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Nature of Suit Code: 950
Nature of Suit: Constitutionality of State Statutes
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued March 7, 2008 Decided April 18, 2008

No. 07-7062

PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION,

APPELLANT

v.

DISTRICT OF COLUMBIA AND

ADRIAN FENTY, IN HIS OFFICIAL CAPACITY AS MAYOR OF THE

DISTRICT OF COLUMBIA,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 04cv01082)

Paul J. Ondrasik, Jr. argued the cause for appellant. With

him on the briefs were Martin D. Schneiderman and Linda S.

Stein.

Robin S. Conrad and Jonathan D. Hacker were the brief for

amici curiae America's Health Insurance Plans, et al. in support

of appellant.

James C. McKay, Jr., Senior Assistant Attorney General,

Office of Attorney General for the District of Columbia, argued

the cause for appellee. With him on the brief were Peter J.

USCA Case #07-7062 Document #1111796 Filed: 04/18/2008 Page 1 of 6
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Thomas P. O’Donnell & Mark K. Fendler, Prescription or

Proscription? The General Failure of Attempts to Litigate and

Legislate Against PBMs as “Fiduciaries,” and the Role of Market

Forces Allowing PBMs to Contain Private-Sector Prescription Drug

Prices, 40 J. HEALTH L. 205, 205-07 (2007).

Nickles, Interim Attorney General, Todd S. Kim, Solicitor

General, and Lutz Alexander Prager. Edward E. Schwab,

Deputy Attorney General, entered an appearance. 

Jan A. May, Bruce Vignery, and Michael Schuster were on

the brief for amici curiae American Association of Retired

Persons, et al. in support of appellee. Stacy J. Canan entered an

appearance.

Before: RANDOLPH and TATEL, Circuit Judges, and

WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge RANDOLPH.

RANDOLPH, Circuit Judge: The plaintiff – the

Pharmaceutical Care Management Association – is a national

trade organization representing pharmacy benefit managers.

Pharmacy benefit managers act as “middlemen” hired by health

benefit providers (such as employers, health maintenance

organizations, and public and private health plans) “to provide

prescription drug benefit administration and management

services.”1 One important role of a pharmacy benefit manager

is to pool health benefit providers and negotiate discounts on

pharmaceuticals from manufacturers or pharmacies. See Fed.

Trade Comm’n, Pharmacy Benefit Managers: Ownership of

Mail-Order Pharmacies 41-60 (2005). A health benefit

provider may find it difficult to judge the value of a pharmacy

benefit manager’s services without information about the

relationships between the manager and manufacturers or

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pharmacies. See Fed. Trade Comm’n & Dep’t of Justice,

Improving Health Care: A Dose of Competition ch. 7, at 16

(2004). For example, a pharmacy benefit manager could work

against the health benefit provider’s interest by substituting a

more expensive drug than the one prescribed in order to receive

a rebate from the manufacturer that is not passed on to – or

shared with – the health benefit provider. O’Donnell & Fendler,

40 J. HEALTH L. at 212; see also Pharmacy Benefit Managers at

59 (noting that large pharmacy benefit managers retained

between 30 and 65 percent of rebate payments in 2003). 

The Association brought this action seeking an injunction

against the enforcement of the District of Columbia’s AccessRx

Act of 2004, D.C. CODE § 48-831.01 et seq. Title II of the Act

requires, among other things, pharmacy benefit managers to act

as fiduciaries, to disclose the content of their contracts with

pharmacies and manufacturers, and to pass on any payments or

discounts they receive from pharmacies or manufacturers. Id.

§ 48-832.01(b)-(c). Title II applies to pharmacy benefit

managers working with both employee-based and nonemployee-based health benefit providers. Id. § 48-831.02(4)(a).

Claiming that the Employee Retirement Income Security

Act of 1974 (ERISA) preempted Title II and that Title II was

otherwise unconstitutional, the Association obtained a

preliminary injunction against the enforcement of the District’s

statute. Pharm. Care Mgmt. Ass’n v. District of Columbia, No.

04-1082 (D.D.C. Dec. 21, 2004). While the District’s appeal of

the preliminary injunction was pending in this court, the First

Circuit upheld a Maine statute that is similar to Title II. Pharm.

Care Mgmt. Ass’n v. Rowe, 429 F.3d 294, 297 (1st Cir. 2005).

Because the Association was the losing party in Rowe, we

remanded this case to the district court to consider the preclusive

effect of the First Circuit’s opinion. Pharm. Care Mgmt. Ass’n

v. District of Columbia, 173 F. App’x 3 (D.C. Cir. 2006). The

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District then amended its AccessRx Act of 2004 to conform to

the Maine law. AccessRx Clarification Amendment Act of

2006, published as part of the Fiscal Year 2007 Budget Support

Act of 2006, 53 D.C. Reg. 6899 (Aug. 25, 2006). In granting

summary judgment against the Association, the district court

held that the amended AccessRx Act was nearly identical to the

Maine law, that the Association had a full and fair opportunity

to litigate its claims in Rowe, and that the Association’s loss in

Rowe precluded it from relitigating those claims in this case.

