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United States District Court, S.D. New York

May 11, 2004.


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


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.


  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.)


 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 in excess of the statutory jurisdictional amount." Mehlenbacher v. Akzo Nobel Salt, Inc., 216 F.3d 291, 296 (2d Cir. 2000).

  A. Aggregation

  The parties agree that there is complete diversity of citizenship among the named parties since the plaintiffs are New York residents (Compl. ¶¶ 9-12) and the defendant is a Delaware Corporation with its principal place of business in Missouri. (Compl. ¶ 15.) Plaintiffs argue, however, that this Court lacks jurisdiction because the amount in controversy requirement is not satisfied. Defendant contends the $75,000 amount in controversy is met by aggregating plaintiffs' claim for damages since plaintiffs have a common and undivided interest in a single title or right involved in the litigation.

  In a diversity class action, the members of the class are generally not permitted to aggregate their claims to satisfy the requisite amount in controversy. Snyder v. Harris, 394 U.S. 332, 338 (1969). Under that general rule, each member of the putative class must be able to establish the minimum jurisdictional amount. Zahn v. Int'l Paper Co., 414 U.S. 291, 294-95 (1973). However, multiple plaintiffs' claims*fn1 against a common defendant may be aggregated "when several plaintiffs unite to enforce a single title or right, in which they have a common and undivided interest." Gilman v. BHC Sec., Inc., 104 F.3d 1418, 1422 (2d Cir. 1997) (citing Troy Bank of Troy, Ind. v. G.A. Whitehead & Co., 222 U.S. 39, 40-41 (1911)). Referred to as the "common fund" exception, cases falling within the exception may involve "claims to a piece of land, a trust fund, an estate an insurance policy, a lien, or an item of collateral, which [the plaintiffs] claim as common owners or in which they share a common interest arising under a single title or right." Gilman, 104 F.3d at 1423; accord In re Rezulin Prods. Liability Litig., 168 F. Supp.2d 136, 151 (S.D.N.Y. 2001). Further, cases within the exception are "matters that cannot be adjudicated without implicating the rights of everyone involved with the res." Gilman, 104 F.3d at 1423 (holding no common fund exception existed where plaintiffs "never possessed anything in common prior to the litigation," even though their claims were asserted together in a class action); accord Local 538 United Bhd. of Carpenters & Joiners of Am. v. United States Fidelity & Guar. Co., 154 F.3d 52, 55 (2d Cir. 1998). What controls the applicability of the common fund exception "is the nature of the right asserted, not whether successful vindication of the right will lead to a single pool of money that will be allocated among the plaintiffs." Gilman, 104 F.3d at 1427; accord Kings Choice Neckwear, Inc. v. DHL Airways, Inc., 02 Civ. 9580 (GEL), 2003 WL 22283814, at *5-6 (S.D.N.Y. Oct. 2, 2003). Indeed, "class members have no common and undivided interest in the `fund' of damages that they might receive" from successful litigation. Gilman, 104 F.3d at 1426.

  Here, plaintiffs assert a collective right under a single health insurance policy that was entered into by the State on their behalf. Plaintiffs have a common, pre-litigation right to a lower common premium under the policy, as well as a related, common interest in defendant's lawful administration of the insurance policy's drug benefit administrative duties. This action, involving mismanagement and administration of an insurance policy and the establishment of an allegedly inflated premium to the State, cannot be adjudicated without affecting the rights of all Empire Plan insureds, since the State alone ratifies and pays the sole premium. (Elkind Aff. at Ex. E § 22.2.) See Gilman, 104 F.3d at 1423. Plaintiffs' attempt to liken this action to the facts of Gilman v. BHC Securities, Inc., 104 F.3d 1418 (2d Cir. 1997), is misplaced. In Gilman, plaintiffs, a group of investors, brought a fraud claim against their brokers for non-disclosure of order flow payments made by market makers as a kickback to reward the brokers for having directed business to them. 104 F.3d at 1420. The allegations of the Gilman complaint were based on each individual plaintiff's separate transactions with defendant's brokers. Gilman, 104 F.3d at 1420, 1423 ("On the face of the complaint . . . the plaintiffs' suit alleges that [defendant's] receipt of order flow payments harmed each individual customer in the conduct of that customer's individual securities transactions."). The Second Circuit declined to aggregate the plaintiffs' claims because "[t]he only right or title allegedly held by the [plaintiffs] is the right to sue [the defendant] for the undisclosed extracontractual benefit that [the defendant] derived from [its] securities trades; that right is distinct to each plaintiff, and is based on the [defendant's] handling of that person's separate transactions." Gilman, 104 F.3d at 1425.

