Vista Healthplan, Inc. v. Warner Holdings Co. III, Ltd.

Citations: 246 F.R.D. 349; 2007 U.S. Dist. LEXIS 84568; 2007 WL 3409414Docket: Civil Action No. 05-2327(CKK)

Court: District Court, District of Columbia; November 14, 2007; Federal District Court

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Plaintiffs Vista Healthplan, Inc. and United Food and Commercial Workers Central Pennsylvania and Regional Health and Welfare Fund initiated a putative class action against Warner Chilcott and Barr Pharmaceuticals for alleged antitrust violations related to Ovcon 35. The Plaintiffs claim that the Defendants conspired to prevent a generic version of Ovcon 35 from entering the market by agreeing to a $20 million payment to Barr in exchange for a five-year delay in marketing the generic product. This alleged conduct resulted in Class Members paying inflated prices for Ovcon 35, violating Section 1 of the Sherman Act and various state laws. 

The Court previously granted conditional class certification and preliminary settlement approval on June 27, 2007. After a fairness hearing on November 6, 2007, where the Court reviewed Plaintiffs’ motions and arguments, the Court granted the Motion for Final Approval of Settlement, including requests for attorneys' fees, costs, and incentive awards. Extensive discovery had been conducted, including the review of over 800,000 documents, depositions of 27 Defendant employees, and consultations with experts regarding causation and damages.

Following a year of discovery, the parties engaged in meaningful negotiations to resolve their dispute, leading to the referral of the action to Magistrate Judge Alan Kay on November 27, 2006. After multiple discussions, a settlement was reached, and the Settlement Agreement was executed on May 15, 2007. On June 27, 2007, the Court conditionally approved the certification of the Class and preliminarily approved the settlement, defining the Class as all Third Party Payors in the U.S. who purchased Ovcon 35 from April 22, 2004, to the date of the Order, excluding Defendants and government entities. Third Party Payors are defined as non-governmental entities providing prescription drug coverage and at risk for costs associated with such coverage.

Under the Settlement Agreement, Warner Chilcott and Barr agreed to donate a total of $3,000,000 worth of contraceptive products to eligible healthcare providers and organizations. They are responsible for all associated costs and must certify compliance with donation requirements on the one, two, and three-year anniversaries of the Agreement's Effective Date. Additionally, each company agreed to contribute $550,000 into a Fees Fund for attorneys' fees and costs, and $50,000 into a Costs Fund for settlement administration expenses. The Court approved the proposed notice plan to the Class, determining that mailing notices and publication in a professional journal complied with Rule 23 of the Federal Rules of Civil Procedure and due process requirements.

The Order and the Affidavit of Charlene Young detail how notice of the class action, proposed settlement, and fairness hearing was provided to Class Members. The Settlement Administrator, Complete Claim Solutions, mailed notices to 41,561 potential Class Members on July 13, 2007, utilizing a database for notifying Third Party Payor class members in pharmaceutical antitrust settlements. Additionally, notice was published in the July 23, 2007 issue of National Underwriter: Life, Health/Financial Services Edition, informing Class Members of the settlement terms and their rights, including the ability to opt-out or object, with a deadline of August 27, 2007. The Settlement Administrator received fifty opt-out requests, documented in Exhibit A, and Class Counsel received one objection, which is discussed in detail later.

On October 23, 2007, Plaintiffs filed a Motion for Final Approval of Settlement and Request for Attorneys’ Fees, with a fairness hearing held on November 6, 2007, where all parties' counsel were present, but no objectors appeared despite prior notification.

Class certification for settlement purposes requires compliance with Federal Rule of Civil Procedure 23, where Plaintiffs must establish that the class meets the four prerequisites of numerosity, commonality, typicality, and adequacy of representation under Rule 23(a). Additionally, for Rule 23(b)(3) certification, Plaintiffs must show predominance of common questions over individual issues and that a class action is superior for adjudicating the controversy. The District Court has discretion in approving a proposed settlement, which requires a finding that it is fair, reasonable, and adequate, balancing thorough investigation with the need to avoid mere rubber-stamping of approvals.

A long-standing judicial preference encourages class action settlements, and the Court's discretion is guided by this principle. The Court determines that the Class satisfies the certification requirements under Rule 23(a) and (b)(3), followed by an assessment of settlement approval under Rule 23(e), and a review of the Plaintiffs' requests for attorneys’ fees, costs, and incentive awards.

1. **Numerosity (Rule 23(a)(1))**: The class must be numerous enough that joining all members is impracticable. Generally, a class with at least forty members is deemed sufficient in this District. The Plaintiffs estimate that Warner Chilcott's sales of Ovcon 35 were around $70 million annually, indicating the Class comprises thousands of members across the U.S. The Court finds joinder impracticable, satisfying the numerosity requirement.

2. **Commonality (Rule 23(a)(2))**: There must be common questions of law or fact among class members. The presence of at least one common issue suffices. Plaintiffs identify several relevant issues, including whether Defendants engaged in unlawful agreements affecting the pricing of Ovcon 35 and whether such conduct incurred damages to the Class. The Court concludes the commonality requirement is met.

