IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ...
Case 2:05-cv-01602-JLL-CCC
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
IN RE: HYPODERMIC PRODUCTS ANTITRUST LITIGATION
Case No. 05-CV-1602 (JLL)(CCC) MDL No. 1730 Judge Jose L. Linares Magistrate Judge Claire C. Cecchi
THIS DOCUMENT RELATES TO: JABO‟S PHARMACY, INC., and DRUG MART TALLMAN, INC.,
Case No. 05-CV-5892 Case No. 06-CV-0174
Plaintiffs, v. BECTON DICKINSON & CO., Defendant. MEDSTAR HEALTH, INC., et al., Case No. 06-CV-03258 Plaintiffs, v. BECTON DICKINSON & COMPANY, Defendant. HEALTHCARE PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION TO ISSUE INJUNCTION UNDER ALL WRITS ACT Nearly two years ago, this Court ordered that it would decide which plaintiffs, whether the Healthcare Plaintiffs, the Distributor Plaintiffs, or some combination of both, have standing as direct purchasers under the Sherman and Clayton Acts. The parties filed competing motions for summary judgment on the issue, which led to discovery (and extensive disputes over that discovery) under Fed. R. Civ. P. 56(f). The process has moved at a snail‟s pace and the Court
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has yet to have full briefing on, much less had the opportunity to decide, the direct purchaser issue. In utter disregard for the Court‟s jurisdiction and the Court‟s Case Management Order No. 10 herein, the Distributor Plaintiffs and Becton have announced, through Becton‟s SEC filings, a settlement of the claims of all direct purchasers for $45 Million. In other words, these two parties, for obvious self-serving reasons, have circumvented the Court‟s authority to decide who is a direct purchaser, and appropriated the decision to themselves.1 For these reasons, immediate action is required by the Court to prevent further harm (1) to the Court‟s jurisdiction to decide the direct purchaser issue and (2) to the integrity of the related 56(f) discovery that remains pending. The Healthcare Plaintiffs ask that the Court, under the All Writs Act, 28 U.S.C. § 1651(a), to (1) enjoin all activities of the Distributor Plaintiffs and Becton related to the recentlyannounced settlement agreement between the Distributor Plaintiffs and Becton, pursuant to which the Distributor Plaintiffs have offered, and Becton has accepted, a “release by all potential class members of the direct purchaser claims” if the settlement is consummated, and (2) enjoin the Distributor Plaintiffs and interim class counsel from impinging, compromising, settling, resolving or otherwise interfering with the direct purchaser claims of the Healthcare Plaintiffs.
1
The Distributor Plaintiffs have in the past engaged in the semantics-game of unilaterally labeling themselves as the “direct purchasers” in papers filed with the Court. Becton itself pointed out in a letter to the Court dated July 16, 2008, asserting that the Distributor Plaintiffs‟ repeated use of the term “direct purchasers” was “confusing and misleading in light of the pending dispute concerning which plaintiffs have standing to sue as direct purchasers.” Apparently finding that the price was right, Becton has announced that their settlement with the Distributor Plaintiffs extinguishes the claims of all “direct purchasers.”
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BACKGROUND A.
The Direct Purchaser Issue is the Subject of Pending Summary Judgment Motions and 56(f) Discovery
In CMO 10, the parties agreed and the Court ordered (Doc. No. 94) that the Court would decide the issue of which plaintiffs have standing to seek damages as direct purchasers under the Sherman and Clayton Acts. After filing competing motions, the parties served discovery under Rule 56(f). On Friday, October 31, 2008, defense counsel received a call from Chambers requesting a report on the status of the Rule 56(f) discovery and a proposed general timeline for this case going forward. Macon Decl. ¶ 3. On November 12, 2008, defense counsel wrote to the Court on behalf of all of the parties to submit the requested report and schedule. That letter provided, inter alia, that: Although the Distributor Plaintiffs had belatedly produced some documents and had not yet produced others, Becton and MedStar intended to continue to meet and confer with Distributor Plaintiffs and report any difficulties in obtaining compliance to the Court at an anticipated January 23, 2009 status conference. Id. at 1-2.2 After meeting and conferring, the parties proposed dates to (a) complete additional Rule 56(f) discovery, (b) to complete Rule 56(f) deposition and (c) to brief the parties‟ motions for summary judgment. Id. at 2-3. See Doc. No. 298. Taking all the proposed dates into account, the letter contemplated the parties being able to complete all Rule 56(f) issues, including the briefing of the pending motions for summary judgment, by the beginning of summer 2009. Since that November 12, 2008 letter was sent, Rule 56(f) discovery regarding the direct purchaser issue has nearly ground to a halt. Macon Decl. ¶ 3. After being stalled and misled by Becton and the Distributors for months about the rescheduling of Rule 56(f) depositions noticed 2
That date was subsequently vacated. The Court has not yet set another status conference date.
3
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by Becton, in March 3, 2009, Healthcare Plaintiffs served notices of deposition pursuant to Fed. R. Civ. P. 30(b)(6) on Becton and the following Distributor Plaintiffs: JM Smith Drug Company Rochester Drug Co-Operative, Inc. Park Surgical Company, Inc. Louisiana Wholesale Drug Company Dik Drug Company See Notices, attached as Ex. A to Macon Decl. Those notices asked both Becton and the Distributor Plaintiffs to designate witnesses who could testify on eleven topics. In response to those Notices, both Becton and the Distributor Plaintiffs refused to appear. Macon Decl. ¶ 4. In fact, despite having filed suit in New Jersey, the Distributors asserted that the chosen deposition location, New York City, was inconvenient. Id.3 B.
Healthcare Plaintiffs Learn of the Becton/Distributor Settlement
In January 2009, Healthcare Plaintiffs learned, for the first time, that Becton had reached an agreement in principle to settle with Distributor Plaintiffs. Macon Decl. ¶ 5. At the time, Becton informed counsel for Healthcare Plaintiffs that the amount of the settlement was $45 million, but refused to disclose the scope of the claims that had been purportedly released. Id. Healthcare Plaintiffs then attempted to learn what had been released by contacting counsel for the Distributors. See Ex. B to Macon Decl. (letters from Kenneth A. Wexler to Bruce Gerstein). Healthcare Plaintiffs received no response to those letters. Macon Decl. ¶ 6. C.
