Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Minn. Sup. Ct.: Pharmacies avoid fraud liability, not required to disclose drug acquisition costs, (Jul 3, 2014)

By Greg Hammond, J.D.

Minnesota pharmacies, including CVS, Target, Walgreens, and Wal-Mart, were not required to disclose generic drug acquisition costs as part of their duty to pass on the difference between acquisition costs of brand name prescription drugs and substituted generic drugs. In reinstating the district court’s order dismissing two Taft-Hartley Funds’ complaint, the Supreme Court of Minnesota determined that the funds failed to state a claim under Minnesota’s Consumer Fraud Act (CFA) (Graphic Communications Local 1B Health & Welfare Fun “A” v. CVS Caremark Corporation, July 2, 2014, Dietzen, C).

Background. Graphic Communications Local 1B Health & Welfare Fund “A” and The Twin Cities Bakery Drivers Health and Welfare Fund are jointly administered Taft-Hartley Funds (collectively, “the funds”) under the National Labor Relations Act. The funds administer employee welfare benefit plans, including prescription drug benefits, to approximately 2,600 participants, their spouses, and dependents. Under Minnesota law, pharmacists are required to pass cost savings from the lower acquisition costs of generic drugs to purchasers. The funds filed suit claiming, in part, that various pharmacies violated Minnesota’s CFA by failing to provide them with the acquisition costs of generic drugs and for overcharging them.

The district court dismissed the complaint, finding that the funds failed to plead an actionable claim under the CFA because the pharmacies had no duty to disclose drug acquisition costs. However, the appellate court reversed the district court’s decision, finding that the failure to disclose acquisition costs and overcharges were material omissions in violation of the CFA. The pharmacies appealed to the Minnesota Supreme Court.

CFA. On appeal, the pharmacies argued that (1) because the funds could not bring a private cause of action under the Minnesota Pharmacy Practice Act (PPA), the funds should not be able to enforce the PPA under a CFA claim and (2) the consumer fraud claims were insufficient because the funds failed to allege that the pharmacies affirmatively misrepresented or omitted a material fact that they had a duty to disclose.

In rejecting the pharmacies’ first argument, the court determined that claims under the PPA and the CFA are not mutually exclusive and the fact that the PPA does not provide a private cause of action does not bar a purchaser from bringing a consumer fraud claim. Instead, the court found that a purchaser may bring a CFA action for conduct that violates the PPA, so long as the purchaser pleads and proves the required elements of a consumer fraud claim.

With regard to the pharmacies’ second argument, the court determined that “an omission-based consumer fraud claim is actionable under the CFA when special circumstances exist that trigger a legal or equitable duty to disclose the omitted facts.” However, the court concluded that the funds’ CFA claim failed as a matter of law, as they did not allege any facts that would trigger a duty to disclose. Specifically, the court found that nothing in the PPA requires the pharmacies to disclose prescription drug acquisition costs. Further, there were no special circumstances alleged that would require the pharmacies to disclose additional information, because: (1) there was no confidential or fiduciary relationship with the pharmacies; (2) there was no evidence that the pharmacies had any actual knowledge of fraudulent conduct; and (3) “merely stating the purchase price is not deceptive and does not trigger a duty to disclose.” Consequently, the court reversed the court of appeals and reinstated the district court’s decision dismissing the funds’ complaint.

The case number is A12-1555.

Attorneys: David L. Hashmall (Felhaber, Larson, Fenlon & Vogt, PA), Perrin Rynders (Varnum LLP), and John W. Barrett (Bailey & Glasser LLP) for Graphic Communications Local 1B Health & Welfare Fund "A". Lewis A. Remele, Jr. (Bassford Remele, PA) and Robert H. Griffith (Foley & Lardner LLP) for CVS Caremark Corp. Kevin D. Hofman (Halleland Habicht PA) for Coborn's Inc. Tracy J. Van (Steenburgh, Nilan Johnson Lewis, PA) for Kmart Holding Corp. James K. Langdon (Dorsey & Whitney) for Snyder's Drug Stores Inc. Wendy J. Wildung (Faegre Baker Daniels LLP) for Target Corp. Todd A. Noteboom (Leonard, Street and Deinard, PA) for Walgreen Co. David R. Marshall (Fredrikson & Byron, PA) for Wal-Mart Stores, Inc.

Companies: Graphic Communications Local 1B Health & Welfare Fund "A"; CVS Caremark Corp.; Coborn's Inc.; Kmart Holding Corp.; Snyder's Drug Stores Inc.; Target Corp.; Walgreen Co.; Wal-Mart Stores, Inc.

Cases: StateUnfairTradePractices MinnesotaNews