  In the present case, however, there is no allegation in the Complaint, or in plaintiffs' memoranda that, like the Gilman plaintiffs, each plaintiff was involved in a pre-litigation, separate transaction with defendant. See Gilman, 104 F.3d at 1424-28; Aetna U.S. Healthcare, Inc. v. Hoechst Aktiencreselschaft, 48 F. Supp.2d 37, 42 (D.D.C. 1999). Significantly, this is not an action where plaintiffs are asserting rights arising from their individual insurance policies or their own separate contractual relationship with Express Scripts; indeed, there is no allegation or evidence that any plaintiff received unique policy or coverage rights from defendant or CIGNA tied to unique transactions or payments. C.f. Morrison v. Allstate Indem. Co., 228 F.3d 1255 (11th Cir. 2000) (no aggregation where multiple plaintiffs asserted separate rights arising out of numerous individual insurance policies). It is undisputed that plaintiffs' Complaint alleges breach of fiduciary duty and violations of N.Y. General Business Law resulting in a single, increased annual premium under one insurance policy — not separate, individual policies with each plaintiff. C.f. Gilman, 104 F.3d at 1425. Indeed, Section 22.2 of the insurance policy recognizes that all premiums due under the policy are to be paid in total by the State to CIGNA. (Elkind Certification Ex. E at § 22.2.) As aptly noted by defendant, plaintiffs' payments, as Enrollees in the Plan, "are simply pro rata shares of a single policy's allegedly excessive annual premium." (Def. Opp. at 7 (emphasis in original).) Gilman, 104 F.3d at 1427 (citing Berman v. Narragansett Racing Ass'n, 414 F.2d 311, 315 (1st Cir. 1969)). Plaintiffs have common interest in one annual premium under a single policy, or a common res. Gilman, 104 F.3d at 1423-24. Accordingly, application of the common fund exception to the non-aggregation rule is appropriate here since plaintiffs had a pre-litigation, common interest in the effective and lawful administration of the insurance policy, as well as a right to a fair common premium under that single insurance policy. Gilman, 104 F.3d at 1423.

  B. $75,000 Amount

  This Court must also determine whether defendant has made the requisite showing of a "reasonable probability" that plaintiffs' claims, as aggregated, exceed the $75,000 amount in controversy. See United Food & Commercial Workers Union Local 919 v. CenterMark Props. Meriden Square, Inc., 30 F.3d 298, 305 (2d Cir. 1994). After examining the Complaint, this Court finds that the claims well-exceed $75,000. Plaintiffs seek compensatory and punitive damages, restitution, and disgorgement of profits resulting from defendant's unjust enrichment, as well as injunctive relief. (Compl. at Prayer For Relief ¶¶ 1-7.) The Complaint charges that by assisting drug manufacturers to report "inflated AWPs" or to "evade federally required best price certifications," . . . "[defendant] has enriched itself through secret negotiations and reaps millions of dollars in revenues at the expense of the OMCE Members who pay inflated prices for prescription drugs." (Compl. at ¶ 28(f).) (See also Gazeley-Daily Aff. ¶¶ 3-6.) Further, plaintiffs plead that the undisclosed revenues they seek to disgorge from defendant are "in the billions of dollars annually." (Compl. at ¶ 31.) As plaintiffs' counsel acknowledged at oral argument, these allegations are sufficient to satisfy the amount in controversy.

  See Steinberg v. Nationwide Mut. Ins. Co., 91 F. Supp.2d 540, 544 (E.D.N.Y. 2000) (amount in controversy requirement satisfied where allegations of complaint stated that defendant's unlawful practices save it "millions of dollars annually").

 III. Federal Question Jurisdiction

  Plaintiffs also contend that removal should be denied because their claims do not require this Court to interpret federal law. Because this Court finds that diversity jurisdiction exists, it need not address whether a federal question is implicated here. CONCLUSION

  In conclusion, for the reasons stated above, removal is proper and plaintiffs' motion for remand is denied.


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