LA Indep Pharmacies v. Express Scripts

Case: 21-30331 Document: 00516400739 Page: 1 Date Filed: 07/20/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
July 20, 2022
No. 21-30331 Lyle W. Cayce
Clerk
Louisiana Independent Pharmacies Association,
Plaintiff—Appellee,
versus
Express Scripts, Incorporated,
Defendant—Appellant.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 2:20-CV-647
Before King, Jones, and Duncan, Circuit Judges.
Edith H. Jones, Circuit Judge:
Nominally, the question in this appeal is whether Medicare Part D
preempts a Louisiana statute requiring that prescription drug plan sponsors
reimburse pharmacists for a ten-cent fee imposed on pharmacists for every
prescription filled in the state. We do not address the merits of that
controversy, however, because we conclude that there is no basis for subject
matter jurisdiction. The Plaintiff’s claims do not satisfy the well-pleaded
complaint rule, and the Plaintiff-organization did not show that any single
member’s claim would satisfy the amount in controversy requirement for
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diversity jurisdiction. We therefore VACATE the district court’s judgment
and REMAND with instructions to dismiss.
I.
To understand this dispute, a brief overview of the competing federal
and state statutory regimes at issue is helpful. First, Medicare Part D
provides prescription drug benefits to those who are eligible for benefits
under Medicare Part A or enrolled under Part B. 42 U.S.C. § 1395w-
101(a)(1), (a)(3)(A). Congress structured Part D as a public-private
partnership under which private insurance companies, known as plan
sponsors, administer Part D’s prescription drug benefits under a Medicare
Prescription Drug Plan (PDP) or Medicare Advantage (Part C) plan. See
Cares Cmty. Health v. United States Dep’t of Health & Human Servs., 944 F.3d
950, 954 (D.C. Cir. 2019) (citing United States ex rel. Spay v. CVS Caremark
Corp., 875 F.3d 746, 749 (3d Cir. 2017)); 42 C.F.R. § 423.4. Typically, Part
D plans are administered by pharmacy benefit managers, entities that verify
benefits for plan sponsors and manage financial transactions among
pharmacies, plan sponsors, and patients.
Individuals enrolled in a Part D plan receive prescription drugs at the
“standard prescription drug coverage” rate in the usual course and at the
“negotiated prices” rate when benefits are not payable, such as when the
individual has not yet met her deductible. See 42 U.S.C. § 1395w-102(a)(1),
(d)(1). Neither rate is defined to include taxes or state-imposed fees. Id. To
promote competition, and therefore lower prices, Congress authorized plan
sponsors to freely negotiate the terms of their relationships with pharmacies,
including the terms of reimbursements, without governmental interference.
Id. at § 1395w-111(i). Moreover, Congress specified that “[t]he standards
established under this part shall supersede any State law or
regulation . . . with respect to [Part D] plans.” Id. at § 1395w-26(b)(3)
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(Medicare Part C preemption provision); Id. at § 1395w-112(g)
(incorporating same provision into Part D).
Next, Louisiana has enacted a provider fee for prescriptions to help
fund its share of the State’s Medicaid program. A statute authorizes its
Department of Health to set the fee at up to ten cents for every outpatient
prescription a pharmacist fills. La. Rev. Stat. Ann. § 46:2625(A)(1)(c)-
(e). Department of Health regulations set the provider fee at the maximum
ten cents. La. Admin. Code tit. 48, pt. 1 § 4001(D). The state also
requires pharmaceutical benefit plan sponsors to reimburse the pharmacists
for the provider fee. La. Rev. Stat. Ann. § 22:1860.1(A). Moreover,
the statute specifies that the provider fee “shall be considered an allowable
cost for purposes of insurance or other third party reimbursements and shall
be included in the establishment of reimbursement rates.” Id.
at § 46:2625(A)(2)(a).
To enforce the reimbursement requirement, Louisiana vests its
Department of Insurance with authority to sanction plan sponsors that do not
comply. Id. at § 22:1860.1(B). State law also mandates that “[e]very contract
between a pharmacy or pharmacist or his agent and a health insurance issuer
or its agent shall include provisions requiring the health insurance issuer or
its agent to reimburse the pharmacy or pharmacist or his agent” for the
provider fee, “provided that the pharmacy or pharmacist or his agent makes
a claim for reimbursement of the fee.” Id at § 46:2625(A)(2)(b). Moreover,
“[a]ny contract that does not include such provisions shall nonetheless be
interpreted and enforced” as if it did include a reimbursement provision. Id.
Shortly after Section 22:1860.1 was enacted, the Department of
Insurance issued an advisory letter taking the position that, because of
Medicare Part D’s preemption provision, the Department could not require
compliance “with either the levying of the [provider fee] or the provision of
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the same statute requiring contractual reimbursement.” The Department of
Health, however, advised pharmacies that they are nevertheless required to
pay the provider fee on all prescriptions, including Part D prescriptions.