Healthcare Plaintiffs Seek An In-Court Conference
Therefore, on March 27, 2009, Healthcare Plaintiffs wrote to the Court and advised it that Distributor Plaintiffs and Becton had refused to appear for depositions and requested an in-court conference to discuss the status of Rule 56(f) discovery. 3
The Healthcare Plaintiffs also
Since the announcement of their settlement, Distributor Plaintiffs have expressed a willingness to “discuss” deposition scheduling, but have not yet offered any dates or locations.
4
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suggested that the reason neither Becton nor the Distributors were responding to discovery was because of the existence of their secret settlement. See Doc. No. 305. In response, neither party even mentioned the settlement, responding only that they intended to comply with Rule 56(f) discovery. See Doc. Nos. 306 and 307. The Distributors represented that “Direct Purchaser Plaintiffs are making every effort to bring the standing issue to a close as expeditiously as possible, and continue to do that.” Doc. No. 306 at 2. Becton similarly represented that “BD is ready to make its witness available on a date that works for everyone.” Doc. No. 307 at 2. Accordingly, Healthcare Plaintiffs wrote to Distributor Plaintiffs and Becton requesting dates that would be acceptable for the depositions. See Ex. C to Macon Declaration. Despite these claims, Becton has yet to respond to the Healthcare Plaintiffs‟ correspondence and the Distributor Plaintiffs have only just, two days ago, nearly two months after the notices were served, indicated they would be willing to discuss potential dates. Macon Decl. ¶ 7. Since the submission of those letters to the Court, Healthcare Plaintiffs have had no further discussions with Distributor Plaintiffs regarding their settlement with Becton. Macon Decl. ¶ 8. Becton, however, has subsequently indicated to counsel for Healthcare Plaintiffs, although not to the public through its 8-K filing, that its settlement with the Distributors is conditioned upon this Court determining that the Distributor Plaintiffs are the only “direct purchaser plaintiffs.” Id. D.
Becton Discloses the Settlement
On April 28, 2009, Becton disclosed the existence of its settlement with the Distributor Plaintiffs in its quarterly earnings report filed with the SEC. Specifically, Becton‟s Form 8-K and accompanying press release states: On April 27, 2009, BD entered into a settlement agreement with the direct purchaser plaintiffs (which includes BD’s distributors) . . . Under the terms of the settlement agreement, which is subject 5
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to preliminary and final approval by the court following notice to potential class members, the Company will pay $45 million into a settlement fund in exchange for a release by all potential class members of the direct purchaser claims related to the products and acts enumerated in the Complaint, as well as a dismissal of the case with prejudice. The release would not cover potential class members which affirmatively opt out of the settlement. No settlement has been reached to date with the indirect purchase plaintiffs in these cases, which will continue to the extent these cases related to their claims. (Emphasis supplied.) Ex. D to Macon Decl. But Becton did not disclose that this Court has yet to decide which plaintiffs are direct purchasers and that the lawyers from whom they negotiated a “release by all potential class members of the direct purchaser claims” lacked the authority to represent thousands of direct purchasers such as the MedStar Plaintiffs. Neither the 8-K nor any press releases related to the Settlement disclose that (1) there is a pending dispute regarding which plaintiffs have standing to prosecute direct purchaser claims under the Sherman and Clayton Acts or that (2) the settlement agreement is conditioned upon this Court finding that the Distributors are the only direct purchasers. ARGUMENT A.
This Court May Enjoin The Settlement Under The All Writs Act. CMO No. 10 sets forth Court‟s jurisdiction to determine which plaintiffs have standing to
seek direct purchaser damages under the Sherman and Clayton Acts. Although Becton and the Distributor Plaintiffs stipulated to that portion of the CMO, they now seek to evade the Court‟s jurisdiction by entering into a settlement agreement in which they seek to prematurely resolve this Court‟s resolution of parties‟ dispute. In short, even though throughout this process Becton has portrayed itself as neutral and, at times, has aligned itself directly on the side of the Healthcare Plaintiffs,4 it has now apparently agreed to side with the Distributor Plaintiffs, who do 4
For example, Becton previously agreed with the Healthcare Plaintiffs with regard to the taking of Rule 56(f) discovery.
6
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not even have standing to pursue, let alone settle, the direct purchaser claims of any nonDistributor plaintiffs, in exchange for what Healthcare Plaintiffs contend is a grossly inadequate settlement..
