Court Opinion

ID: 3065285
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:30:29.244491+00
Date Added: 2024-06-11T11:41:24.615308
License: Public Domain

FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

COUNTY OF SANTA CLARA,                        
                Plaintiff-Appellant,
                v.
ASTRA USA, INC.; ASTRAZENECA
PHARMACEUTICALS LP; AVENTIS
PHARMACEUTICALS, INC.; BAYER                        No. 06-16471
CORPORATION; BRISTOL-MYERS
                                                      D.C. No.
SQUIBB COMPANY; PFIZER, INC.;
SCHERING-PLOUGH CORPORATION                      CV-05-03740-WHA
TAP PHARMACEUTICAL PRODUCTS,                        ORDER AND
INC.; ZENECCA INC.; ZLB BEHRING                      OPINION*
LLC; SMITHKLINE BEECHAM
CORPORATION; SMITHKLINE
BEECHAM CORPORATION, dba
GlaxoSmithKline; WYETH, INC.;
WYETH PHARMACEUTICALS, INC.,
             Defendants-Appellees.
                                              
         Appeal from the United States District Court
           for the Northern District of California
         William H. Alsup, District Judge, Presiding

                   Argued and Submitted
          March 11, 2008—San Francisco, California

   *After we published an opinion in this case and remanded it to the dis-
trict court, the district court certified a subsequent immediate appeal, No.
09-15216, under 28 U.S.C. § 1292(b) so that we could clarify a statement
in the opinion that had an unexpected bearing on a discovery issue.
Because reconsideration of that statement could have also required us to
revisit the primary jurisdiction issue, we invited the Secretary of Health
and Human Services to file an amicus brief. We now withdraw our earlier
opinion and replace it with this opinion.

                                  16561
16562         COUNTY OF SANTA CLARA v. ASTRA USA
                     Filed December 9, 2009

     Before: Stephen Reinhardt, Barry G. Silverman and
           Raymond C. Fisher, Circuit Judges.**

                     Opinion by Judge Fisher

   **After the original opinion was published, Judge Silverman was sub-
stituted for the late Judge Melvin Brunetti.
           COUNTY OF SANTA CLARA v. ASTRA USA         16565

                        COUNSEL

Patrick J. Coughlin, Sanford Svetcov (argued), Jeffrey W.
Lawrence, Jacqueline E. Mottek, Aelish M. Baig and Jennie
Lee Anderson, Coughlin Stoia Geller Rudman & Robbins
LLP; Tamara Lange, Lead Deputy County Counsel, Ann Mil-
ler Ravel and Cheryl A. Stevens, Santa Clara County Coun-
sel’s Office; Steve W. Berman and Douglas C. McDermott,
Hagens Berman Sobol Shapiro LLP for plaintiff-appellant
County of Santa Clara.

Robert S. Litt (argued), Jeffrey L. Handwerker and Sharon
Douglass Mayo, Arnold & Porter LLP for defendants-
appellees Astra USA, Inc., AstraZeneca Pharmaceuticals, LP
and Zeneca Inc.; Alicia J. Donahue and Sara Romano, Shook,
Hardy & Bacon LLP for defendants-appellees Aventis Phar-
maceuticals, Inc. and ZLB Behring LLC; Timothy T. Scott,
Geoffrey M. Ezgar and Paul Yanosy, Sidley Austin LLP for
defendant-appellee Bayer Corporation; Paul J. Riehle and
Matthew A. Fischer, Sedgwick Detert Moran & Arnold LLP
for defendant-appellee Bristol-Myers Squibb Company;
Federick G. Herold, Valerie M. Wagner and Philip Barilovits,
16566       COUNTY OF SANTA CLARA v. ASTRA USA
Dechert LLP for defendant-appellee SmithKline Beecham
Corporation; Molly M. Lane and Tera Heinz, Morgan, Lewis
& Bockius LLP for defendant-appellee Pfizer Inc.; Kirke M.
Hasson and Colin T. Kemp, Pillsbury Winthrop Shaw Pittman
LLP for defendant-appellee Schering-Plough Corporation;
Peter N. Larson, Jones Day for defendant-appellee TAP Phar-
maceutical Products, Inc.; Fletcher Alford, Gordon & Rees,
LLP for defendants-appellees Wyeth, Inc. and Wyeth Phar-
maceuticals Inc.