Express Scripts, Inc., the appellant here, is a large pharmacy benefits
manager. Following the interpretation by the Department of Insurance,
Express Scripts announced that it would not reimburse pharmacists for the
provider fee on prescriptions covered by Part D plans. The Louisiana
Independent Pharmacies Association (“LIPA”) sued Express Scripts on
behalf of its members, seeking a declaratory judgment on whether La. Rev.
Stat. Ann. §§ 22:1860.1 and 46:2625 are preempted by Medicare Part D.1
Express Scripts moved to dismiss LIPA’s request for declaratory judgment
regarding the reimbursement provision for failure to state a claim, see Fed.
R. Civ. P. 12(b)(6), on the basis that Medicare Part D preempts the
reimbursement provision for prescriptions covered by Part D plans.2
1
This is not LIPA’s first attempt to secure declaratory relief on this question. LIPA
previously sued four other pharmacy benefits managers in state court seeking identical
relief. See La. Indep. Pharmacies Ass’n v. Catamaran Corp., 2019 WL 1084205 (La. App.
Mar. 7, 2019). The state court dismissed that lawsuit for lack of associational standing. Id.
at *1. Before that, LIPA sued the Louisiana Department of Insurance and Department of
Health seeking a declaratory judgment to resolve a perceived inconsistency between the
Department of Insurance’s position that Medicare preempts the reimbursement
requirement and the Department of Health’s position that pharmacists are nevertheless
required to pay the provider fee on Medicare Part D prescriptions. In response, the
Department of Insurance issued a revised advisory letter to clarify its position. The state
court then entered a consent judgment, holding that “there is not a conflict” between the
two Departments’ positions.
2
Express Scripts also moved to dismiss the request for declaratory judgment on
the provider fee for lack of an Art. III controversy. Fed. R. Civ. P. 12(b)(1). Because
Express Scripts has nothing to do with the requirement that pharmacists pay the provider
fee, plaintiffs could not obtain relief from that law against Express Scripts. The district
court agreed with Express Scripts but, perhaps out of mere oversight, erroneously failed to
dismiss those claims.
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The district court concluded, however, that Express Scripts failed “to
meet its burden of showing preemption or any other basis for dismissal.”
Express Scripts moved to certify the order denying its motion to dismiss for
interlocutory appeal under 28 U.S.C. § 1292(b). The district court granted
certification, and this court agreed to take the appeal.
II.
This court reviews a district court order denying a motion to dismiss
de novo. Whitley v. BP, P.L.C., 838 F.3d 523, 526 (5th Cir. 2016). Likewise,
“[l]egal questions concerning federal jurisdiction are reviewed de novo.”
Elam v. Kan. City S. Ry. Co., 635 F.3d 796, 802 (5th Cir. 2011).
III.
The parties agreed in their opening briefs that the district court had
federal question jurisdiction under 28 U.S.C. § 1331. Notwithstanding their
representation, this court has an independent obligation to assess the basis
for subject matter jurisdiction before wielding the judicial power of the
United States. See, e.g., Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583,
119 S. Ct. 1563, 1570 (1999); Steel Co. v. Citizens for a Better Env’t, 523 U.S.
83, 101-02 118 S. Ct. 1003, 1016 (1998). Doubtful about the existence of
federal question jurisdiction, we asked for and received supplemental briefing
addressing the issue.
In its supplemental brief, LIPA maintained, first, that the federal court
has diversity jurisdiction, and in the alternative, that it has federal question
jurisdiction. To allege diversity jurisdiction, which it had not done before,
LIPA moved to amend its complaint under 28 U.S.C. § 1653 and to add facts
supporting the amount in controversy requirement. For its part, Express
Scripts cited some case law and merely opined that it is a close question
whether federal question jurisdiction exists. As for diversity jurisdiction,
Express Scripts argued that because LIPA’s original complaint lacked
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allegations necessary to support the amount in controversy requirement, this
court should not allow such an amendment at this late stage. We conclude
that the court lacks both federal question and diversity jurisdiction.
A. Federal Question Jurisdiction
Federal courts have subject matter jurisdiction over cases “arising
under” federal law. 28 U.S.C. § 1331. Generally, a case arises under federal
law only where a federal question is presented on the face of a well-pleaded
complaint, that is, a complaint that asserts the plaintiff’s right to recovery
based on federal law. See Franchise Tax Bd. v. Constr. Laborers Vacation Tr.,
463 U.S. 1, 10, 103 S. Ct. 2841, 2846 (1983) (quoting Taylor v. Anderson,
234 U.S. 74, 75-76, 34 S. Ct. 724, 724 (1914)). The well-pleaded complaint
rule precludes a plaintiff from predicating federal jurisdiction on an
anticipated federal defense to his claim. Id. Federal preemption “is
ordinarily a federal defense to the plaintiff’s suit” and, as a result, does not
support federal question jurisdiction. Metro. Life Ins. Co. v. Taylor, 481 U.S.
