before Aug. 31, 2000, TAPS holders were entitled to an immediate payment.

In March 1999, a California state agency appointed a conservator over a MedPartners subsidiary operating in California; that conservator subsequently initiated bankruptcy proceedings on behalf of the subsidiary.

The following year, certain TAPS holders filed a lawsuit in Franklin Circuit Court to resolve the issue whether the bankruptcy of the California subsidiary constituted a termination event entitling them to an immediate payment.

A settlement was quickly reached and, on June 9, 2000, the trial court entered a final judgment in Taff v. Caremark Inc., approving the terms of that settlement.

About the same time, MedPartners was “embroiled” in other litigation, according to the Supreme Court.

In 1998, about 21 separate lawsuits were filed against MedPartners in various state and federal courts alleging it had, in connection with a planned merger with Phycor Inc., made false and misleading statements to both the public and the U.S. Securities and Exchange Commission about its financial condition and anticipated future performance.

Those cases ultimately were consolidated in Jefferson Circuit Court and, in 1999, a global settlement was reached.

However, for the next several years, the involved parties litigated various matters not directly related to the ultimate issue whether the settlement that ended the 1998 litigation had been procured by fraud. That litigation resulted in multiple appeals to the Alabama Supreme Court.

But on Aug. 15, 2012, the Jefferson Circuit Court certified the fraud claims asserted against MedPartners and its insurer based on the settlement of the 1998 litigation as being appropriate for class action treatment.

The Supreme Court affirmed the order, and the Jefferson Circuit Court thereafter ordered that notice of the class action, Johnson v. Caremark Rx LLC, be provided to all potential class members.

More than 99,000 notices were subsequently mailed out to parties previously identified as owners of record or beneficial owners of MedPartners securities, as well as to more than 250 brokerages, custodial banks and other financial institutions that may have held MedPartners securities on behalf of others.

No objections were made claiming those methods of notice were inadequate.

On June 1, 2016, the Jefferson Circuit Court gave preliminary approval to a $310 million settlement agreement.

In giving preliminary approval to the settlement, the Jefferson Circuit Court also approved the parties’ plan for publishing, mailing and distributing settlement notices and claim forms to potential claimants.

At some point after the Jefferson Circuit Court entered its June 1 order, Taff class counsel decided to contact the members of the Taff class to notify them that they might be able to receive funds from the settlement of Johnson if they filed a timely claim.

However, Taff class counsel did not have a complete list identifying the members of the Taff class with contact information and details of their securities holdings.

So, on July 22, 2016, Taff class counsel moved the Franklin Circuit Court to reopen the Taff action -- which, according to the Supreme Court, appears to have seen no activity since it was settled in June 2000 -- and to order Caremark to provide Taff class counsel with information regarding the members of the Taff class.

Caremark opposed class counsel’s request, arguing, among other things, that the trial court lacked jurisdiction to grant the requested relief.

Caremark also alleged it had conducted preliminary searches and did not even have most of the information being requested. What information it did have was already publicly available, the company said.

In its Aug. 1, 2016 order, the Franklin Circuit Court granted class counsel’s request, stating:

“The filings in this case have brought to the court’s attention that the court file does not contain information identifying the class members in this case who are bound by the judgment. The court further notes that according to [Caremark’s] filings [Caremark] [has] information in [its] possession that could assist in that identification,” the trial court wrote.

“Therefore, the court orders under its retained jurisdiction that [Caremark] file with the court on or before August 31, 2016, all documents in [its] possession or [to which it has] reasonable access that identif[y] class members who received notice, or who held TAPS, and the number of TAPS or other MedPartners securities held by them.”

Ten days later, Caremark petitioned the Supreme Court, asking for a writ directing the Franklin Circuit Court to vacate its order.

“Neither the terms of the June 2000 final judgment, nor the terms of the settlement agreement itself, nor the requirements of Rule 23, Ala. R. Civ. P., which governs class-action lawsuits in Alabama, nor any statute that has been identified by the parties required Caremark or its predecessors to file with the trial court -- during the pendency of the class action, upon its settlement, or at any time thereafter -- the information now being requested,” Stuart wrote for the high court.

Taff class counsel could have sought to make MedPartners disclose that information as a condition of settlement; however, they did not do so. Accordingly, there is no basis for the trial court to impose that requirement upon Caremark now and it, in fact, lacks the jurisdiction to do so.”

The Supreme Court said the trial court’s Aug. 1 order essentially seeks to modify or amend the final judgment to impose new obligations on Caremark -- even though the court’s jurisdiction to modify or amend the judgment expired 30 days after the June 2000 judgment was entered.

“The jurisdiction retained by the trial court after it entered its final judgment in Taff is limited to interpreting or enforcing that final judgment; the trial court could not extend its jurisdiction over any matter somehow related to the June 2000 final judgment in perpetuity by simply declaring it so,” Stuart wrote.

From Legal Newsline: Reach Jessica Karmasek by email at

Want to get notified whenever we write about Alabama Supreme Court ?

Sign-up Next time we write about Alabama Supreme Court, we'll email you a link to the story. You may edit your settings or unsubscribe at any time.

Organizations in this Story

Alabama Supreme Court