Glanton Ex Rel. ALCOA Prescription Drug Plan v. AdvancePCS Inc.

Citations: 465 F.3d 1123; 2006 WL 2949169Docket: 04-15328

Court: Court of Appeals for the Ninth Circuit; October 16, 2006; Federal Appellate Court

Original Court Document: View Document

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Participants in prescription drug plans, represented by Tommie Glanton and Tara Mackner, are appealing a district court's ruling that dismissed their ERISA lawsuit against AdvancePCS, a pharmacy benefits management company. The plaintiffs allege that AdvancePCS violated ERISA by secretly retaining the difference between what it charges the plans for drugs and what it pays suppliers, thereby breaching its fiduciary duties. The court found that the plaintiffs lacked standing to sue under ERISA. However, the Ninth Circuit, led by Judge Kozinski, determined that ERISA permits plan participants to sue plan fiduciaries for losses incurred due to breaches of duty, irrespective of whether the fiduciary is named or unnamed in the plan. AdvancePCS, by exercising discretion over plan assets in managing drug prescriptions, qualifies as a fiduciary under ERISA. Therefore, the plaintiffs are authorized to pursue their claims against AdvancePCS for breach of fiduciary duty.

Plaintiffs must demonstrate Article III standing to proceed with their lawsuit, relying on the standing criteria established in Lujan v. Defenders of Wildlife. They argue that they meet these requirements and assert standing as congressionally authorized representatives of injured plans. To establish standing, they must show that their injury can be redressed through a favorable court outcome. The plaintiffs allege that AdvancePCS overcharged the plans for drugs, resulting in higher co-payments and contributions from participants. However, they do not have a guaranteed mechanism to compel ALCOA or K-Mart to lower these costs even if their lawsuit succeeds, indicating a lack of redressability and thus standing. 

The plaintiffs' argument for standing as representatives of the plan draws on Vermont Agency of Natural Resources v. United States ex rel. Stevens, which recognized standing for qui tam actions under the False Claims Act (FCA). However, the court finds this analogy inappropriate, noting that qui tam relators have a concrete financial stake in the outcome, unlike ERISA beneficiaries who do not receive any part of the recovery. Furthermore, traditional trust law, which underpins ERISA, does not permit beneficiaries to sue on behalf of the trust unless their own rights are violated. Thus, the court concludes that the plaintiffs lack standing to bring the lawsuit.

Plaintiffs reference the Vermont Agency decision to support their claim of standing, arguing that representative damages litigation is commonplace across various legal contexts, including class actions, bankruptcy trustee suits, and parens patriae actions. However, these examples are distinguished from the current case, as they involve plaintiffs with direct stakes in the outcomes. The argument that plaintiffs, as statutorily designated agents, possess standing akin to qui tam relators is weakened by the omission of critical context; a qui tam relator benefits directly from the lawsuit’s outcome through a share of any recovery. The Supreme Court’s rationale regarding qui tam relators emphasizes their concrete interest in the litigation, which is absent for the plaintiffs here, as they have no claim to any portion of the recovery. Additionally, a representative plaintiff in class actions must share in recoveries, while trustees and executors act on behalf of estates that hold the claims. Government entities also possess a tangible interest in enforcing laws pertinent to their jurisdictions. Associational standing cases, where entities sue on behalf of members without direct injury, rely on the notion that members authorize the entity to act for them, a principle not applicable in this instance.

An association's litigators possess a stake in the outcome of a dispute when organized for a purpose related to its members' claims. Previous cases, specifically Amalgamated Clothing & Textile Workers Union and Waller v. Blue Cross of California, addressed whether ERISA beneficiaries could seek remedies such as constructive trusts for fiduciaries' ill-gotten gains; these were deemed inapplicable here. The central question was not about standing but whether ERISA permitted remedies benefiting plan participants instead of the plan itself, which was affirmed due to plan dissolution. In this context, the plaintiffs lack a concrete stake in the lawsuit since they are not seeking remedies that would benefit them or AdvancePCS. While health plans can sue on behalf of injured subscribers without suffering injury themselves, the reverse is not permissible, as it would undermine the concrete injury requirement for constitutional standing. The reference to Massachusetts Mutual Life Insurance v. Russell supports that ERISA beneficiaries can sue in a representative capacity only if they meet Article III standing requirements. While some ERISA plans may confer a stake to participants, the current plaintiffs do not meet this criterion. The decision was affirmed.