This change-of-heart is particularly troubling given that, despite the public
disclosure of the existence of their settlement, the settling parties have not yet moved for preliminary approval, during which they would have been required to disclose to the Court – and the Healthcare Plaintiffs – the precise terms of the condition of the settlement. Permitting a settlement to move forward when that settlement either (1) circumvents the Court‟s decisionmaking authority entirely or (2) is conditioned upon a finding in favor of the Distributors on their pending summary judgment motion undermines the integrity of all the remaining 56(f) discovery and makes a mockery of this Court‟s supervision of that discovery. The All Writs Act, 28 U.S.C. § 1651(a), provides that “[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” With respect to this Act, the Supreme Court has recognized that “a federal court may avail itself of all auxiliary writs as aids in the performance of its duties, when the use of such historic aids is calculated in its sound judgment to achieve the ends of justice entrusted to it.” United States v. New York Tel. Co., 434 U.S. 159, 171 (1977), quoting Adams v. United States ex rel. McCann, 317 U.S. 269 (1942). Although “[t]he All Writs Act confers on courts „extraordinary powers‟ that are „firmly circumscribed,” this Court‟s power to issue an injunction under the All Writs Act is less circumscribed when, as here, the issuance of an injunction is not otherwise prohibited by the Anti-Injunction Act. Grider v. Keystone Health Plan Central, Inc., 500 F.3d 322, 328 and n.2
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(3d Cir. 2007).5 Any order under the All Writs Act “must be „directed at conduct which, left unchecked, would have had the practical effect of diminishing the court‟s power to bring the litigation to its natural conclusion.‟” In re Managed Care Litig., 236 F. Supp. 2d 1336, 1340 (S.D. Fla. 2002) (citation omitted); In re Lease Oil Antitrust Litig., 48 F. Supp. 2d 699, 703 (S.D. Tex. 1998) (citation omitted). That is the case here, where, through their settlement, Becton and the Distributors attempt to avoid having this Court resolve the direct purchaser issue. Thus, although the All Writs Act is usually used in class action contexts to enjoin proceedings in parallel federal or state actions that threaten a federal court‟s jurisdiction over a pending or completed settlement,6 the All Writs Act may likewise be used here, where Becton and Distributor Plaintiffs similarly seek to avoid this Court‟s jurisdiction, jurisdiction which the Court ordered in CMO No. 10. This Court should likewise prohibit the Distributors from negotiating or consummating any settlement that seeks to release the direct purchaser claims of the Healthcare Plaintiffs. Since the Healthcare Plaintiffs first added federal antitrust claims to their complaints in May and July 2006, the Distributors have argued that they and they alone should be awarded the moniker of “direct purchasers.” This Court has refused to award them that title until and unless they prevail in the direct purchaser issue, which they have not done. See generally Doc. No. 292 and CMO 10. Despite this Court‟s clear instructions, and in direct violation of CMO No. 10, the 5
Because Healthcare Plaintiffs are not seeking to enjoin a parallel state proceeding, the AntiInjunction Act does not apply. 6
See, e.g., Grider, 500 F.3d 322 (reversing injunction entered by District Court against settling parties in parallel MDL proceeding); In re Diet Drugs Prods. Liab. Litig., No. 04-5391, 2005 U.S. App. LEXIS 1305 (3d Cir. Jan. 25, 2005) (affirming injunction entered against opt out plaintiffs who sought to avoid provisions of MDL settlement); In re Diet Drugs Prods. Liab. Litig.,, 369 F.3d 293 (3d Cir. 2004) (same); In re Prudential Ins. Co. of Am. Sales Practice Litig., 261 F.3d 355 (3d Cir. 2001) (affirming injunction of two members of class who covered by nationwide settlement who filed separate state court actions.)
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Distributors have apparently tried to settle the claims this Court has prohibited them from claiming, as well as the claims of parties they do not represent. It is thus extremely likely that, were the settling parties to seek preliminary approval of their settlement, it would not be approved under the Supreme Court‟s decision in Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 627 (1997) (“The settling parties, in sum, achieved a global compromise with no structural assurance of fair and adequate representation for the diverse groups and individuals affected. Although the named parties alleged a range of complaints, each served generally as representative for the whole, not for a separate constituency.”). Absent a ruling from this Court pursuant to CMO No. 10, the Distributors cannot resolve the claims of direct purchasers generally or the Healthcare Plaintiffs in particular. B.
The Healthcare Plaintiffs Satisfy the Injunction Standard.
Although Healthcare Plaintiffs need not establish that they meet the standards under Fed. R. Civ. P. 65 for an injunction under the All Writs Act,7 Healthcare Plaintiffs in fact meet these standards.
Four factors govern a District Court‟s decision whether to issue a preliminary
injunction: (1) whether the movant has shown a reasonable probability of success on the merits; (2) whether the movant will be irreparably injured by denial of the relief; (3) whether granting preliminary relief will result in even greater harm to the non-moving party; and (4) whether granting the preliminary relief will be in the public interest. Allegheny Energy, Inc. v. DQE, Inc., 171 F.3d 153, 158 (3d Cir. 1999) (citations omitted); Scholastic Funding Group, LLC v. Kimble, Civil Action No. 07-557 (JLL), 2007 U.S. Dist. LEXIS 30333, at *7 (D.N.J. Apr. 24, 2007)
7
See, e.g., In re Managed Care Litig., 236 F. Supp. 2d at 1344 (“Because the type of injunction requested here does not fall within the scope of the typical Rule 65 injunction, Plaintiffs do not have to meet the Rule 65 requirements.”).
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(Linares, J.). A District Court should “endeavor to „balance these four factors to determine in an injunction should issue.‟” Allegheny Energy, 171 F.3d at 158. 1.
Healthcare Plaintiffs Have Shown A Reasonable Probability of Success on the Merits
The party seeking a preliminary injunction must demonstrate a “reasonable probability of eventual success in the litigation.” Medavante, Inc. v. Proxymed, Inc., Civil Action No. 06-3248 (MLC), 2006 U.S. Dist. LEXIS 74614, at *11 (D.N.J. Oct. 12, 2006) (Cooper, J.) “[I]t is not necessary that the moving party‟s right to a final decision after trial be wholly without doubt; rather, the burden is on the party seeking relief to make a prima facie case showing a reasonable probability that it will prevail on the merits.” Id. at *12. Here, Healthcare Plaintiffs have a reasonable probability of being able to establish that the Court‟s jurisdiction over the pending motion for summary judgment and the concomitant Rule 56(f) discovery is being hindered by the Distributors and Becton because of their ongoing settlement efforts.8 Until they began discussing settlement sometime in the fall of 2008, both Distributor Plaintiffs and Becton were actively addressing issues related to Rule 56(f) discovery. Since that time, however, communication on 56(f) discovery has slowed to a trickle at best. Because their settlement is apparently conditioned on this Court finding that the Distributors are indeed direct purchasers, the only logical assumption, especially in the face of near complete silence and what appeared to be a coordinated effort by Becton and the Distributors to perpetuate misinformation about the rescheduling of noticed depositions, is that Becton and the Distributors have agreed to work together to thwart or influence outstanding 56(f) discovery. 8
Because injunctions entered under Fed. R. Civ. P. 65 are generally tied to the merits of the litigation, a movant must show a likelihood of success on the merits of the litigation. Here, that is not required. It is only necessary that Healthcare Plaintiffs establish the likelihood of success in establishing that Rule 56(f) discovery is being hindered by the Distributors and Becton because of their ongoing settlement efforts. 10
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Healthcare Plaintiffs Will be Irreparably Harmed By Denial of The Relief Requested
Healthcare Plaintiffs will be irreparably harmed if an injunction does not issue. Either Rule 56(f) discovery will fail to proceed at all or, if it does, it will become a farce designed to march the parties toward a preordained result already purchased by Becton from the Distributors at a bargain price. It is therefore in the interest of justice to have the direct purchaser issue decided without the taint of the yet-to-be-disclosed agreement between Becton and the Distributors. Healthcare Plaintiffs will likewise be irreparably harmed if an injunction does not issue prohibiting the Distributors from, in the future, negotiating or attempting to resolve the claims of the Healthcare Plaintiffs, whom they do not represent. It is clear that, absent such an order, Becton will continue to be motivated to seek a cheap settlement from Distributor Plaintiffs, who are willing to sell cheap in order to avoid having this Court decide the direct purchaser issue. Indeed, the $45 million settlement between the Distributors and Becton is objectively inadequate and smacks of a reverse auction, wherein the Distributors were apparently willing to take anything in exchange for the moniker of “direct purchasers” in this case. These kinds of settlements are routinely disapproved. See, e.g., Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 282 (7th Cir. 2002) (“A reverse auction is said to occur when „the defendant in a series of class actions picks the most ineffectual class lawyers to negotiate a settlement with in the hope that the district court will approve a weak settlement that will preclude other claims against the defendant.‟"), quoted in In re Community Bank of N. Va. & Guar. Nat'l Bank of Tallahassee Second Mortg. Loan Litig., 418 F.3d 277, 308 (3d Cir. 2005). Distributor Plaintiffs have committed themselves to a settlement amount ($45 million) before the Court has made any final determination of which parties are included in the universe of “all direct purchaser” claims that
11
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the Distributors have, without authority, agreed to settle. How can an objectively meaningful settlement amount be ascertained when the scope of parties encompassed by the release offered by the Distributor Plaintiffs has not yet been determined? 3.
