Court: District Court, D. New Mexico; June 12, 2018; Federal District Court
Judith C. Herrera, U.S. District Judge, ruled on several motions related to a lawsuit filed by the State of New Mexico against manufacturers and distributors of prescription opioids. The Court granted Plaintiff's Motion to Remand, concluding that the case should be returned to state court, and denied the Distributor Defendants' Joint Motion to Stay and other related motions as moot.
The lawsuit, initiated by New Mexico Attorney General Hector Balderas, alleges that the defendants, including McKesson Corporation, improperly marketed and distributed prescription opioids, violating both state and federal laws. The Plaintiff's First Amended Complaint details eight counts against the defendants, including public nuisance, violation of unfair practices and fraud acts, and negligence, claiming that their actions contributed to an opioid epidemic that imposed significant financial burdens on the state.
The Plaintiff seeks various forms of relief, including injunctions, statutory damages, and compensation for expenses related to opioid addiction treatment, law enforcement, and social services. The defendants attempted to remove the case to federal court, citing federal jurisdiction based on obligations under the federal Controlled Substances Act. However, the Plaintiff argued that the complaint does not assert any federal claims and explicitly disavows federal causes of action, establishing that federal jurisdiction is not applicable.
Plaintiff asserts that while the Complaint references federal laws and regulations relevant to New Mexico laws, it does not invoke federal law to establish a cause of action or raise a substantial federal question. The Complaint employs federal statutes to define the duties under New Mexico tort law, emphasizing that compliance with federal law is necessary for adherence to state law. It cites specific New Mexico regulations, such as the New Mexico Controlled Substances Act (NMCSA) and Administrative Code, which incorporate federal standards for wholesale drug distributors. These regulations mandate that distributors comply with both federal and state laws, including registration with the New Mexico Board of Pharmacy and the federal Drug Enforcement Agency (DEA), and report any diversion of prescription drugs to the relevant authorities.
The Complaint also highlights New Mexico regulations requiring distributors to report theft or diversion of prescription opioids and to implement controls against such activities. Additionally, it references DEA letters from 2006 and 2007 that remind distributors of their responsibilities to monitor and report suspicious orders of controlled substances. These letters emphasize the importance of vigilance in the distribution chain to prevent illicit drug diversion. In contrast, McKesson contends that the obligations to monitor and report suspicious orders are solely derived from federal law, specifically the Federal Controlled Substances Act (FCSA) and its regulations, arguing that no comparable New Mexico law exists.
McKesson contends that its obligation to refrain from shipping suspicious orders is derived not from the Federal Controlled Substances Act (FCSA) itself but from interpretations of the FCSA provided by the DEA in 2006 and 2007. Although the Plaintiff's claims are framed as state law violations (negligence, fraud, public nuisance, unfair practices, and racketeering), McKesson asserts that these claims rely on federal law regarding shipment and reporting obligations. The central federal question pertains to whether the Distributor Defendants breached the DEA's suspicious order-reporting requirement and associated shipping mandates outlined in the 2006 and 2007 DEA letters. McKesson argues that this establishes federal subject matter jurisdiction since the Plaintiff's claims are fundamentally federal in nature.
The case is part of a multidistrict litigation (MDL) established by the Judicial Panel on Multidistrict Litigation (JPML) addressing related issues, with proceedings centralized in the Northern District of Ohio. Following McKesson's notice of removal, Cardinal Health Entities also sought a transfer to the MDL. The Plaintiff opposed this transfer, arguing that it could lead to unnecessary delays and resource waste due to potential jurisdictional issues. McKesson requested a stay of proceedings pending the JPML's decision, asserting that the Plaintiff would not be prejudiced by this delay.
Legal standards emphasize that federal courts have limited jurisdiction, and the burden of proving federal jurisdiction rests with the party seeking removal, with any doubts resolved against it. McKesson cited two statutory provisions—28 U.S.C. § 1331 and § 1441—as the basis for federal jurisdiction, noting that cases improperly removed must be remanded to state court.
Section 1331 allows for federal jurisdiction primarily in cases where plaintiffs plead causes of action based on federal law. However, state law claims can also be considered to "arise under" federal law if they meet the four-pronged Grable test: (1) a federal issue is necessarily raised, (2) it is actually disputed, (3) it is substantial, and (4) it can be resolved in federal court without disturbing the federal-state balance. Subsequent Supreme Court rulings have indicated that the scope of jurisdiction recognized in Grable is limited, emphasizing that a federal element alone is insufficient to establish jurisdiction. Specifically, mere allegations of a federal issue do not automatically grant access to federal courts. For instance, in Merrell Dow Pharmaceuticals Inc. v. Thompson, the Supreme Court found that a state law negligence claim did not necessitate a federal issue despite references to the Federal Food, Drug, and Cosmetic Act (FDCA), as the resolution of the claim could occur without addressing federal law. Similarly, in Gunn v. Minton, the Court examined whether a legal malpractice claim, linked to a federal patent law issue, warranted federal jurisdiction. The outcome indicated that simply intertwining state and federal law does not inherently create federal jurisdiction under 1331.
