United States District Court, D. Minnesota
Adrienne Dresevic & Robert J. Dindoffer, The Health Law
Partners, P.C., and Elizabeth R. Odette & Kristen G.
Marttila, Lockridge Grindal Nauen P.L.L.P., (for Plaintiffs);
Christine Lindblad, Meghan M.A. Hansen, Ellie J. Barragry,
& Alex L. Rubenstein, Fox Rothschild LLP, (for
REPORT AND RECOMMENDATION
N. LEUNG UNITED STATES MAGISTRATE JUDGE.
matter is before the Court, United States Magistrate Judge
Tony N. Leung, on Defendant's Motion to Dismiss
Plaintiff's Amended Complaint (ECF No. 18) and
Plaintiff's Motion in Limine Regarding June 30, 2016
Settlement Demand Letter. (ECF No. 35). These motions have
been referred to the undersigned magistrate judge for a
report and recommendation to the Honorable Michael J. Davis,
United States District Judge for the District of Minnesota,
pursuant to 28 U.S.C. § 636(b)(1) and Local Rule 72.1.
(ECF No. 25). Based on all the files, records, and
proceedings herein, and for the reasons set forth below, this
Court recommends that Defendant's motion be
GRANTED and Plaintiff's Motion be
DENIED AS MOOT.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Specialty Pharmacy, LLC (“PSP”), is a specialty
pharmacy located in and organized pursuant to the laws of
Florida. Amend. Compl. ¶ 13. (ECF No. 6). Because PSP is
located on the Florida-Alabama border, a substantial number
of its customers come from Alabama. Prime Therapeutics
(“Prime”) is a pharmacy benefit manager located
in Minnesota that is owned by nine health plans that are
members of the Blue Cross Blue Shield Association.
Id. at ¶ 14, 16. Prime manages the prescription
drug benefits for Blue Cross and Blue Shield of Alabama, a
health insurance provider that controls 93 percent of
large-group health benefits in Alabama. Id. at
¶¶ 17, 144-45.
several years, PSP filled prescriptions claims for
Prime's beneficiaries. Id. at ¶ 26. When a
Prime member used PSP to fill a prescription, PSP would use
an electronic interface to submit a claim to Prime.
Id. at ¶ 47. Prime would then tell PSP what
amount Prime would reimburse PSP for the prescription and
what amount the member would pay for the prescription.
Id. Once Prime processed the prescription, it
received payment from the member's health insurance plan.
Id. at ¶ 48.
at the end of 2015 and continuing into 2016, Prime began to
conduct a series of audits into PSP's business.
Id. at ¶ 27. The first batch of audits began on
December 14, 2015 and covered claims submitted between
November 30, 2014 and November 30, 2015. Id. at
¶ 77. The second batch of audits began in January 2016
and covered claims between December 12, 2015 and January 8,
2016. Id. The final batch of audits began in the
first half of 2016 and covered all claims submitted between
January 8, 2016 and May 27, 2016. Id. While Prime
conducted these audits, it refused to pay PSP for any
prescription that PSP dispensed to a Prime member.
Id. at ¶ 78.
issued its findings for the first two batches of audit
results in April 2016. Id. at ¶ 81. It rejected
over $300, 000 worth of claims that PSP submitted to Prime
for reasons including incorrect entry of an origin code and
using drug wholesalers that Prime had excluded, despite the
fact that Prime never notified PSP of those exclusions.
Id. at ¶¶ 83-85. Prime informed PSP that
it would need to submit to an “administrative audit
appeal process” if it wanted to receive payment for the
rejected claims. Id. at ¶ 87.
PSP could appeal, however, and before Prime issued the
results of its final batch of audits, Prime terminated PSP
from its pharmacy network for “poor audit
performance.” Id. at ¶ 88-89. PSP
subsequently appealed both the first two audit batches and
its termination from Prime's network. Id. at
¶¶ 93-94. A few months after PSP appealed, Prime
issued its results for the third batch of audits.
Id. at ¶ 95. It rejected more than $500, 000
worth of PSP's claims for technical and clerical errors.
Id. at ¶ 98-99. Prime also rejected PSP's
appeals of its first two batches of audit results, but gave
PSP the opportunity for a final appeal, as required by state
law. Id. at ¶ 101-02. Around the same time,
Prime announced a partnership with Walgreens to provide
specialty pharmacy and mail service businesses. Id.
at ¶ 171.
submitted its final appeal of the first batch of audit
results and its first appeal of the third batch of audit
results on September 3, 2016. Id. at ¶¶
104-05. It also submitted a final appeal of the second batch
of audit results on September 16, 2016. Id. ¶
106. Prime denied PSP's first appeal of the third batch
of audit results and asked for amended final appeals of the
other two batches on November 23, 2016. Id. at
¶¶ 107-08. PSP filed a final appeal of the third
batch of audit results and supplemental information on the
other two batches of audit results on December 23, 2016.