Granting the Injunction Will Not Result in Greater Harm to Becton or the Distributor Plaintiffs
On the other hand, granting the injunction will not cause Becton or the Distributors greater harm than it will cause the Healthcare Plaintiffs if the injunction is not granted. An injunction undoing the settlement will do nothing more than return the parties to the status quo ante. If the direct purchaser issue is decided in the Distributors‟ favor, their settlement can be consummated (assuming it passes muster under Rule 23). If the direct purchaser issue is decided in the Healthcare Plaintiffs‟ favor, Becton will have to return to the negotiating table or litigate. Becton‟s decision to disclose the existence of the settlement without disclosing the dispute over whether the Distributors even have standing to pursue the claims they purport to release, and before moving this Court before preliminary approval of that settlement, was a risk Becton assumed. It cannot now say that it will be irreparably harmed if the settlement in its current form is not ultimately consummated. Having decided to hide relevant terms of the settlement from the Healthcare Plaintiffs, Becton nor the Distributors can be heard to complain if they are forced to face the consequences of that decision. 4.
It is in the Public Interest to Grant the Injunction
It is likewise in the public interest to enter the injunction. “[A]s a practical matter, if a plaintiff demonstrates both a likelihood of success and irreparable injury, it almost always will be the case that the public interest will favor the plaintiff.” Ace Am. Ins. Co. v. Wachovia Ins. Agency, Inc., Civil Action No. 08-4369 (JLL), 2008 U.S. Dist. LEXIS 71732, at *5 (D.N.J. Sept. 4, 2008) (Linares, J.) (citation omitted). It is in the interest of justice, as the parties agreed and
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this Court ordered, to have this Court decide the direct purchaser issue rather than having it secretly and unilaterally decided by the Distributors and Becton. Those two parties cannot be permitted to usurp this Court‟s jurisdiction to decide the issue without the fulsome and vigorous discovery process to which all parties have been bound. It is likewise within the public interest for this Court to ensure that any settlement brought before this Court is fair and adequate to all parties involved. CONCLUSION WHEREFORE, for the reasons set forth above, the Healthcare Plaintiffs respectfully request that this Court enter an order under the All Writs Act enjoining the recently-announced settlement between Becton and the Distributors and prohibiting the Distributors from negotiating or compromising the claims of the Healthcare Plaintiffs or anyone else until this Court decides which plaintiffs have direct purchaser standing in this litigation, and all other relief that this Court deems just and appropriate.
Dated: May 6, 2009
Respectfully submitted,
By: _/s/ James V. Bashian___ James V. Bashian The Law Offices of James V. Bashian, P.C. 70 Adams Street, Fourth Floor Hoboken, New Jersey, 07030 Tel. (973) 227-6330 Fax (201) 488-3330 [email protected] Liaison Counsel for Healthcare Plaintiffs
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R. Laurence Macon Akin Gump Strauss Hauer & Feld LLP 300 Convent St., Ste 1500 San Antonio, TX 78205 Telephone: (210) 281-7000 Facsimile: (210) 224-2035 [email protected] Richard L. Wyatt Todd M. Stenerson Hunton & Williams LLP 1900 K Street, NW Washington, DC 20006 Telephone: (202) 955-1500 Facsimile: (202) 778-2201 [email protected] [email protected] Kenneth A. Wexler Jennifer Fountain Connolly Wexler Wallace LLP 55 W. Monroe Street, Suite 3300 Chicago, IL 60603 Telephone: (312) 346-2222 Facsimile: (312) 346-0022 [email protected] [email protected] Judith L. Spanier Karin E. Fisch Abbey Spanier Rodd & Abrams, LLP 212 E. 39th St. New York, NY 10016 Telephone: (212) 889-3700 Facsimile: (212) 684-5191 [email protected] [email protected] Interim Co-Lead Counsel for Healthcare Plaintiffs
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CERTIFICATE OF SERVICE I, James V. Bashian, hereby certify that I caused the foregoing Healthcare Plaintiffs’ Memorandum of Law in Support of Their Motion to Issue Injunction Under All Writs Act to be filed through the Court‟s electronic filing system. Those attorneys who are registered with the Court‟s electronic filing system may access these filings through the Court‟s system, and notice of these filings will be sent to these parties by operation of the Court‟s electronic filing system. Those attorneys not registered with the Court‟s electronic filing system will be served via First Class U.S. Mail, with proper postage prepaid, on this 7th day of May 2009.