58, 63, 107 S. Ct. 1542, 1546 (1987).
To apply the well-pleaded complaint rule in a case like this, where the
plaintiff brought suit under the Declaratory Judgment Act, 28 U.S.C. § 2201,
the court must ask whether “if the declaratory judgment defendant brought
a coercive action to enforce its rights [against the declaratory judgment
plaintiff], that suit would necessarily present a federal question.” Franchise
Tax Bd., 463 U.S. at 19, 103 S. Ct. at 2851. Critically, “[a] plaintiff cannot
evade the well-pleaded complaint rule by using the declaratory judgment
remedy to recast what are in essence merely anticipated or potential federal
defenses as affirmative claims for relief under federal law.” New Orleans &
Gulf Coast Ry. v. Barrois, 533 F.3d 321, 329 (5th Cir. 2008) (citing TTEA v.
Ysleta del Sur Pueblo, 181 F.3d 676, 681 (5th Cir. 1999)).
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Here, LIPA seeks a declaration that Express Scripts’ state law and
related contractual obligation to reimburse LIPA’s member pharmacies for
the provider fee is not preempted by federal law. Applying the well-pleaded
complaint rule requires the court to imagine a hypothetical coercive lawsuit
brought by Express Scripts against LIPA’s member pharmacies. But none is
conceivable. The only possible coercive (i.e., non-declaratory) action
between these parties might be a breach of contract claim by LIPA’s member
pharmacies against Express Scripts for failing to reimburse them for the
provider fee. Because Express Scripts has no possible ground for a coercive
lawsuit, no federal question arises for purposes of jurisdiction in LIPA’s
declaratory judgment case.
LIPA makes the alternative—and entirely self-defeating—argument
that this court has federal question jurisdiction under the complete
preemption doctrine. “The complete preemption doctrine is an exception
to the well-pleaded complaint rule.” New Orleans & Gulf Coast Ry., 533 F.3d
at 330 (citing McAteer v. Silverleaf Resorts, Inc., 514 F.3d 411, 416 (5th Cir.
2008)). That doctrine allows for federal jurisdiction if a federal statute “so
completely [preempts] a particular area that any civil complaint raising [the]
select group of claims is necessarily federal in character.” Metro. Life Ins.
Co., 481 U.S. at 63-64, 107 S. Ct. at 1546. To establish federal question
jurisdiction under the complete preemption doctrine, the plaintiff must show
that: “‘(1) the statute contains a civil enforcement provision that creates a
cause of action that both replaces and protects the analogous area of state
law; (2) there is a specific jurisdictional grant to the federal courts for
enforcement of the right;’ and (3) there is a clear congressional intent that
the federal cause of action be exclusive.” Mitchell v. Advanced HSC, L.L.C.,
28 F.4th 580, 585 (5th Cir. 2022) (quoting Gutierrez v. Flores, 543 F.3d 248,
252 (5th Cir. 2008)). LIPA does not even attempt to make the requisite
showing. Nor could it. The Medicare preemption provision plainly fails to
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meet the high standard for subject matter jurisdiction under a complete
preemption theory. Federal question jurisdiction is lacking.
B. Diversity Jurisdiction
This case presents a novel issue concerning the amount in controversy
requirement for diversity jurisdiction in cases brought by organizations on
behalf of their members. Diversity jurisdiction exists where the plaintiffs and
defendants are completely diverse in citizenship and the amount in
controversy exceeds $75,000. 28 U.S.C. § 1332. The only dispute here
concerns the amount in controversy. In a declaratory judgment action, “the
amount in controversy is measured by the value of the object of the
litigation.” Hunt v. Wash. State Apple Adver. Comm’n¸432 U.S. 333, 347,
97 S. Ct. 2434, 2443 (1977) (collecting cases). Here, the object of the
litigation is the state created right of LIPA’s member pharmacies to be
reimbursed by Express Scripts for the provider fee they pay on all Medicare
Part D prescriptions filled for Express Scripts clients.
That LIPA did not originally plead facts to support the amount in
controversy requirement, because it overlooked diversity as a basis for
jurisdiction, is not necessarily fatal because under 28 U.S.C. § 1653,
“[d]efective allegations of jurisdiction may be amended . . . in the trial or
appellate courts.” In general, “[w]here jurisdiction is clear from the record,
this Court has allowed direct amendments to the pleadings” under § 1653
without a remand. Molett v. Penrod Drilling Co., 872 F.2d 1221, 1228 (5th Cir.
