PHILADELPHIA - The State of Louisiana may not be counted as an absentee class member in a class action settlement, according to a ruling made recently by a Pennsylvania federal court.
This ruling comes after the manufacturers of the drug Flonase moved to enforce a prior settlement agreement on the state of Louisiana, which filed suit against the manufacturers after the settlement.
The court sided with Louisiana and stated that it was part of the excluded party in the settlement.
“The settlement is unusual in that it purports to encompass states’ own claims for damages as a result of their purchases of the disputed drug for employees insured under state health plans,” said Kristin Shepard, a shareholder with the law firm Carlton Fields.
“It’s distinguishable from the usual consumer class action settlements, which typically only encompass states’ actions to recover damages for citizens who are absent class members. The latter types of settlements are, in my professional experience, routinely enforced.”
The developers of Flonase were accused of illegally delaying the introduction of a cheaper, generic version of the drug by filing a fake citizen petition with the Food and Drug Administration. They agreed on a class-wide settlement on June 2013 to pay $35 million to indirect purchasers of the drug in exchange for a dismissal of their claims.
Louisiana, however, filed a suit in a state court in December 2014 in its “proprietary and/or sovereign capacity” to recover its purchase of the drug.
The developers of Flonase argued that Louisiana was an absentee class member that opted out and therefore cannot file a separate suit. Louisiana disputed, stating that it did not fall under that jurisdiction because it had not waived its Eleventh Amendment sovereign immunity.
The U.S. District Court for the Eastern District of Pennsylvania noted that the settlement class on which Flonase agreed excluded "State governments and their agencies and departments, except to the extent that they purchased … Flonase or its generic equivalent … for their employees or others covered by a government employee health plan.”
Louisiana fell under that capacity, Judge Anita Brody ruled.
Shepard, who has defended insurance companies and other financial institution clients in high-stakes litigation, stated that the ruling suggests that a state may avoid a proposed class settlement that seeks to compromise the state’s own claims for damages by asserting their Eleventh Amendment immunity.
The impact of this ruling will vary by state, she says.
“The result may depend on the jurisdiction in which the lawsuit is filed, as courts have disagreed on this issue," she said.
Counsel seeking to enforce such a settlement should heed the court’s caution that this is a "gray area of Eleventh Amendment jurisprudence,” as well as keep in mind the high bar to prove waiver of that immunity.
Although the court found the facts of the case did not support a finding of waiver, it might have reached a different result on stronger facts, she said.
The court stated in the ruling that there was not enough evidence to support that Louisiana opted out of the settlement and waived its Eleventh Amendment sovereign immunity.
“The court noted that Louisiana had received a (Class Action Fairness Act) Notice, but not did not receive a directly mailed settlement notice from class counsel," Shepard said.
"So it may have helped to send Louisiana a separate notice informing it of its status as a class member and its right to opt out."
She also stated that it may have been helpful to the developers of Flonase if they stated in their settlement class definition to exclude state health plan purchases for the drug.
“Instead, the notice described such claims as an 'exception' to the general exclusion of states’ claims from the settlement class,” she said.