3. **Typicality (Rule 23(a)(3))**: The claims of the representative parties must be typical of those in the class. Claims do not need to be identical, just sufficiently similar in nature and arising from the same events. Plaintiffs allege injuries linked to Defendants' conduct, aligning their claims with those of absent Class members under a shared legal theory related to Section 1 of the Sherman Act. Thus, typicality is satisfied.

4. **Adequacy (Rule 23(a)(4))**: The representative parties must adequately protect the interests of the class. This involves ensuring no conflicts of interest exist between representatives and class members and confirming representatives can effectively pursue the Class's interests with qualified legal counsel.

The Court found no evidence suggesting that the Plaintiffs’ interests conflict with those of absentee Class members. The core issues in the Plaintiffs' conspiracy claims, namely the existence, duration, and effects of the Defendants' agreement, are common to all Class members, establishing a shared interest in proving these elements and demonstrating liability and damages. Lead Counsel has substantial experience in national class actions and has received positive evaluations from various courts, confirming their adequacy. Consequently, the Court appoints Class Counsel under Rule 23(g) and affirms that the adequacy requirement of Rule 23(a)(4) is met.

Regarding Rule 23(b) requirements, the Court assesses whether common questions prevail over non-common questions and whether class resolution is superior to alternative methods. For predominance under Rule 23(b)(3), the Plaintiffs must show that the identified common issues dominate any non-common issues. Predominance is satisfied when generalized evidence can prove or disprove an element across the class, eliminating the need for individual examinations. The Plaintiffs’ claims, which include federal antitrust laws and various state laws, typically meet this requirement, especially in price-fixing cases. The essential elements of a private antitrust action are consistent under both federal and state laws, and while there may be minor state law variations regarding unjust enrichment claims, these do not prevent class certification. The Court concludes that common legal and factual issues predominate over non-common issues, satisfying the predominance test.

In addressing the superiority requirement, the Court determines that class action is the most effective means of resolution, offering efficiencies in time, effort, and cost, while ensuring uniform decisions for similarly situated individuals without compromising procedural fairness or resulting in negative outcomes.

The class action is deemed the superior method of adjudication based on factors such as the Class's size, uniformity of issues concerning Defendants' liability, and the disproportionate costs of litigation compared to individual damages. The Court finds the superiority requirement of Rule 23(b)(3) satisfied. Following this, the Court assesses the proposed settlement's fairness, adequacy, and reasonableness under Rule 23(e), which requires ensuring no collusion between the parties. Key considerations in this assessment include:

1. **Arm’s-Length Negotiations**: There is a presumption of fairness if the settlement arises from negotiations between experienced counsel after comprehensive discovery. The current settlement resulted from extensive discussions and oversight by Magistrate Judge Kay, with no evidence suggesting otherwise.

2. **Settlement Terms vs. Plaintiffs’ Case Strength**: Although Plaintiffs believe they could prevail at trial, they acknowledge significant challenges in establishing liability and recovering damages. They recognize the complexities of antitrust conspiracy cases, the unresolved motion to dismiss which questioned their standing and claim validity, and the potential for unfavorable outcomes regarding motions for summary judgment or class certification. Defendants presented defenses that could hinder Plaintiffs' chances of a favorable verdict.

Overall, the Court will evaluate these factors as laid out in the Plaintiffs’ Memorandum for Final Approval.

Defendants claimed their agreement was motivated by legitimate business reasons due to supply issues faced by Warner Chilcott. They challenged the Plaintiffs' market definition, asserting it included over 80 other oral contraceptives, not just Ovcon 35 and its generics. Defendants supported their defenses with documentary evidence and expert testimony, arguing that Ovcon 35's extensive sampling—40% of its distribution from April 2004 to September 2006 came from free samples—demonstrated the agreement was not anti-competitive. Plaintiffs acknowledged that if Defendants proved their claims, it could imply Third Party Payors would incur costs for new prescriptions previously covered by free samples.

Additionally, Third Party Payors faced a unique defense regarding co-payment differentials, where they often paid more for generic drugs than for branded ones due to lower consumer co-payments for generics. For instance, with a branded Ovcon 35 costing $44 and a $25 co-payment, the Payor covered $19. If a generic was priced at a 10% discount ($39) with a $10 co-payment, the Payor would cover $29, resulting in higher reimbursement costs for the generic. Even with a second generic at a 20% discount ($35) and the same co-payment, the reimbursement would still exceed that of the branded drug.

Plaintiffs conceded this defense could lead to a jury determining minimal or no damages for Third Party Payors. They further noted a related consumer class action acknowledged similar damages issues. During a fairness hearing, Lead Counsel expressed concerns about the likelihood of proving damages, suggesting the case had less merit than initially believed. The Court observed that even a successful trial outcome for Plaintiffs would likely be followed by appeals, prolonging resolution. In contrast, the negotiated settlement would allow for quicker recovery, highlighting the significant risks Plaintiffs faced regarding liability and damages, which were critical in evaluating the settlement's fairness and adequacy.