Benjamin M. Shultz, United States Department of Justice, for
the United States as amicus curiae.

                           ORDER

   The mandate issued September 18, 2008, is hereby
recalled.

  The opinion filed August 27, 2008, see County of Santa
Clara v. Astra USA, Inc., 540 F.3d 1094 (9th Cir. 2008), is
withdrawn. A superseding opinion will be filed concurrently
with this order. Petitions for rehearing or petitions for rehear-
ing en banc may be filed.

                          OPINION

FISHER, Circuit Judge:

   Certain federally funded medical clinics — so-called “Sec-
tion 340B covered entities” — are able to purchase prescrip-
tion drugs at a discount from drug manufacturers under a
standardized agreement between the federal government and
the drug companies. During 2003, for example, these covered
entities spent $3.4 billion on outpatient prescription drugs.
They claim in this lawsuit that they have been overcharged for
              COUNTY OF SANTA CLARA v. ASTRA USA                 16567
those drugs in violation of pharmaceutical pricing agreements
between the Secretary of Health and Human Services
(“Secretary”) and the drug manufacturer defendants-appellees
(“Manufacturers”). Applying the federal common law of con-
tracts, we hold that the covered entities are intended direct
beneficiaries of these agreements and thus have the right to
enforce the agreements’ discount provisions against the Man-
ufacturers and sue them for reimbursement of excess pay-
ments. We have jurisdiction under 28 U.S.C. § 1291, and
reverse the district court’s dismissal of the complaint under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a
claim.

                         BACKGROUND1

   In part to “enable . . . certain Federally-funded clinics to
obtain lower prices on the drugs that they provide to their
patients,” see H.R. Rep. No. 102-384(II), at 7 (1992), Con-
gress enacted Section 602 of the Veterans Health Care Act of
1992, Pub. L. No. 102-585, 106 Stat. 4943, 4967. That provi-
sion, entitled “Limitations on Prices of Drugs Purchased by
Covered Entities,” requires the Secretary of Health and
Human Services to:

      enter into an agreement with each manufacturer of
      covered drugs under which the amount required to
      be paid . . . to the manufacturer for covered drugs . . .
      purchased by a covered entity . . . does not exceed
      an amount equal to the average manufacturer price
      for the drug under [§ 1396r-8(k)(1)] in the preceding
      calendar quarter, reduced by [a] rebate percentage
      described in [§ 256b(a)(2)].
  1
   Because this is an appeal from an order granting a motion to dismiss,
we accept all facts alleged as true and construe them in the light most
favorable to the plaintiff. See Karam v. City of Burbank, 352 F.3d 1188,
1192 (9th Cir. 2003).
16568          COUNTY OF SANTA CLARA v. ASTRA USA
42 U.S.C. § 256b(a)(1).2 This drug discounting program is
commonly known as the “Section 340B program,” tracing
back to its original location within the Public Health Service
Act.3 The program is managed by the Health Resources and
Services Administration (“HRSA”), a subdivision of the
Department of Health and Human Services (“DHHS”). See
Statement of Organizations, Functions, and Delegations of
Authority, 58 Fed. Reg. 19,137-02 (Apr. 12, 1993). In accor-
dance with statute, the Secretary entered into a standard Phar-
maceutical Pricing Agreement (“PPA”) with each of the
Manufacturers.