Pharm. Care Mgmt. Ass’n v. District of Columbia, 477 F. Supp.

2d 86 (D.D.C. 2007). 

The question on appeal is whether the judicially-created

doctrine of collateral estoppel bars the Association’s claims. We

are concerned with what is known as non-mutual defensive

estoppel. This aspect of the doctrine precludes a plaintiff from

contesting an issue it has previously litigated and lost in another

case against a different defendant. The estoppel here would be

non-mutual because if the Association had won its case against

the Maine law, the District would not have been barred from

defending its identical statute. (To hold otherwise would be to

deprive the District of due process – it would not have had its

day in court. See Blonder-Tongue Labs., Inc. v. Univ. of Ill.

Found., 402 U.S. 313, 329 (1971); Hansberry v. Lee, 311 U.S.

32, 40 (1940).) The preclusion is defensive because the

defendant invokes the bar against the plaintiff’s claims.

Compare Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329

(1979) (offensive), with Blonder-Tongue, 402 U.S. at 330

(defensive). 

Even when collateral estoppel would otherwise apply, there

are numerous exceptions. Of particular importance in this case

is the exception for cases presenting “unmixed questions of

law.” Collateral estoppel does not apply with the same force to

unmixed questions of law as it does to mixed questions of law

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and fact or to pure questions of fact. See United States v.

Stauffer Chem. Co., 464 U.S. 165, 170-71 (1984); Montana v.

United States, 440 U.S. 147, 162-63 (1979); United States v.

Moser, 266 U.S. 236, 242 (1924). Although the Supreme Court

has acknowledged that the purpose and application of this

exception are not entirely clear, the exception continues to have

force. Stauffer Chem. Co., 464 U.S. at 171-72.

In cases involving mutual collateral estoppel, the exception

applies only if the issue is one of law and the facts of the cases

are substantially unrelated. RESTATEMENT (SECOND) OF

JUDGMENTS § 28(2)(a); see also Stauffer Chem. Co., 464 U.S. at

171, 173. Less is required for the exception to apply in a case

of non-mutual estoppel – such as this case. In a non-mutual

case, “an issue is not precluded if it is ‘one of law and treating

it as conclusively determined would inappropriately foreclose

opportunities for obtaining reconsideration of the legal rule upon

which it was based.’” Chicago Truck Drivers Union (Indep.)

Pension Fund v. Century Motor Freight, Inc., 125 F.3d 526, 531

(7th Cir. 1997) (quoting RESTATEMENT § 29(7)). To apply

collateral estoppel under these circumstances would prevent the

court from performing its function of developing the law. Id.

(citing RESTATEMENT § 29 cmt. i). 

We do not believe collateral estoppel bars the Association’s

claims. Both parties agree that the issues presented here are

legal. To foreclose our reconsideration of the legal issues would

not aid judicial economy. See Hardison v. Alexander, 655 F.2d

1281, 1288 (D.C. Cir. 1981). A trade association could readily

avoid the estoppel consequence of a loss by having one or more

of its members bring the lawsuit. Applying collateral estoppel

here would also freeze the development of the law in an area of

substantial public interest. See RESTATEMENT § 29 cmt. i. 

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In addition, practical considerations counsel against

application of collateral estoppel in this case. Collateral

estoppel is generally inappropriate when the issue is one of law

and there has been a change in the legal context after the first

decision. RESTATEMENT § 28(2)(b); see, e.g., Montana, 440

U.S. at 161; Am. Med. Int’l, Inc. v. Sec’y of HEW, 677 F.2d 118,

120-21 (D.C. Cir. 1981); Kania v. Fordham, 702 F.2d 475, 476

n.2 (4th Cir. 1983). After the First Circuit’s decision in Rowe,

the Department of Labor promulgated a rule requiring ERISA

plans to disclose information about their contracts with service

providers. Annual Reporting and Disclosure, 72 Fed. Reg.

64,710 (Nov. 16, 2007). In order to facilitate the plans’ ability

to make these disclosures, the Labor Department has proposed

a rule that would require service providers to disclose certain

financial information to the plans they serve. Reasonable

Contract or Arrangement Under Section 408(b)(2) – Fee

Disclosure, 72 Fed. Reg. 70,988 (Dec. 13, 2007). Pharmacy

benefit managers are listed among the service providers required

to make disclosures, id. at 70,989, and at least some of the

information the draft rule requires them to disclose is similar to

that required under Title II of the District’s AccessRx Act.

These developments, particularly if the proposed rule is

promulgated, may change the legal analysis regarding ERISA

preemption, though we emphasize that we express no opinion on

the merits of the preemption issue.

For the foregoing reasons, the order granting the District’s

motion for summary judgment is vacated and the case is

remanded for consideration on the merits.

So ordered.

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