/s/ James V. Bashian JAMES V. BASHIAN
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
IN RE: HYPODERMIC PRODUCTS ANTITRUST LITIGATION
Case No. 05-CV-1602 (JLL)(CCC) MDL No. 1730 Judge Jose L. Linares Magistrate Judge Claire C. Cecchi
THIS DOCUMENT RELATES TO: JABO‟S PHARMACY, INC., and DRUG MART TALLMAN, INC.,
Case No. 05-CV-5892 Case No. 06-CV-0174
Plaintiffs, v. BECTON DICKINSON & CO., Defendant. MEDSTAR HEALTH, INC., et al., Case No. 06-CV-03258 Plaintiffs, v. BECTON DICKINSON & COMPANY, Defendant. HEALTHCARE PLAINTIFFS’ MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION TO ISSUE INJUNCTION UNDER ALL WRITS ACT Nearly two years ago, this Court ordered that it would decide which plaintiffs, whether the Healthcare Plaintiffs, the Distributor Plaintiffs, or some combination of both, have standing as direct purchasers under the Sherman and Clayton Acts. The parties filed competing motions for summary judgment on the issue, which led to discovery (and extensive disputes over that discovery) under Fed. R. Civ. P. 56(f). The process has moved at a snail‟s pace and the Court
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has yet to have full briefing on, much less had the opportunity to decide, the direct purchaser issue. In utter disregard for the Court‟s jurisdiction and the Court‟s Case Management Order No. 10 herein, the Distributor Plaintiffs and Becton have announced, through Becton‟s SEC filings, a settlement of the claims of all direct purchasers for $45 Million. In other words, these two parties, for obvious self-serving reasons, have circumvented the Court‟s authority to decide who is a direct purchaser, and appropriated the decision to themselves.1 For these reasons, immediate action is required by the Court to prevent further harm (1) to the Court‟s jurisdiction to decide the direct purchaser issue and (2) to the integrity of the related 56(f) discovery that remains pending. The Healthcare Plaintiffs ask that the Court, under the All Writs Act, 28 U.S.C. § 1651(a), to (1) enjoin all activities of the Distributor Plaintiffs and Becton related to the recentlyannounced settlement agreement between the Distributor Plaintiffs and Becton, pursuant to which the Distributor Plaintiffs have offered, and Becton has accepted, a “release by all potential class members of the direct purchaser claims” if the settlement is consummated, and (2) enjoin the Distributor Plaintiffs and interim class counsel from impinging, compromising, settling, resolving or otherwise interfering with the direct purchaser claims of the Healthcare Plaintiffs.
1
The Distributor Plaintiffs have in the past engaged in the semantics-game of unilaterally labeling themselves as the “direct purchasers” in papers filed with the Court. Becton itself pointed out in a letter to the Court dated July 16, 2008, asserting that the Distributor Plaintiffs‟ repeated use of the term “direct purchasers” was “confusing and misleading in light of the pending dispute concerning which plaintiffs have standing to sue as direct purchasers.” Apparently finding that the price was right, Becton has announced that their settlement with the Distributor Plaintiffs extinguishes the claims of all “direct purchasers.”
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BACKGROUND A.
The Direct Purchaser Issue is the Subject of Pending Summary Judgment Motions and 56(f) Discovery
In CMO 10, the parties agreed and the Court ordered (Doc. No. 94) that the Court would decide the issue of which plaintiffs have standing to seek damages as direct purchasers under the Sherman and Clayton Acts. After filing competing motions, the parties served discovery under Rule 56(f). On Friday, October 31, 2008, defense counsel received a call from Chambers requesting a report on the status of the Rule 56(f) discovery and a proposed general timeline for this case going forward. Macon Decl. ¶ 3. On November 12, 2008, defense counsel wrote to the Court on behalf of all of the parties to submit the requested report and schedule. That letter provided, inter alia, that: Although the Distributor Plaintiffs had belatedly produced some documents and had not yet produced others, Becton and MedStar intended to continue to meet and confer with Distributor Plaintiffs and report any difficulties in obtaining compliance to the Court at an anticipated January 23, 2009 status conference. Id. at 1-2.2 After meeting and conferring, the parties proposed dates to (a) complete additional Rule 56(f) discovery, (b) to complete Rule 56(f) deposition and (c) to brief the parties‟ motions for summary judgment. Id. at 2-3. See Doc. No. 298. Taking all the proposed dates into account, the letter contemplated the parties being able to complete all Rule 56(f) issues, including the briefing of the pending motions for summary judgment, by the beginning of summer 2009. Since that November 12, 2008 letter was sent, Rule 56(f) discovery regarding the direct purchaser issue has nearly ground to a halt. Macon Decl. ¶ 3. After being stalled and misled by Becton and the Distributors for months about the rescheduling of Rule 56(f) depositions noticed 2
That date was subsequently vacated. The Court has not yet set another status conference date.
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by Becton, in March 3, 2009, Healthcare Plaintiffs served notices of deposition pursuant to Fed. R. Civ. P. 30(b)(6) on Becton and the following Distributor Plaintiffs: JM Smith Drug Company Rochester Drug Co-Operative, Inc. Park Surgical Company, Inc. Louisiana Wholesale Drug Company Dik Drug Company See Notices, attached as Ex. A to Macon Decl. Those notices asked both Becton and the Distributor Plaintiffs to designate witnesses who could testify on eleven topics. In response to those Notices, both Becton and the Distributor Plaintiffs refused to appear. Macon Decl. ¶ 4. In fact, despite having filed suit in New Jersey, the Distributors asserted that the chosen deposition location, New York City, was inconvenient. Id.3 B.
Healthcare Plaintiffs Learn of the Becton/Distributor Settlement
In January 2009, Healthcare Plaintiffs learned, for the first time, that Becton had reached an agreement in principle to settle with Distributor Plaintiffs. Macon Decl. ¶ 5. At the time, Becton informed counsel for Healthcare Plaintiffs that the amount of the settlement was $45 million, but refused to disclose the scope of the claims that had been purportedly released. Id. Healthcare Plaintiffs then attempted to learn what had been released by contacting counsel for the Distributors. See Ex. B to Macon Decl. (letters from Kenneth A. Wexler to Bruce Gerstein). Healthcare Plaintiffs received no response to those letters. Macon Decl. ¶ 6. C.
