Not a Duck: State Can Still Bring Suit on Behalf of Citizens in Own State Court

On May 20, 2011, the United States Court of Appeals for the Fourth Circuit decided whether an action instituted by the Attorney General of the State of West Virginia on behalf of the citizens of West Virginia against CVS Pharmacy, Inc., Kmart Holding Corp., The Kroger Co., Wal-Mart Stores, Inc., Walgreen Co. and Target Stores, Inc. was a class action, removable under the Class Action Fairness Act of 2005 (“CAFA”).  The West Virginia Attorney General made claims pursuant to two state statutes:  West Virginia Code §30-5-12b(g) (“Pharmacy Act”), which regulates the practice of pharmacy in the State; and the West Virginia Consumer Credit Protection Act (“WVCCPA”), West Virginia Code §46A-6-104, which prohibits unfair and deceptive practices in the conduct of trade or commerce.  The complaint averred that the defendants, major pharmacies operating in West Virginia, had failed to pass along cost savings of generic drugs as compared to brand name equivalents, allegedly violating state pharmacy regulations and also constituting deceptive business practices under the WVCCPA.  In its sovereign capacity, the State, on behalf of its citizens, sought injunctive relief, restitution and disgorgement of overcharges, recovery for consumers of excess charges, civil penalties, interest, costs and attorneys’ fees.

The Attorney General filed the complaint, pursuant to specific statutory provisions in both the Pharmacy Act and the WVCCPA, in Circuit Court, Boone County, West Virginia.  Defendants removed the case under CAFA, arguing that it was a “disguised” class action, even though no class statute or procedural rule was cited.  The State successfully opposed removal and the district court remanded the case to Boone County holding that the case was not a class action, but a “classic parens patriae” action intended to vindicate the interests of the state and its citizens.  West Virginia ex rel. McGraw v. CVS Pharmacy, Inc. et al., No. 2:09-1000, 2010 U.S. Dist. LEXIS 101127, at *50 (S.D. W. Va. Sept. 21, 2010).  Defendants challenged the remand order and the Fourth Circuit affirmed, holding that the action was not a “class action” as defined by CAFA.

Among other things, in their removal efforts, Defendants asserted that the complaint was a disguised class action because it was designed to recover funds on behalf of those consumers who had paid too much for generic drugs.  State of West Virginia ex rel. Darrell V. McGraw, Jr. v. CVS Pharmacy, Inc., United States Court of Appeals for the Fourth Circuit, No. 11-1251, May 20, 2011 Opinion at 5.  Defendants argued that each of the requirements of a Rule 23 class action was alleged, though not in name, in the complaint.  For example, Count III of the complaint sought, as relief, the payment of any overcharge to any consumer who paid such excess fee.  Defendants argued that, by virtue of the number of prescriptions filled by them for the number of consumers in the State, both the numerosity requirement of a typical class action, and the amount-in-controversy requirement for removal under CAFA.  Moreover, since the Attorney General was seeking refunds “on behalf of” affected West Virginians, the action was a representational one, like class actions under CAFA.

Defendants necessarily conceded that the State did not purport to bring its action as a class action.  Id. at 6.  Rather, Defendants urged the Fourth Circuit to reverse the district court’s remand order by focusing on the substance of the allegations in the complaint, not the title or labels the State employed.  Id. at 6-7.

CAFA authorizes removal of certain actions brought under Rule 23 of the Federal Rules of Civil Procedure, or a “similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative personas as a class action.”  28 U.S.C. §1332(d)(1)(B).  After arguing that the requirements of numerosity, amount-in-controversy and minimal diversity were met, Defendants focused on argument that the portions of Pharmacy Act and the WVCCPA upon which the Attorney General relied, were “similar” statutes to Federal Rule of Civil Procedure 23.

The Fourth Circuit held that a state statute is “similar” to Rule 23 if it “closely resembles Rule 23 or is like Rule 23 in substance or in essentials.”  Id. at 8.  The Court went on to say that “[a]t its essence, Rule 23 provides that ‘one or more members of a class may sue or be sued as representative parties on behalf of all members only if’ the criteria for numerosity, commonality, typicality, and adequacy of representation are satisfied.”  Id. (internal citations omitted).  So, while a state statute need not contain all of the conditions and administrative aspects of Rule 23, it would, at least, need to provide a procedure by which a member of a class whose claim is typical of all other members can bring an action on his or her own behalf and on behalf of others, such that it would be fair to bind those class members to a judgment entered in the case, to be considered “similar” under CAFA.  Id. at 9.  The West Virginia procedural rule for class actions (West Virginia Civil Rule of Procedure 23) would qualify.

The statutes on which West Virginia relied, however, were not “similar.”  The Attorney General filed claims arising under state consumer protection statutes, pursuant to authority specifically granted to the Attorney General to bring suits on behalf of the State’s citizens.  Id. These statutes contain virtually none of the requirements of Rule 23.  Indeed, the Attorney General need not be a member of the “class” with a “typical” claim.  To the contrary, he or she is authorized as a parens patriae to vindicate the interests of, among others, the citizens of West Virginia.  Id. at 10.  Moreover, neither statute contains numerosity, commonality or typicality requirements.  Id. at 11. And, the Attorney General need not provide notice to potential citizen benefactors of the State’s action, which Rule 23 would require if monetary damages were sought.  Id.

The Court of Appeals was simply not convinced that the Attorney General’s action in this case was a “disguised” class action, artfully pleaded so as to avoid federal jurisdiction.  No – this case was like many government enforcement cases by various agencies, brought on behalf of groups, sometimes very large groups, of individuals, and seeking damage payments for group members.  See General Telephone Co. v. EEOC, 446 U.S. 318 (1980).  See also In re Edmond, 934 F.2d 1304 (4th Cir. 1991).  Here, as in those cases, the Attorney General was specifically authorized by state statutes to seek redress on behalf of state citizens, without regard to whether he/she had been injured by the violations alleged in the suit.

One of the panel of three judges dissented.  His view was that CAFA does not actually define “class action,” and finding that the pharmacy case fit squarely within the definition of class action provided by Black’s Law Dictionary.  Id. at 17.  The dissenting judge bought the Defendants argument that form should not be elevated over substance, and instead, the court should have determined what the essence of the action was.  Id. In this Judge’s opinion, the answer to that question turned on who the real party in interest was.  Id. He determined that the “primary thrust” of the case was the excess charges to the individual consumers – citizens of West Virginia, not the State itself.  Id. at 20.  The dissent also pointed out that there were cases virtually indistinguishable in other states, brought against the same defendants, which cases had to be brought as class actions because those state statutes did not provide for representation by the relevant state attorney general.  Id. at 21.  In summary, the dissent stated “if something looks like a duck, walks like a duck, and quacks like a duck, it is probably a duck.”  The dissenting view was that the case at hand “quacked” like a class action, not a parens patriae action.  Id. at 27.

Photo Credit: Elvert Barnes