Consumer Class Action Blog

News, analysis and commentary on state and federal consumer class action litigation

To Intervene or Not Intervene

Posted by Philip Kay on September 7, 2009

The 1st Circuit issued a warning to would-be class action intervenors that they better move early or forever hold their peace.

In National Ass’n of Chain Drug Stores v. New England Carpenters Health Benefits Fund, 2009 WL 2824867 (1st Cir., Sep 03, 2009), the Court affirmed the district court’s judgment approving the settlement of Average Wholesale Price (AWP) class claims against First Databank and Medi-Span, two publishers of drug pricing data.  The Court held that the defendants’ agreement to lower (“roll back”) their published AWP figures to a 1.2 markup (from 1.25) did not violate the Due Process Clause, did not violate Rule 19 of the Federal Rules of Civil Procedure, and satisfied Rule 23(e)(2)’s reasonableness standard.

The actions were brought by purchasers of pharmaceutical drugs against First DataBank, Medi-Span and McKesson (a major drug wholesaler that also owns pharmacy-related businesses).  The complaints alleged that the defendants wrongfully inflated the AWP figure on over 1,400 drug products, resulting in overpayments by third-party payors, insurers and consumers.

First DataBank and Medi-Span agreed to settle the claims against it.  (McKesson also settled the claims against it for $350 million, but that settlement was not part of this appeal).  As part of the settlement, First DataBank and Medi-Span agreed to roll back their published AWP figures.  The trial court issued its final order and judgment on March 30, 2009 in which it certified the class and approved the settlement agreements.  The court delayed implementation of the rollback until September 26, 2009.

The principal objections to the settlements came from non-party pharmacy interests concerned that the rollbacks would reduce the payments to them made by third-party payors.  These non-parties appealed to the 1st Circuit to overturn the district court and un-do the settlements.

The 1st Circuit held that although the pharmacy interests likely stand to lose revenues as a result of the rollback intended by the settlement, the rollbacks do not offend the Due Process Clause or Rule 19.  The Court noted that impacted non-parties can always seek to intervene or otherwise express their views in litigation that may affect their practical interests, and thus were not denied due process.  Further, the appellants forfeited their Rule 19 argument by failing to raise it in the district court.

The Court also held that the settlement was fair and reasonable under Rule 23(e)(2).  The Court stated that the rollback made sense absent some extreme circumstance such as gains for buyers greatly exceeding the original losses or likely to force large numbers of pharmacies out of business.  Since the appellants failed to establish such extreme circumstances, the rollbacks “[were] within the ambit of reasonable choices available to the district judge” and may stand.

Most interesting to me was the Court’s treatment of who had standing to appeal the settlements.   The Court divided the appellants into three categories.

The first category was comprised of entities who objected to the settlement in the district court and who asserted status as members of the class.  None of the appellees disputed that these entities were members of the class and thus the Court concluded that they had the right to appeal whether their interests were typical of the class or not.

The second category was comprised of entities that were not class members but moved to intervene in the district court.  The district court denied their motions to intervene as untimely.  These entities did not immediately appeal the district court’s denial under the collateral order doctrine but waited until after the final judgment to appeal.  The Court bypassed the question whether intervention was properly denied in the district court and permitted intervention on appeal to those entities which sought intervention below. The Court implied, however, that it might not be so generous to future intervenors.

The third category was comprised of would-be appellants who neither asserted class membership nor attempted to intervene in the district court but claimed a right to appeal or appear as parties on appeal simply because their interests were affected by the outcome.  The Court ruled that the entities in this category did not have standing to appeal.  If they wanted to be heard, they should have intervened in the district court:  “[T]he fact that a decision against a defendant may practically impact a third party is not ordinarily enough for appellant status absent intervention or joinder in the trial court.” The Court noted that its decision might be different if the final judgment had purported to alter the legal rights of these non-party non-intervenors, but the final judgment in this case did not have any such effect.  See above discussion re the Due Process Clause and Rule 19.

So what does it all mean, Basil?  If your client may be adversely affected by a class action settlement, move to intervene in the trial court and do it early.  If the trial court denies your motion, immediately file an appeal under the collateral order doctrine.  The 1st Circuit threw the second category of appellants a bone by hearing them on appeal despite their failure to immediately appeal the district court’s denial of their motion to intervene, but I wouldn’t bet the farm on such future charity from the 1st or any other circuit.


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