Healthcare Plaintiffs Seek An In-Court Conference
Therefore, on March 27, 2009, Healthcare Plaintiffs wrote to the Court and advised it that Distributor Plaintiffs and Becton had refused to appear for depositions and requested an in-court conference to discuss the status of Rule 56(f) discovery. 3
The Healthcare Plaintiffs also
Since the announcement of their settlement, Distributor Plaintiffs have expressed a willingness to “discuss” deposition scheduling, but have not yet offered any dates or locations.
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suggested that the reason neither Becton nor the Distributors were responding to discovery was because of the existence of their secret settlement. See Doc. No. 305. In response, neither party even mentioned the settlement, responding only that they intended to comply with Rule 56(f) discovery. See Doc. Nos. 306 and 307. The Distributors represented that “Direct Purchaser Plaintiffs are making every effort to bring the standing issue to a close as expeditiously as possible, and continue to do that.” Doc. No. 306 at 2. Becton similarly represented that “BD is ready to make its witness available on a date that works for everyone.” Doc. No. 307 at 2. Accordingly, Healthcare Plaintiffs wrote to Distributor Plaintiffs and Becton requesting dates that would be acceptable for the depositions. See Ex. C to Macon Declaration. Despite these claims, Becton has yet to respond to the Healthcare Plaintiffs‟ correspondence and the Distributor Plaintiffs have only just, two days ago, nearly two months after the notices were served, indicated they would be willing to discuss potential dates. Macon Decl. ¶ 7. Since the submission of those letters to the Court, Healthcare Plaintiffs have had no further discussions with Distributor Plaintiffs regarding their settlement with Becton. Macon Decl. ¶ 8. Becton, however, has subsequently indicated to counsel for Healthcare Plaintiffs, although not to the public through its 8-K filing, that its settlement with the Distributors is conditioned upon this Court determining that the Distributor Plaintiffs are the only “direct purchaser plaintiffs.” Id. D.
Becton Discloses the Settlement
On April 28, 2009, Becton disclosed the existence of its settlement with the Distributor Plaintiffs in its quarterly earnings report filed with the SEC. Specifically, Becton‟s Form 8-K and accompanying press release states: On April 27, 2009, BD entered into a settlement agreement with the direct purchaser plaintiffs (which includes BD’s distributors) . . . Under the terms of the settlement agreement, which is subject 5
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to preliminary and final approval by the court following notice to potential class members, the Company will pay $45 million into a settlement fund in exchange for a release by all potential class members of the direct purchaser claims related to the products and acts enumerated in the Complaint, as well as a dismissal of the case with prejudice. The release would not cover potential class members which affirmatively opt out of the settlement. No settlement has been reached to date with the indirect purchase plaintiffs in these cases, which will continue to the extent these cases related to their claims. (Emphasis supplied.) Ex. D to Macon Decl. But Becton did not disclose that this Court has yet to decide which plaintiffs are direct purchasers and that the lawyers from whom they negotiated a “release by all potential class members of the direct purchaser claims” lacked the authority to represent thousands of direct purchasers such as the MedStar Plaintiffs. Neither the 8-K nor any press releases related to the Settlement disclose that (1) there is a pending dispute regarding which plaintiffs have standing to prosecute direct purchaser claims under the Sherman and Clayton Acts or that (2) the settlement agreement is conditioned upon this Court finding that the Distributors are the only direct purchasers. ARGUMENT A.
This Court May Enjoin The Settlement Under The All Writs Act. CMO No. 10 sets forth Court‟s jurisdiction to determine which plaintiffs have standing to
seek direct purchaser damages under the Sherman and Clayton Acts. Although Becton and the Distributor Plaintiffs stipulated to that portion of the CMO, they now seek to evade the Court‟s jurisdiction by entering into a settlement agreement in which they seek to prematurely resolve this Court‟s resolution of parties‟ dispute. In short, even though throughout this process Becton has portrayed itself as neutral and, at times, has aligned itself directly on the side of the Healthcare Plaintiffs,4 it has now apparently agreed to side with the Distributor Plaintiffs, who do 4
For example, Becton previously agreed with the Healthcare Plaintiffs with regard to the taking of Rule 56(f) discovery.
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not even have standing to pursue, let alone settle, the direct purchaser claims of any nonDistributor plaintiffs, in exchange for what Healthcare Plaintiffs contend is a grossly inadequate settlement..