1989) (per curiam). Or, when the record is less clear “but there is some reason
to believe that jurisdiction exists, the Court may remand the case to the
district court for amendment of the allegations and for the record to be
supplemented.” Id. (collecting cases).
In its belated attempt to support diversity jurisdiction under Section
1653, LIPA seeks to allege that: (1) over nineteen million Medicare
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prescriptions were filled in Louisiana and (2) Express Scripts has a 25%
national market share. With a little math, these new allegations, combined
with LIPA’s allegation that its member pharmacies historically fill 45% of all
prescriptions in Louisiana, yields a number well surpassing $75,000; a
number that represents the estimated aggregate amount that Express Scripts
shortchanges LIPA’s member pharmacies each year.3
But the derivative nature of LIPA’s lawsuit against Express Scripts
precludes it from relying on that aggregate amount to satisfy the amount in
controversy requirement. LIPA sued Express Scripts in a representational
capacity under the theory articulated in Hunt, 432 U.S. at 333, 97 S Ct. at
2434. That theory sometimes permits an organization to sue over injuries
suffered by its members, even though the organization itself alleges no
personal injury. See id. at 343-44; see also Summers v. Earth Island Inst.,
555 U.S. 488, 494, 129 S. Ct. 1142, 1149 (2009); United Food & Com. Workers
Union Loc. 751 v. Brown Grp., Inc., 517 U.S. 544, 552-58, 116 S. Ct. 1529, 1534-
37 (1996). One requirement for this type of proxy suit is that the
organization’s “members would otherwise have standing to sue in their own
right.” Hunt, 432 U.S. at 343, 97 S. Ct. at 2441. In other words, to support
its standing to sue, the organization must rely on a specified concrete injury
to an identifiable member. Summers, 555 U.S. at 496-99, 129 S. Ct. at 1151-
52.
It is true that in Hunt, the Supreme Court reserved the question
whether an amount in controversy in a representational suit must be satisfied
by at least one member of the plaintiff organization. Hunt, 432 U.S. at 346,
97 S. Ct. at 2443. But the Court expressed confidence that at least one of the
individual growers there in fact met the threshold. Id. As in Hunt, LIPA
3
We GRANT LIPA’s motion to amend under 28 U.S.C. § 1653.
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stands in its member pharmacies’ shoes for purposes of establishing subject
matter jurisdiction. Under well-settled principles of diversity jurisdiction, if
one or more member pharmacies brought this lawsuit, at least one would have
to satisfy the $75,000 amount in controversy requirement. See Exxon Mobil
Corp. v. Allapattah Servs., 545 U.S. 546, 558-559, 125 S. Ct. 2611, 2620-21
(2005). Critically, such a group could not aggregate their separate and
distinct claims against Express Scripts to satisfy the amount in controversy
requirement. Snyder v. Harris, 394 U.S. 332, 338, 89 S. Ct. 1053, 1057 (1969).
Thus, at least one pharmacy would have to allege that Express Scripts
shortchanged it on the provider fee for over 750,000 Medicare Part D
prescriptions.
We see no reason why this settled law should not govern in a proxy
lawsuit like this.4 Accordingly, we conclude that LIPA must make the same
showing to satisfy the amount in controversy requirement. See
13A Charles Alan Wright, Arthur R. Miller & Edward H.
Cooper, Federal Practice and Procedure § 3531.9.5, at 932
(3d. ed. 2008) (“In the unlikely event that an amount-in-controversy
requirement would apply to suit by injured members, it does not seem likely
that the organization could aggregate the injuries to several members to
satisfy the requirement.”). To hold otherwise would be to allow
organizational litigants to circumvent the prescribed boundaries on diversity
jurisdiction. Because LIPA has not adequately pleaded facts to support the
4
For that matter, and lending strength to this deduction, other barriers to suit also
carry over from members to organizations. See, e.g., Shalala v. Ill. Council on Long Term
Care, Inc., 529 U.S. 1, 25, 120 S. Ct. 1084, 1099 (2000) (statute channeling individual
members’ claims administratively applies in a suit by the organization on behalf of
members); ACLU v. Bozardt, 539 F.2d 340, 343 (4th Cir. 1976) (abstention required in suit
by organization if suits by individual members would face judicial abstention); see also Allee
v. Medrano, 416 U.S. 802, 830-31, 94 S. Ct. 2191, 2208 1974) (Burger, C.J., concurring in
part, dissenting in part).
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amount in controversy requirement in either its original or amended
complaint, federal courts lack diversity jurisdiction over this dispute.
III.
For the forgoing reasons, LIPA’s motion to amend is GRANTED.
We VACATE the judgment and REMAND with instructions to dismiss.
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