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WAGNER v. EXPRESS SCRIPTS

May 11, 2004.

JAMES M. WAGNER, JAN GORSKY, MARILYN DICKERT and ROSA MARIA CASTILLO KESPER, Plaintiffs and Members of THE ORGANIZATION OF NEW YORK STATE MANAGEMENT CONFIDENTIAL EMPLOYEES, on behalf of all others similarly situated, Plaintiffs, -against- EXPRESS SCRIPTS, INC., Defendant


The opinion of the court was delivered by: WILLIAM PAULEY, District Judge

MEMORANDUM and ORDER

On December 31, 2003, plaintiffs James M. Wagner, Jan Gorsky, Marilyn Dickert and Rosa Maria Castillo Kesper, all members of the Organization of New York State Management Confidential Employees ("OMCE"), (collectively, "plaintiffs") filed this putative class action against defendant Express Scripts, Inc. ("defendant") in New York State Supreme Court, New York County on behalf of themselves and all others similarly situated. Plaintiffs assert claims against defendant for breach of fiduciary duty and for violations of N.Y. GBL § 349, New York's Deceptive Trade Practices Act. (Complaint, dated Dec. 31, 2003 ("Compl.") ¶¶ 44-52.) Plaintiffs contend that defendant profits by employing deceptive practices resulting in, inter alia, an inflated insurance premium and higher-cost prescription medications. On February 6, 2004, defendant Express Scripts, Inc. removed the action to this Court on the grounds of (1) diversity jurisdiction; and (2) federal question jurisdiction under the Medicaid Rebate Statute and Agreement. (Notice of Removal, dated Feb. 6, 2004 ("Notice") ¶¶ 3-9.) Currently before this Court is plaintiffs' motion pursuant to 28 U.S.C. § 1447 (c) to remand this action back to the New York Supreme Court. Plaintiffs argue that remand is appropriate based on their contention that (1) diversity jurisdiction is absent because defendant cannot aggregate plaintiffs' claims to satisfy the amount in controversy requirement; and (2) federal question jurisdiction is absent because plaintiffs' claims do not arise under federal law or involve a significant federal question. For the reasons set forth below, plaintiffs' motion for remand is denied.

  BACKGROUND

  This action concerns the administration of prescription drug benefits provided to certain New York State employees. The named plaintiffs, who are members of the OMCE, sue on behalf of all OMCE members and other New York State employees similarly situated, whose non-ERISA pharmacy benefits are provided, either directly or indirectly, through the New York State Health Insurance Program (the "NYSHIP"). (Compl. ¶ 14.) The NYSHIP, which covers approximately 1.1 million people, is a health insurance program that provides health care benefits through either the Empire Plan or a NYSHIP-approved HMO. (Affidavit of Paula Gazeley-Dailey, dated Apr. 20, 2004 ("Gazeley-Dailey Aff.") ¶ 1.) The Empire Plan is the NYSHIP's comprehensive health insurance program exclusively for New York's public employees. (Gazeley-Dailey Aff. ¶ 2.) The State of New York (the "State") contracts out the Empire Plan's coverage components, allowing a different managed care organization to administer each of the Empire Plan's insured health benefits, such as medical, hospital, dental and prescription drug benefits. (Gazeley-Dailey Aff. ¶ 2.) Connecticut General Life Insurance Company ("CIGNA"), an insurer, entered into an insurance policy with the State to provide the Empire Plan's prescription drug benefit component. (Gazeley-Dailey Aff. ¶ 2; Certification of David S. Elkind, Esq. ("Elkind Aff.") at Ex. E.) CIGNA subcontracts the drug benefit's administrative duties to Express Scripts. (Gazeley-Dailey Aff. ¶¶ 2-3; Elkind Aff. at Ex. E.) Thus, Express Scripts acts as the pharmacy benefits manager ("PBM") in administering the prescription benefits offered to OMCE Members and New York State employees who obtain health insurance, including pharmacy benefits, through the NYSHIP. (Compl. ¶ 2.) In addition to administering the Empire Plan prescription drug program, Express Scripts reports prescription cost and manufacturer's rebate information to CIGNA and the State, who use it to establish one total premium for all Empire Plan members, including plaintiffs. (Compl. ¶¶ 3-4; Gazeley-Dailey Aff. ¶ 4; Elkind Aff. at Ex. E § 22.2.) Under the insurance policy between the State and CIGNA, the State, as opposed to each individual employee, makes a premium payment to CIGNA. (Elkind Aff. at Ex. E § 22.2.) Thus, the premium payment due under the insurance policy is negotiated and paid by the State, based on information received from defendant, and is not dependent on what each individual plaintiff pays. (Elkind Aff. at Ex. E § 22.1, 22.2; Gazeley-Dailey Aff. ¶ 4.)