   One of the Manufacturers’ principal obligations under the
PPA is “to charge covered entities a price . . . that does not
exceed . . . the [average manufacturer price] for the covered
outpatient drug reported . . . to the Secretary in accordance
with the Manufacturer’s responsibilities under [§ 1396r-
8(b)(3)], reduced by the rebate percentage.” See PPA § II(a).4
The PPA defines “average manufacturer price,” “covered
entity,” “manufacturer” and “rebate percentage” to “have the
meanings specified in [§§ 256b and 1396r-8], as interpreted
and applied herein.” See PPA §§ I(a)-(o). Also known as the
“ceiling price,” the maximum price that covered entities may
be charged under the PPA is calculated using proprietary sales
and pricing information the Manufacturers disclose only to
the Secretary.
  2
     Hereinafter, all citations are to Title 42 of the United States Code
unless otherwise noted.
   3
     Section 602 of the Veterans Health Care Act of 1992 added a new Sec-
tion 340B to Part D of Title III of the Public Health Service Act. See 106
Stat. at 4967. The Public Health Service Act is itself codified at Chapter
6A of Title 42 of the United States Code. See National Institutes of Health
Revitalization Act of 1993 § 2008(i)(1)-(2), Pub. L. No. 103-43, 107 Stat.
122, 212-13.
   4
     The PPA establishes different discounts for other classes of drugs that
are not relevant here. See PPA §§ II(b)-(c).
            COUNTY OF SANTA CLARA v. ASTRA USA             16569
   The genesis of the present appeal is a putative class action
filed in California state court by the county of Santa Clara and
a number of county-operated medical facilities (“Santa
Clara”), which are covered entities within the meaning of
§ 256b(a)(4) and PPA § I(e). Relying chiefly on reports pub-
lished by DHHS’s Office of the Inspector General (“OIG”),
Santa Clara alleged that the Manufacturers have systemati-
cally overcharged its medical facilities, and all similarly situ-
ated covered entities, for covered drugs. OIG’s March 2003
report estimated that overcharges during the one-year period
ending September 1999 totaled $6.1 million. Its June 2004
report, which was withdrawn in October 2004 because of
“problems with the underlying data,” concluded that covered
entities overpaid $41.1 million in the month of September
2002. In October 2005, OIG confirmed that its June 2004 cal-
culation was erroneous because the Centers for Medicare and
Medicaid Services had provided it with comparison “ceiling
prices from the wrong timeframe.” OIG did not retreat, how-
ever, from its other, more general findings that HRSA was not
adequately overseeing the Section 340B program and that
“HRSA lacks the oversight mechanisms and authority to
ensure that [covered] entities pay at or below the . . . ceiling
price.” The October 2005 report also “introduce[d] new con-
cerns” that “systemic problems with the accuracy and reliabil-
ity” of the government’s pricing data could interfere with
HRSA’s ability to monitor the Section 340B program.
Finally, a 2006 OIG report estimated that covered entities
overpaid $3.9 million in June 2005 alone.

   Santa Clara initially brought claims under the California
False Claims Act and California Unfair Competition Law in
state court. After the Manufacturers removed the action to
federal district court, Santa Clara amended its complaint for
the first time. The district court granted the Manufacturers’
motion to dismiss, but with leave to amend. Santa Clara’s sec-
ond amended complaint, now including claims for breach of
the PPA, breach of the implied covenant of good faith and fair
dealing, negligence and quantum meruit, fared no better than
16570         COUNTY OF SANTA CLARA v. ASTRA USA
the first. The district court granted the Manufacturers’ second
motion to dismiss and denied as futile Santa Clara’s subse-
quent motion for leave to file a third amended complaint.
Santa Clara appeals only the district court’s rejection of its
PPA breach of contract claim on a third party beneficiary the-
ory.

                  STANDARD OF REVIEW

   “We review de novo the district court’s dismissal of a com-
plaint for failure to state a claim under Rule 12(b)(6).”
Vasquez v. Los Angeles County, 487 F.3d 1246, 1249 (9th Cir.
2007). The interpretation of a contract is a mixed question of
law and fact that we review de novo. Klamath Water Users
Protective Ass’n v. Patterson, 204 F.3d 1206, 1210 (9th Cir.
1999).

                           DISCUSSION

   We agree with Santa Clara that covered entities are
intended direct beneficiaries of the PPA and have the right as
third parties to bring claims for breach of that contract. We
also conclude that allowing such suits under the PPA is con-
sistent with Congress’ intent in enacting the Section 340B
program, even though the statute itself does not create a fed-
eral private cause of action. Finally, we reject the Manufactur-
ers’ argument that primary jurisdiction is appropriate.

                                   I.