Id. at ¶ 110. It also submitted additional
information regarding the third batch of audit results on
January 11, 2017. Id. at ¶ 112.
April 3, 2017, Prime announced the creation of AllianceRx, a
joint venture with Walgreens to provide specialty and
mail-order pharmacy services. Id. at ¶¶
159-60. A few weeks later, Prime issued its final audit
results regarding PSP's claims. Id. at ¶
117. Prime rejected over $700, 000 worth of claims.
Id. at ¶ 118. Shortly thereafter, Prime also
rejected PSP's appeal of its termination from Prime's
network. Id. at ¶ 124. PSP subsequently
requested a dispute resolution conference, at which an
attorney for Prime indicated that she did not know of any PSP
claims where the patient did not receive the medication that
was billed or prescribed. Id. at ¶ 131. PSP
alleges that Prime used the audits as a pretext to terminate
PSP from its network for the benefit of AllianceRx.
filed suit, alleging that Prime violated Minnesota and
Florida state law and federal antitrust law. PSP alleged that
Prime and Walgreens unlawfully restrained trade in the
Alabama specialty/mail-order pharmacy markets and the retail
pharmacy market by vertically integrating over 90 percent of
Alabama's prescription drug benefits and by excluding PSP
from dispensing prescriptions to Prime members. Id.
at ¶ 364-66. PSP also alleged that Prime and Walgreens
combined, conspired, and agreed to monopolize the Alabama
specialty/mail-order pharmacy market and the Alabama retail
pharmacy market and that Prime attempted to monopolize or
monopolized the same markets. Id. at ¶¶
moved to dismiss the complaint. (ECF No. 18). Attached to a
declaration in support of its motion was a settlement demand
letter from PSP, dated June 30, 2016. (ECF No. 21-3). PSP
subsequently moved to exclude that letter from evidence. (ECF
No. 35). At the hearing, the Court ordered the parties to
provide supplemental letter briefing on a number of issues.
The parties submitted those letters on October 1 and 9, 2018,
following which the Court took the matter under advisement.
MOTION TO DISMISS
has moved to dismiss the Amended Complaint under Fed.R.Civ.P.
12(b)(6) and 12(b)(1). When determining a Rule 12(b)(1)
motion, courts “must distinguish between a
‘facial attack' and a ‘factual attack' on
jurisdiction.” Carlsen v. GameStop, Inc., 833
F.3d 903, 908 (8th Cir. 2016) (quoting Osborn v. United
States, 918 F.2d 724, 729 n.6 (8th Cir. 1990)).
“In a facial attack, ‘the court restricts itself
to the face of the pleadings, and the non-moving party
receives the same protections as it would defending against a
motion brought under Rule 12(b)(6).'” Id.
“In a factual attack, the court considers matters
outside the pleadings, and the non-moving party does not have
the benefit of 12(b)(6) safeguards.” Id.
deciding a Rule 12(b)(6) motion, a court accepts as true all
well-pleaded factual allegations and then determines
“whether they plausibly give rise to an entitlement to
relief.” Ashcroft v. Iqbal, 556 U.S. 662, 680
(2009). In doing so, the court must draw reasonable
inferences in the plaintiff's favor. Zink v.
Lombardi, 783 F.3d 1089, 1098 (8th Cir. 2015) (citation
omitted). “To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face.”
Sletten & Brettin Orthodontics v. Cont'l Cas.
Co., 782 F.3d 931, 934 (8th Cir. 2015) (citation and
internal quotations omitted). Facial plausibility of a claim
exists “when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678 (citing Twombly, 550
U.S. at 556). Although a sufficient complaint need not be
detailed, it must contain “[f]actual allegations . . .
enough to raise a right to relief above the speculative
level.” Twombly, 550 U.S. at 555 (citation
omitted). Complaints are insufficient if they contain
“naked assertions devoid of further factual
enhancement.” Iqbal, 556 U.S. at 678 (citing
Twombly, 550 U.S. at 557) (internal quotation marks
Federal Law Claims
first contends that Prime and Walgreens violated Section 1 of
the Sherman Act, which provides that “[e]very contract,
combination in the form of trust or otherwise, or conspiracy,
in restraint of trade or commerce among the several States,
or with foreign nations, is declared to be illegal.” 15
U.S.C. § 1. “Despite its broad language, ”
Section 1 applies only to “unreasonable”
restraints of trade or commerce. Craftsmen Limousine,
Inc. v. Ford Motor Co., 363 F.3d 761, 772 (8th Cir.