A unanimous Supreme Court determined that the plaintiff's malpractice claim, which required a state court to analyze federal patent law, was not significant enough to warrant federal jurisdiction because the state court's findings would not bind federal courts. This was distinct from previous cases like Merrell Dow and Gunn, as the Grable case involved a state law claim with a substantial federal interest related to the federal tax code. The plaintiff in Grable contended it had superior title to property seized by the IRS due to inadequate notice—an essential element of its quiet title claim tied to federal notice statutes. The Court held that this federal element was significant to the federal system as it involved the interpretation of tax provisions and the government's interest in tax claims.
In the current discussion regarding McKesson's claim that the plaintiff's allegations arise under federal law due to the Federal Controlled Substances Act (FCSA), it was established that the plaintiff's complaint does not assert a federal cause of action under the FCSA, which lacks a private right of action. Consequently, federal jurisdiction can only exist if the state law claims raise substantial federal issues, as established in Grable.
To establish removal jurisdiction, the defendants must meet a four-prong test from Grable. The second prong is presumed satisfied without dispute from either party. However, the parties contest the other three prongs. The first factor requires that a federal issue be 'necessarily raised' in the complaint, meaning it must be an essential element of the plaintiff's claim. McKesson argues that the claims inherently depend on whether the Distributor Defendants violated DEA's reporting and shipping requirements.
McKesson argues that its duty to suspend shipments arises from DEA letters from 2006 and 2007, rather than the Federal Controlled Substances Act (FCSA). The Plaintiff cites these letters to assert that the DEA warned distributors against filling suspicious orders. In a related case, McKesson attempted to remove a lawsuit by the State of West Virginia to federal court based on these letters, but the court questioned their binding effect and noted that the state's claims were based on various state law duties, not solely on the letters. The Plaintiff similarly relies on the DEA letters to support claims against Distributor Defendants while also asserting state law duties, such as reporting thefts and ensuring effective controls against drug diversion as outlined in New Mexico regulations. McKesson contends that these regulations do not require halting suspicious orders, but the Plaintiff's claims also involve duties to monitor and refuse suspicious orders. Recent federal rulings have supported the idea that similar state law requirements impose obligations on distributors to not fill suspicious orders. Ultimately, McKesson has not demonstrated that the Plaintiff's claims are exclusively based on federal law, as the Complaint identifies additional state law duties.
Removal jurisdiction is not present in this case as the Plaintiff's Complaint contains specific state-law causes of action that are rooted in state law duties. Citing Morrisey, the document emphasizes that federal jurisdiction is disfavored in cases involving significant state law questions alongside federal law. The Plaintiff may demonstrate that Defendants violated state law obligations related to the control and reporting of prescription drug orders, indicating that the federal statute is not necessarily involved. While the FCSA may be referenced in evaluating the claims, the analysis will also require consideration of New Mexico’s common law, statutes, and regulations regarding Defendants' responsibilities to prevent the diversion of prescription drugs.
Even if some claims are partially based on federal law, this does not automatically establish federal jurisdiction unless federal law is essential to each claim. New Mexico state law offers alternative grounds for liability against McKesson and its co-defendants, as the Complaint alleges multiple duties under state law. The references to the FCSA and related federal guidelines serve merely as criteria, and the Defendants' potential liability does not exclusively depend on federal law.
Additionally, the federal issues raised are not substantial enough to meet the third Grable factor, as they do not hold significant importance to the federal system as a whole. Unlike the Grable case, which involved federal interests in tax claims, the Plaintiff's claims of negligence, fraud, public nuisance, unfair practices, and racketeering do not engage substantial federal interests or the actions of federal entities. The claims are largely fact-specific and do not present pure legal questions suitable for federal resolution. The lack of a private right of action under the FCSA further supports the conclusion against federal jurisdiction, as allowing such jurisdiction would upset the intended state-federal court balance.
The final element of the Grable test is not met, as federal adjudication of the Plaintiff's state law claims would disrupt the federal-state balance approved by Congress. McKesson's recent attempt to remove a similar opioid-related lawsuit from Delaware was unsuccessful due to the same reasoning. The Delaware federal court emphasized that allowing state claims based on federal standards without a federal cause of action could lead to an influx of state law claims in federal courts, undermining congressional intent regarding federal question jurisdiction under 28 U.S.C. § 1331. This potential for a "horde of original filings and removal cases" reinforces the decision to remand the case to state court. Consequently, the Plaintiff's Motion to Remand is granted, and the case is remanded to the First Judicial District Court of Santa Fe County. Additionally, the Distributor Defendants' Joint Motion to Stay and the Plaintiff's Motion to Expedite Briefing are both denied as moot. The term "suspicious orders" in the Plaintiff's Complaint refers to unusually sized or frequent prescription opioid orders that deviate from normal patterns. The court's authority to rule on the remand motion is unaffected by the possibility of the case being conditionally transferred to multidistrict litigation, as per J.P.M.L. Rule of Procedure 2.1(d).