The Court evaluated the fairness, adequacy, and reasonableness of a proposed class action settlement, determining that sufficient discovery had taken place, which included the review of over 800,000 documents, the deposition of 27 employees, and expert testimony on key issues. This extensive groundwork allowed both parties to form informed opinions on the merits of their cases and potential recovery. The settlement was reached after 18 months of litigation and over five months of negotiations, indicating a timely resolution without unnecessary delays or expenses.

The reaction from the Class was overwhelmingly positive, with only 50 out of 41,561 notified Third Party Payors opting out and just one objection filed. The sole objector claimed the settlement should not proceed without reimbursement for damages, failing to consider the Defendants' argument that the Class suffered little to no damages. The objector also did not pursue an individual lawsuit, suggesting a lack of strong personal claims. The Court noted that similar settlements, which offer product distribution rather than individual monetary recovery, have been approved in other cases due to the challenges of identifying claimants and administering individual claims.

The settlement aims to provide indirect benefits to Class Members, as some consumers receiving free products will be insured by them, potentially reducing reimbursement costs. Additionally, the timing of the settlement is beneficial for young women facing affordability issues with birth control, especially given the drug companies' withdrawal of discounts for university health services.

The Court overruled the sole objection in the case, determining it lacked merit. It emphasized the importance of the opinion of experienced counsel in assessing the reasonableness of a proposed settlement, as noted by Judge Thomas F. Hogan. Class Counsel expressed that the settlement is fair, adequate, and reasonable, a view the Court supports given the challenges faced by Plaintiffs in proving liability and damages. The settlement is deemed the result of arm’s-length negotiations after sufficient discovery, meeting the requirements of Rule 23(e)(1)(C).

Regarding attorneys’ fees, expenses, and incentive awards, the Court noted that neither Defendants nor Class members opposed the requests. Class Counsel sought a fee award of $1,100,000, which was negotiated separately from the $3 million product donation for the Class, ensuring it did not reduce the settlement recovery for Class members. The Court has a duty to assess the reasonableness of fee requests, referencing established case law. Class Counsel contended that their fee request is reasonable under both the percentage-of-recovery and lodestar methods. The Court recognized the collective valuation of settlement funds as a "constructive common fund" of $4.2 million, clarifying that attorneys' fees in this instance are paid by the Defendants and do not diminish the Class’s recovery. The D.C. Circuit supports using a percentage-of-the-fund method for attorney fee determinations in common fund cases.

In the Lorazepam case, Judge Hogan identified key factors for evaluating attorneys' fee requests: the size of the fund and beneficiaries, objections from class members, attorney skill and efficiency, litigation complexity and duration, risk of nonpayment, time spent by counsel, and fee awards in similar cases. The settlement created a constructive common fund of $4.2 million, benefiting thousands of Third Party Payors. The litigation was complex and lasted approximately 18 months, with Class Counsel demonstrating significant experience in antitrust class actions. There were no objections to the settlement or attorneys' fees, which is noteworthy given the sophistication of the healthcare companies in the class. Class Counsel dedicated over 4,500 hours to the case, facing substantial defenses from the defendants and a real risk of nonpayment. The Court noted that fee awards in common fund cases typically range from 15% to 45%, with antitrust suits averaging 20% to 30%. Class Counsel's request of $1,100,000 corresponds to approximately 26% of the fund and is considered reasonable compared to similar cases. They reported a total lodestar of $1,550,110 for 4,575.4 hours and incurred expenses of $225,350.43. Their fee request is less than the lodestar without a multiplier, supporting its reasonableness. They seek reimbursement for these expenses as part of their total fee request.

An attorney who establishes a common fund for a class is entitled to reimbursement for reasonable litigation expenses incurred in benefiting the class. Class Counsel submitted detailed Affidavits of expenses incurred throughout the litigation, which the Court reviewed and deemed reasonable, approving a total of $1,100,000 from the Fees Fund for these expenses. Additionally, Class Counsel requested $12,500 incentive awards for each named Plaintiff (Vista and United Food), which the Court also approved, noting that Class Members were informed of these awards and raised no objections. Courts typically grant such awards to compensate plaintiffs for their contributions and risks taken during the class action process, with Class Counsel estimating that each named Plaintiff dedicated over 50 hours to assist in various tasks related to the case. The Court concluded that the incentive payments are justified considering the plaintiffs' investments of time and effort. Consequently, the Court granted the Plaintiffs’ Motion for Final Approval of Settlement and their requests for Attorneys’ Fees, Costs, and Incentive Awards, with a proposed Order and Final Judgment accompanying the Memorandum Opinion. The Court acknowledged it had not received an objection letter regarding these awards and emphasized that the incentive payments do not create a conflict of interest between the named Plaintiffs and the absentee class members, as the award decision is within the Court's discretion.