Opinion ID: 1428164
Heading Depth: 2
Heading Rank: 2

Heading: Objections to the Settlement Agreement by the Self-Funded Plans

Text: After the District Court preliminarily granted Plaintiffs' motion for class certification and approval of the Settlement Agreement, the Class Notice issued notifying class members of the proposed Settlement Agreement and informing them that they could opt out of the class. At the ensuing hearing to determine the fairness of the Settlement Agreement, approximately 200 individual Plans exercised their right to opt out of the settlement. In addition, several self-funded Plans asserted that their interests were not adequately protected by the settling Plaintiffs. Central States, Iron Workers, and Sweetheart (collectively, the Self-Funded Plans) objected both to the certification of the class and to the terms of the Settlement Agreement and sought leave to intervene in the class action to represent all of the self-funded Plans, which they argued should be a certified subclass. The Self-Funded Plans first asserted that there was a conflict of interest in the representation of the class and that only a self-insured Plan or sponsor could adequately represent their interests, because the Plans that paid set premiums to Medco or insurers to avoid the risk of paying claims would share in the settlement fund notwithstanding the fact that they suffered no damages. Following the fairness hearing, the District Court rejected these claims and held that: [I]n practical reality no such conflict of interest exists. The same legal theory underlies all [c]lass [m]embers' claims, that Medco violated ERISA in exercising its discretionary authority to negotiate with drug manufacturers on behalf of its [P]lan sponsors, and in its control over the formularies and therapeutic drug interchange program. Although the negative drug interchange claim directly affected the self-funded [P]lans as opposed to the insured [P]lans, this is insufficient to find a conflict of interest exists. Class [c]ounsel determined that Medco's failure to pass through rebates may have increased or failed to reduce the drug-acquisition costs of the members of the insured [P]lans in addition to those of the self-funded [P]lans. Accordingly, the 55% reduction applying to the insured [P]lans was determined to be a reasonable discount of their claims. Even where there are some individualized damages issues, common issues may predominate when liability can be determined on a class-wide basis. In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 139 (2d Cir.2001). In re: Medco Health Solutions, Inc., Pharmacy Benefits Mgmt. Litig., No. 03 MDL 1508(CLB), 2004 WL 1243873, at  (S.D.N.Y. May 25, 2004). The Self-Funded Plans next claimed that the allocation of settlement funds between the self-funded Plans and the insured or capitated Plans was unfair, inadequate, and unreasonable, because the Settling Plaintiffs did not submit proof as to how, during their negotiations, they calculated the 55% reduction in recovery for self-insured [P]lans. Id. at . The District Court also rejected this contention and held simply that the reduction balances the equities among self-funded and insured Plans. Id. In upholding the 55% figure, the court deferred to class counsel who negotiated the Settlement Agreement: [T]he allocation is reasonable. . . . The insured or capitated fund[s] were not directly financially damaged by the actions of Medco on the negative interchange claim because the Plans paid a flat capitation for every person regardless of the type of drug prescribed. Through the negotiation process, relying on advice from experts of their own choosing and assistance by the Special Maser, and in light of the important non-monetary benefits of the Settlement, Class counsel determined to discount the allocation of the [s]ettlement [f]und to insured [P]lans relative to the self-funded [P]lans as provided in the Settlement Agreement. Id. at . In addition, the Self-Funded Plans claimed that the Settlement Agreement inadequately described the distribution of the settlement funds. Specifically, they contended that the language in the Class Notice and the Settlement Agreement providing that the allocation of funds shall be made primarily on the basis of each settling Plan's proportionate share of the total drug spend of all settling Plans did not sufficiently (i) explain the meaning of primarily; (ii) disclose the non-primary bases for determining allocation; or (iii) indicate the total drug spend of the proposed class during the class period. Id. at . The Self-Funded Plans also contended that there was no basis to determine whether the $42.5 million settlement amount was reasonable. Id. The District Court rejected these contentions and concluded that the Plan of Allocation was reasonable and fair. Id. Finally, the Self-Funded Plans argued that the Class Notice and paragraph seventeen of the Settlement Agreement were unclear as to which claims would be retained by the class members. Paragraph seventeen of the Settlement Agreement provides: Nothing in [the release] is intended to release or to be construed to release Medco from contract claims asserted by parties with which Medco has contracted to provide services, including (where permitted by applicable state law) contract claims for breach of implied covenant of good faith and fair dealing, provided, however, that claims not based on contract are released to the extent provided for in [the release]. Nothing in paragraph [sixteen] is intended to release or to be construed to release TPAs from contract claims asserted by parties with which any TPA has contracted to provide services, including (where permitted by applicable state law) contract claims for breach of the implied covenant of good faith and fair dealing, provided, however, that claims not based on contract are released as provided for in [the release]. In interpreting the Agreement, the District Court held that the language was unambiguous with respect to which claims would be released and reasoned as follows: The Amended Settlement Agreement is clear and it speaks for itself. Further, it was admitted by Medco during the December 11, 2003, conference that `the contract claims are carved out and not released. . . . Medco agrees with settling counsel that none of the contract claims will be released for any of Medco's clients and no contract claims are preempted by ERISA.' Id. at .