This change-of-heart is particularly troubling given that, despite the public
disclosure of the existence of their settlement, the settling parties have not yet moved for preliminary approval, during which they would have been required to disclose to the Court – and the Healthcare Plaintiffs – the precise terms of the condition of the settlement. Permitting a settlement to move forward when that settlement either (1) circumvents the Court‟s decisionmaking authority entirely or (2) is conditioned upon a finding in favor of the Distributors on their pending summary judgment motion undermines the integrity of all the remaining 56(f) discovery and makes a mockery of this Court‟s supervision of that discovery. The All Writs Act, 28 U.S.C. § 1651(a), provides that “[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” With respect to this Act, the Supreme Court has recognized that “a federal court may avail itself of all auxiliary writs as aids in the performance of its duties, when the use of such historic aids is calculated in its sound judgment to achieve the ends of justice entrusted to it.” United States v. New York Tel. Co., 434 U.S. 159, 171 (1977), quoting Adams v. United States ex rel. McCann, 317 U.S. 269 (1942). Although “[t]he All Writs Act confers on courts „extraordinary powers‟ that are „firmly circumscribed,” this Court‟s power to issue an injunction under the All Writs Act is less circumscribed when, as here, the issuance of an injunction is not otherwise prohibited by the Anti-Injunction Act. Grider v. Keystone Health Plan Central, Inc., 500 F.3d 322, 328 and n.2
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(3d Cir. 2007).5 Any order under the All Writs Act “must be „directed at conduct which, left unchecked, would have had the practical effect of diminishing the court‟s power to bring the litigation to its natural conclusion.‟” In re Managed Care Litig., 236 F. Supp. 2d 1336, 1340 (S.D. Fla. 2002) (citation omitted); In re Lease Oil Antitrust Litig., 48 F. Supp. 2d 699, 703 (S.D. Tex. 1998) (citation omitted). That is the case here, where, through their settlement, Becton and the Distributors attempt to avoid having this Court resolve the direct purchaser issue. Thus, although the All Writs Act is usually used in class action contexts to enjoin proceedings in parallel federal or state actions that threaten a federal court‟s jurisdiction over a pending or completed settlement,6 the All Writs Act may likewise be used here, where Becton and Distributor Plaintiffs similarly seek to avoid this Court‟s jurisdiction, jurisdiction which the Court ordered in CMO No. 10. This Court should likewise prohibit the Distributors from negotiating or consummating any settlement that seeks to release the direct purchaser claims of the Healthcare Plaintiffs. Since the Healthcare Plaintiffs first added federal antitrust claims to their complaints in May and July 2006, the Distributors have argued that they and they alone should be awarded the moniker of “direct purchasers.” This Court has refused to award them that title until and unless they prevail in the direct purchaser issue, which they have not done. See generally Doc. No. 292 and CMO 10. Despite this Court‟s clear instructions, and in direct violation of CMO No. 10, the 5
Because Healthcare Plaintiffs are not seeking to enjoin a parallel state proceeding, the AntiInjunction Act does not apply. 6
See, e.g., Grider, 500 F.3d 322 (reversing injunction entered by District Court against settling parties in parallel MDL proceeding); In re Diet Drugs Prods. Liab. Litig., No. 04-5391, 2005 U.S. App. LEXIS 1305 (3d Cir. Jan. 25, 2005) (affirming injunction entered against opt out plaintiffs who sought to avoid provisions of MDL settlement); In re Diet Drugs Prods. Liab. Litig.,, 369 F.3d 293 (3d Cir. 2004) (same); In re Prudential Ins. Co. of Am. Sales Practice Litig., 261 F.3d 355 (3d Cir. 2001) (affirming injunction of two members of class who covered by nationwide settlement who filed separate state court actions.)
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Distributors have apparently tried to settle the claims this Court has prohibited them from claiming, as well as the claims of parties they do not represent. It is thus extremely likely that, were the settling parties to seek preliminary approval of their settlement, it would not be approved under the Supreme Court‟s decision in Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 627 (1997) (“The settling parties, in sum, achieved a global compromise with no structural assurance of fair and adequate representation for the diverse groups and individuals affected. Although the named parties alleged a range of complaints, each served generally as representative for the whole, not for a separate constituency.”). Absent a ruling from this Court pursuant to CMO No. 10, the Distributors cannot resolve the claims of direct purchasers generally or the Healthcare Plaintiffs in particular. B.
The Healthcare Plaintiffs Satisfy the Injunction Standard.
Although Healthcare Plaintiffs need not establish that they meet the standards under Fed. R. Civ. P. 65 for an injunction under the All Writs Act,7 Healthcare Plaintiffs in fact meet these standards.
Four factors govern a District Court‟s decision whether to issue a preliminary
injunction: (1) whether the movant has shown a reasonable probability of success on the merits; (2) whether the movant will be irreparably injured by denial of the relief; (3) whether granting preliminary relief will result in even greater harm to the non-moving party; and (4) whether granting the preliminary relief will be in the public interest. Allegheny Energy, Inc. v. DQE, Inc., 171 F.3d 153, 158 (3d Cir. 1999) (citations omitted); Scholastic Funding Group, LLC v. Kimble, Civil Action No. 07-557 (JLL), 2007 U.S. Dist. LEXIS 30333, at *7 (D.N.J. Apr. 24, 2007)
7
See, e.g., In re Managed Care Litig., 236 F. Supp. 2d at 1344 (“Because the type of injunction requested here does not fall within the scope of the typical Rule 65 injunction, Plaintiffs do not have to meet the Rule 65 requirements.”).
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(Linares, J.). A District Court should “endeavor to „balance these four factors to determine in an injunction should issue.‟” Allegheny Energy, 171 F.3d at 158. 1.
Healthcare Plaintiffs Have Shown A Reasonable Probability of Success on the Merits
The party seeking a preliminary injunction must demonstrate a “reasonable probability of eventual success in the litigation.” Medavante, Inc. v. Proxymed, Inc., Civil Action No. 06-3248 (MLC), 2006 U.S. Dist. LEXIS 74614, at *11 (D.N.J. Oct. 12, 2006) (Cooper, J.) “[I]t is not necessary that the moving party‟s right to a final decision after trial be wholly without doubt; rather, the burden is on the party seeking relief to make a prima facie case showing a reasonable probability that it will prevail on the merits.” Id. at *12. Here, Healthcare Plaintiffs have a reasonable probability of being able to establish that the Court‟s jurisdiction over the pending motion for summary judgment and the concomitant Rule 56(f) discovery is being hindered by the Distributors and Becton because of their ongoing settlement efforts.8 Until they began discussing settlement sometime in the fall of 2008, both Distributor Plaintiffs and Becton were actively addressing issues related to Rule 56(f) discovery. Since that time, however, communication on 56(f) discovery has slowed to a trickle at best. Because their settlement is apparently conditioned on this Court finding that the Distributors are indeed direct purchasers, the only logical assumption, especially in the face of near complete silence and what appeared to be a coordinated effort by Becton and the Distributors to perpetuate misinformation about the rescheduling of noticed depositions, is that Becton and the Distributors have agreed to work together to thwart or influence outstanding 56(f) discovery. 8
Because injunctions entered under Fed. R. Civ. P. 65 are generally tied to the merits of the litigation, a movant must show a likelihood of success on the merits of the litigation. Here, that is not required. It is only necessary that Healthcare Plaintiffs establish the likelihood of success in establishing that Rule 56(f) discovery is being hindered by the Distributors and Becton because of their ongoing settlement efforts. 10
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Healthcare Plaintiffs Will be Irreparably Harmed By Denial of The Relief Requested
Healthcare Plaintiffs will be irreparably harmed if an injunction does not issue. Either Rule 56(f) discovery will fail to proceed at all or, if it does, it will become a farce designed to march the parties toward a preordained result already purchased by Becton from the Distributors at a bargain price. It is therefore in the interest of justice to have the direct purchaser issue decided without the taint of the yet-to-be-disclosed agreement between Becton and the Distributors. Healthcare Plaintiffs will likewise be irreparably harmed if an injunction does not issue prohibiting the Distributors from, in the future, negotiating or attempting to resolve the claims of the Healthcare Plaintiffs, whom they do not represent. It is clear that, absent such an order, Becton will continue to be motivated to seek a cheap settlement from Distributor Plaintiffs, who are willing to sell cheap in order to avoid having this Court decide the direct purchaser issue. Indeed, the $45 million settlement between the Distributors and Becton is objectively inadequate and smacks of a reverse auction, wherein the Distributors were apparently willing to take anything in exchange for the moniker of “direct purchasers” in this case. These kinds of settlements are routinely disapproved. See, e.g., Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 282 (7th Cir. 2002) (“A reverse auction is said to occur when „the defendant in a series of class actions picks the most ineffectual class lawyers to negotiate a settlement with in the hope that the district court will approve a weak settlement that will preclude other claims against the defendant.‟"), quoted in In re Community Bank of N. Va. & Guar. Nat'l Bank of Tallahassee Second Mortg. Loan Litig., 418 F.3d 277, 308 (3d Cir. 2005). Distributor Plaintiffs have committed themselves to a settlement amount ($45 million) before the Court has made any final determination of which parties are included in the universe of “all direct purchaser” claims that
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the Distributors have, without authority, agreed to settle. How can an objectively meaningful settlement amount be ascertained when the scope of parties encompassed by the release offered by the Distributor Plaintiffs has not yet been determined? 3.