  Plaintiffs plead a lengthy, detailed list of defendant's unlawful acts and omissions which have allegedly resulted in increased health care costs, inflated insurance premiums and prescription drug rates, and inflated co-payments for prescriptions that exceed the actual cost of the prescription. (Compl. ¶¶ 21, 29.) Plaintiffs also contend insurance premiums and co-payments are inflated because defendant failed to disclose and pass on compensation it received from pharmacies and drug manufacturers. (Compl. ¶¶ 22-24.)

  Specifically, plaintiffs allege defendant: (1) retained undisclosed rebates from manufacturers; (2) created and retained a "spread" in discounts defendants received for sending Empire Plan participants to certain pharmacies; (3) created and retained a "spread" in pharmacy dispensing fees; (4) obtained "kickbacks" from drug manufacturers under secret agreements in exchange for defendant's decision to encourage Plan members to use specific drugs on a manufacturer's formulary; (5) assisted manufacturers in distorting the Average Wholesale Price ("AWP") of their drugs, thereby artificially inflating drug prices; (6) failed to disclose or pass on prompt payment discounts on bulk mail order prescriptions; (7) made various accounting and financial disclosure errors in administering pharmacy benefits; and (8) charged co-payments in excess of the drug cost. (Compl. ¶¶ 5, 28.) Plaintiffs contend that defendants receive a windfall from their unlawful acts, resulting in increased health care costs, contrary to defendant's stated purpose of reducing health care costs under the insurance policy. (Compl. ¶¶ 3, 5.)

  Plaintiffs seek compensatory and punitive damages, an order enjoining Express Scripts from engaging in the unlawful activities described in the complaint, an order requiring Express Scripts to account for all assets it has retained for its own benefit and use, and restitution to purported class members of all unlawful profits Express Scripts earned. (Compl. ¶¶ 4, 6.)

  DISCUSSION

 I. Standards for Remand

  Removal of an action from state court is authorized by 28 U.S.C. § 1441, which provides that "any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants to the district court . . . where such action is pending." 28 U.S.C. § 1441(a). The removal statute is strictly construed, with any doubts resolved against removal.

  Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09 (1941); Somlvo v. J. Lu-Rob Enters., Inc., 932 F.2d 1043, 1045-46 (2d Cir. 1991) ("In light of the congressional intent to restrict federal court jurisdiction, as well as the importance of preserving the independence of state governments, federal courts construe the removal statute narrowly, resolving any doubts against removability."). The removing party, here Express Scripts, bears the burden of establishing by "competent proof" that removal was proper. United Food & Commercial Workers Union v. CenterMark Props. Meriden Square, Inc., 30 F.3d 298, 301 (2d Cir. 1994); see also Quinones v. Minority Bus Line Corp., 98 Civ. 7167 (WHP), 1999 WL 225540, at *2 (S.D.N.Y. Apr. 19, 1999) ("Because the party seeking to remove the action bears the burden of establishing federal jurisdiction, it is the removing party who must convince this Court that removal was proper.").

 II. Diversity Jurisdiction

  In its Notice of Removal, defendant contends that federal jurisdiction may be based on diversity of citizenship. (Notice ¶¶ 3-6.) Pursuant to 28 U.S.C. § 1332, an action may be removed to federal court where the amount in controversy exceeds $75,000 and there is complete diversity of citizenship between plaintiffs and defendants. Where removal is based on diversity, the defendant has the "burden of proving that it appears to a reasonable probability that the claim is ...


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