Meijer, Inc. v. Abbott Laboratories

251 F.R.D. 431, 2008 U.S. Dist. LEXIS 81840, 2008 WL 2503007
District Court, N.D. California·Decided June 18, 2008·No. No. C 07-5985 CW·Published·Cited by 2 cases

Opinion

ORDER DENYING DEFENDANT’S MOTION TO COMPEL DISCOVERY

CLAUDIA WILKEN, District Judge.

Plaintiffs Meijer, Inc., Meijer Distribution, Inc., Rochester Drug Cooperative, Inc. and Louisiana Wholesale Drug Company, Inc. are pharmaceutical wholesalers that purchase Kaletra and Norvir, the drugs whose prices are the subject of this antitrust action, directly from Defendant Abbott Laboratories.1 Abbott moves to compel Plaintiffs to produce information concerning sales of Kaletra and Norvir to their customers. Abbott argues that this information is probative of whether a conflict might exist between members of the putative class of direct purchasers, such that class certification is inappropriate. Plaintiffs oppose Abbott’s motion. Pursuant to the parties’ stipulation, the matter was taken under submission on the papers. Having considered all of the papers filed by the parties, the Court denies Abbott’s motion.

DISCUSSION

Rule 23(a)(4) of the Federal Rules of Civil Procedure establishes as a prerequisite for class certification that “the representative parties will fairly and adequately protect the interests of the class.” Here, the putative class consists of:

All persons or entities in the United States that purchased Norvir and/or Kaletra directly from Abbott or any of its divisions, subsidiaries, predecessors, or affiliates during the period from December 3, 2003 through such time as the effects of Abbott’s illegal conduct have ceased, and excluding federal governmental entities, Abbott, and Abbott’s divisions, subsidiaries, predecessors, and affiliates.

Compl. ¶ 47.

Abbott maintains that certain members of the putative class may have benefitted from [433]*433the increase in the wholesale price of Norvir in two ways:

First, some wholesalers sell Norvir and Kaletra to pharmacies and other retailers on a cost-plus basis. Cost-plus pricing means that these wholesalers charge their customers their wholesale acquisition costs (“WAC”) plus a set percentage mark-up (ie. their profit margin). Because their profit margins increase proportionally with the increase in their acquisition costs, these wholesalers stand to benefit — and, in fact, did benefit — from the increases in the prices Abbott charged for Norvir and Kaletra. Second, some wholesalers also profit in other ways from higher prices, including from the interest (or, “float”) they earn on the difference between their accounts receivable from their buyers and the accounts payable from their suppliers. As [Abbott’s expert] Prof. Hay explains, large wholesalers with substantial volume of sales can earn significant profits from the “float,” and higher prices can increase these profits considerably.

Def.’s Mot. at 2-3 (citations omitted). Abbott postulates that these class members may prefer Abbott’s current pricing structure, and thus their interests will not be served by the named Plaintiffs, who challenge the structure as anticompetitive.

In order to determine whether certain class members may have benefitted from the Norvir price increase, Abbott served interrogatories and document requests on Plaintiffs seeking detailed and extensive transaction-level information about sales of anti-retroviral drugs by all putative class members.2 Abbott intends to analyze this “downstream” sales information to oppose Plaintiffs’ motion for class certification by showing that a fundamental conflict exists among members of the putative class.

In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), Court held that when a seller overcharges a buyer the antitrust laws, the fact that the buyer raises the price for its own product, thereby passing on the overcharge to its customers and avoiding a loss in profit, has no bearing on the issue of whether the buyer has suffered an injury and thus has the right to recover damages from the seller. Rather, damages are appropriate to the extent the buyer was overcharged, and must be measured accordingly. See id. at 489-92, 88 S.Ct. 2224. Given this holding, the parties appear to agree that the downstream sales information Abbott seeks is not relevant to any issue to be tried in this case, including the issue of damages. However, Abbott notes that it seeks the information exclusively for the purpose of demonstrating a potential conflict of interest among class members.

In Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), the Court reaffirmed its view in Hanover Shoe that the effect of an overcharge on a buyer’s profits is not an appropriate topic of inquiry. It noted that the “principal basis” for its earlier decision was “the Court’s perception of the uncertainties and difficulties in analyzing price and out-put decisions ‘in the real economic world rather than an economist’s hypothetical model.’ ” Id. at 731-32, 97 S.Ct. 2061 (quoting Hanover Shoe, 392 U.S. at 493, 88 S.Ct. 2224). In the Court’s view, the “evidentiary complexities and uncertainties” involved in analyzing the impact of an overcharge on a firm’s profits would result in “long and complicated” proceedings that would ultimately prove inconclusive. Id. at 732, 97 S.Ct. 2061.

Notwithstanding the Supreme Court’s admonitions about the utility and feasibility of this type of analysis, Abbott urges the Court to adopt the approach of the Eleventh Circuit in Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 350 F.3d 1181 (11th Cir.2003). In that case, the court addressed the propriety of class certification where, as Abbott alleges is the case here, some members of the direct purchaser class had potentially benefitted from the conduct the named plaintiffs were challenging as anticompetitive — namely, an [434]*434agreement that kept off the market generic versions of a branded drug. Because wholesalers, “who play a central role in the distribution of branded drugs, are often bypassed in the distribution chain for many generic sales,” id. at 1191, it was possible that their interests would not be served by the litigation. The court therefore found that the district court had erred in not permitting discovery on downstream sales, which might have allowed the defendant to demonstrate that some members of the class, but not others, benefitted from the limited availability of lower-cost generic drugs.

In reaching its decision, the Eleventh Circuit construed Hanover Shoe and Illinois Brick narrowly as standing only “for the proposition that a direct purchaser who passes on overcharges to his own customers nevertheless suffers cognizable anti-trust injury and may sue to recover damages regardless of whether he actually profited from the defendants’ conduct.” Id. at 1192. In so doing, however, the court did not give sufficient weight to what the Supreme Court called the “principal basis” for its decisions: the practical difficulty of determining whether and to what extent a party benefits from one economic arrangement as opposed to another.

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Meijer, Inc. v. Abbott Laboratories, 251 F.R.D. 431, 2008 U.S. Dist. LEXIS 81840, 2008 WL 2503007 (N.D. Cal. 2008).

251 F.R.D. 431 (Meijer, Inc. v. Abbott Laboratories) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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