Granting the Injunction Will Not Result in Greater Harm to Becton or the Distributor Plaintiffs
On the other hand, granting the injunction will not cause Becton or the Distributors greater harm than it will cause the Healthcare Plaintiffs if the injunction is not granted. An injunction undoing the settlement will do nothing more than return the parties to the status quo ante. If the direct purchaser issue is decided in the Distributors‟ favor, their settlement can be consummated (assuming it passes muster under Rule 23). If the direct purchaser issue is decided in the Healthcare Plaintiffs‟ favor, Becton will have to return to the negotiating table or litigate. Becton‟s decision to disclose the existence of the settlement without disclosing the dispute over whether the Distributors even have standing to pursue the claims they purport to release, and before moving this Court before preliminary approval of that settlement, was a risk Becton assumed. It cannot now say that it will be irreparably harmed if the settlement in its current form is not ultimately consummated. Having decided to hide relevant terms of the settlement from the Healthcare Plaintiffs, Becton nor the Distributors can be heard to complain if they are forced to face the consequences of that decision. 4.
It is in the Public Interest to Grant the Injunction
It is likewise in the public interest to enter the injunction. “[A]s a practical matter, if a plaintiff demonstrates both a likelihood of success and irreparable injury, it almost always will be the case that the public interest will favor the plaintiff.” Ace Am. Ins. Co. v. Wachovia Ins. Agency, Inc., Civil Action No. 08-4369 (JLL), 2008 U.S. Dist. LEXIS 71732, at *5 (D.N.J. Sept. 4, 2008) (Linares, J.) (citation omitted). It is in the interest of justice, as the parties agreed and
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this Court ordered, to have this Court decide the direct purchaser issue rather than having it secretly and unilaterally decided by the Distributors and Becton. Those two parties cannot be permitted to usurp this Court‟s jurisdiction to decide the issue without the fulsome and vigorous discovery process to which all parties have been bound. It is likewise within the public interest for this Court to ensure that any settlement brought before this Court is fair and adequate to all parties involved. CONCLUSION WHEREFORE, for the reasons set forth above, the Healthcare Plaintiffs respectfully request that this Court enter an order under the All Writs Act enjoining the recently-announced settlement between Becton and the Distributors and prohibiting the Distributors from negotiating or compromising the claims of the Healthcare Plaintiffs or anyone else until this Court decides which plaintiffs have direct purchaser standing in this litigation, and all other relief that this Court deems just and appropriate.
Dated: May 6, 2009
Respectfully submitted,
By: _/s/ James V. Bashian___ James V. Bashian The Law Offices of James V. Bashian, P.C. 70 Adams Street, Fourth Floor Hoboken, New Jersey, 07030 Tel. (973) 227-6330 Fax (201) 488-3330 [email protected] Liaison Counsel for Healthcare Plaintiffs
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R. Laurence Macon Akin Gump Strauss Hauer & Feld LLP 300 Convent St., Ste 1500 San Antonio, TX 78205 Telephone: (210) 281-7000 Facsimile: (210) 224-2035 [email protected] Richard L. Wyatt Todd M. Stenerson Hunton & Williams LLP 1900 K Street, NW Washington, DC 20006 Telephone: (202) 955-1500 Facsimile: (202) 778-2201 [email protected] [email protected] Kenneth A. Wexler Jennifer Fountain Connolly Wexler Wallace LLP 55 W. Monroe Street, Suite 3300 Chicago, IL 60603 Telephone: (312) 346-2222 Facsimile: (312) 346-0022 [email protected] [email protected] Judith L. Spanier Karin E. Fisch Abbey Spanier Rodd & Abrams, LLP 212 E. 39th St. New York, NY 10016 Telephone: (212) 889-3700 Facsimile: (212) 684-5191 [email protected] [email protected] Interim Co-Lead Counsel for Healthcare Plaintiffs
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CERTIFICATE OF SERVICE I, James V. Bashian, hereby certify that I caused the foregoing Healthcare Plaintiffs’ Memorandum of Law in Support of Their Motion to Issue Injunction Under All Writs Act to be filed through the Court‟s electronic filing system. Those attorneys who are registered with the Court‟s electronic filing system may access these filings through the Court‟s system, and notice of these filings will be sent to these parties by operation of the Court‟s electronic filing system. Those attorneys not registered with the Court‟s electronic filing system will be served via First Class U.S. Mail, with proper postage prepaid, on this 7th day of May 2009.
/s/ James V. Bashian JAMES V. BASHIAN
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