2004) (“Craftsmen I”). In order to
evaluate whether PSP has pled facts showing the alleged
contract, combination, or conspiracy is unreasonable, the
Court must first identify what legal standard governs the
challenged conduct. Id. at 773.
default standard for evaluating whether conduct violates
Section 1 of the Sherman Act is the “rule of
reason.” Leegin Creative Leather Products, Inc. v.
PSKS, Inc., 551 U.S. 877, 885 (2007). To successfully
plead a case under the rule-of-reason standard, a plaintiff
must allege facts showing that the challenged conduct has
“detrimental effects” upon competition.
Flegel v. Christian Hosp., NE-NW, 4 F.3d 682, 688
(8th Cir. 1993). Traditionally, a plaintiff pleads such a
case by first alleging sufficient facts to define a relevant
market, which is composed of both a product and geographic
market. Craftsmen Limousine, Inc. v. Ford Motor Co.,
491 F.3d 380, 388 (8th Cir. 2007) (“Craftsmen
II”). The plaintiff then performs “an
inquiry into market power and market structure designed to
assess the [conduct's] actual effect.”
Copperweld Corp. v. Independence Tube Corp., 467
U.S. 752, 768 (1984). This inquiry requires consideration of
a number of factors, “including specific information
about the relevant business, its condition before and after
the restraint was imposed, and the restraint's history,
nature, and effect.” State Oil Co. v. Khan,
522 U.S. 3, 10 (1997). This is a very
“challenging” standard for a plaintiff to meet.
Craftsmen II, 491 F.3d at 388.
cases, however, a truncated, “quick look”
rule-of-reason standard applies. See Calif. Dental
Ass'n v. FTC, 526 U.S. 756, 770 (1999). The
quick-look standard applies when a person “with even a
rudimentary understanding of economics could conclude that
the arrangements in question would have an anticompetitive
effect on customers and markets.” Id. at 770.
Typically, the quick rule standard applies when there are
facts pled that show “genuine adverse effects on
competition, ” such as a “naked restriction on
price or output.” FTC v. Ind. Fed'n of
Dentists, 476 U.S. 447, 460 (1986). In these cases,
because the “anticompetitive effects can easily be
ascertained, ” Calif Dental Ass'n v. FTC,
526 U.S. at 770, there is no need to conduct an
“elaborate market analysis.” Ind. Fed'n
of Dentists, 476 U.S. at 461. Instead, upon a showing of
anticompetitive effects, the burden turns immediately to the
defendant to show some form of pro-competitive justification
for the conduct. National Collegiate Athletic Ass'n
v. Board of Regents of University of Oklahoma, 468 U.S.
85, 113 (1984) (“NCAA”).
some restraints are considered unreasonable “per
se.” Leegin, 551 U.S. at 886. The per
se standard applies to restraints that “always or
almost always tend to restrict competition and decrease
output.” Id. Such restraints include
horizontal agreements between competitors to fix prices,
divide markets, or boycott certain firms. Id.;
Johnson Bros. Liquor Co. v. Bacardi U.S.A., Inc.,
830 F.Supp.2d 697, 707 (D. Minn. 2011). Because these
categories of restraints are “so strongly linked with
anti-competitive activity and their economic impact so
immediately obvious . . . the plaintiff meets its burden of
proving the unreasonableness of the restraint merely by
proving the existence and substance of the restraint
itself.” Craftsmen II, 491 F.3d at 387.
contends that the per se standard should apply here,
citing caselaw holding that the per se standard
applies to conspiracies between firms to exclude another from
the marketplace, so long as the conspirators possess
“market power or exclusive access to an element
essential to effective competition.” Johnson
Bros., 830 F.Supp.2d at 707; see also Silver v. New
York Stock Exchange, 373 U.S. 341, 347-48 (1963). But
the per se standard applies to those types of
conspiracies only when the conspirators directly compete with
one another. See Johnson Bros., 830 F.Supp.2d at 700
(considering agreement between two producers of alcoholic
beverages). This is not such a case. PSP does not allege that
Walgreens and Prime compete directly with one another.
Instead, PSP alleges that Prime is a customer or purchaser of
pharmacies like PSP and Walgreens. And when there is an
agreement between a buyer and a seller to exclude another
entity from the market, the per se rule is
inapplicable. See NYNEX Corp. v. Discon, Inc., 525
U.S. 128, 136-37 (1998) (explaining that the freedom to
switch suppliers lies close to the heart of the competitive