   [1] Federal law controls the interpretation of the PPA,
which is a “contract[ ] entered into pursuant to federal law
and to which the government is a party,” Smith v. Cent. Ariz.
Water Conservation Dist., 418 F.3d 1028, 1034 (9th Cir.
2005), and which expressly provides that it “shall be con-
strued in accordance with Federal common law,” see PPA
§ VII(g).5 “For guidance, we may look to general principles
  5
  “[F]ederal jurisdiction cannot be created by contract,” of course, and
we have an independent obligation to scrutinize our jurisdiction. ARCO
               COUNTY OF SANTA CLARA v. ASTRA USA                    16571
for interpreting contracts.” Kennewick Irrigation Dist. v.
United States, 880 F.2d 1018, 1032 (9th Cir. 1989). Among
these principles, we interpret every part of a written contract
with reference to the whole and give terms their ordinary
meaning unless a contrary intent appears. See Klamath, 204
F.3d at 1210. When possible, we ascertain the intent of the
parties from the contract itself. See id.

   [2] Under the federal common law of contracts, “[b]efore
a third party can recover under a contract, it must show that
the contract was made for its direct benefit — that it is an
intended beneficiary of the contract.” Id. (emphasis added).
“A promisor owes a duty of performance to any intended ben-
eficiary of the promise, and ‘the intended beneficiary may

Envtl. Remediation, L.L.C. v. Dep’t of Health & Envtl. Quality of Mont.,
213 F.3d 1108, 1117 n.11 (9th Cir. 2000) (internal quotation marks omit-
ted). Here, regardless of whether federal or state law creates the cause of
action underlying Santa Clara’s contract claim — a question we will not
reach out to resolve because the complaint is ambiguous, neither party has
briefed the issue and the precedent is famously obscure, see, e.g., Empire
Healthchoice Assur., Inc. v. McVeigh, 547 U.S. 677 (2006); Boyle v.
United Tech. Corp., 487 U.S. 500, 506-07 & n.3 (1988); Jackson Transit
Auth. v. Local Div. 1285, Amalgamated Transit Union, 457 U.S. 15, 20-23
(1982); Miree v. DeKalb County, 433 U.S. 25, 29-31 & n.3 (1977) — it
“necessarily raise[s] a stated federal issue, actually disputed and substan-
tial, which a federal forum may entertain without disturbing any congres-
sionally approved balance of federal and state judicial responsibilities,”
and so was properly heard by the district court in the exercise of its 28
U.S.C. § 1331 federal question jurisdiction. See Grable & Sons Metal
Prod., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 314 (2005). Santa Clara
seeks enforcement of an obligation created by a nationwide federal con-
tract whose terms are mandated by federal statute and which must be inter-
preted according to federal law. Its claim plainly “implicate[s] the
government’s . . . interests” in the uniform administration of the Section
340B program and the parties’ compliance with federal law. See Smith,
418 F.3d at 1034; Almond v. Capital Prop., Inc., 212 F.3d 20, 22-24 (1st
Cir. 2000); Price v. Pierce, 823 F.2d 1114, 1119-21 (7th Cir. 1987); Eat-
mon v. Bristol Steel & Iron Works, Inc., 769 F.2d 1503, 1516-17 (11th Cir.
1985); see also Flick v. Liberty Mut. Fire Ins. Co., 205 F.3d 386, 390 (9th
Cir. 2000).
16572        COUNTY OF SANTA CLARA v. ASTRA USA
enforce the duty’ ” by suing as a third party beneficiary of the
contract, whereas an “incidental beneficiary acquires ‘no right
against the promisor.’ ” Id. at 1211 n.2 (quoting Restatement
(Second) of Contracts §§ 304, 315 (1979)). To qualify as an
intended beneficiary, the third party “must show that the con-
tract reflects the express or implied intention of the parties to
the contract to benefit the third party.” Id. at 1211 (citing
Montana v. United States, 124 F.3d 1269, 1273 (Fed. Cir.
1997)). Although intended beneficiaries “need not be specifi-
cally or individually identified in the contract,” they still must
“fall within a class clearly intended by the parties to benefit
from the contract.” Id.

   [3] Demonstrating third-party beneficiary status in the con-
text of a government contract is a comparatively difficult task.
See Smith, 418 F.3d at 1035; Kremen v. Cohen, 337 F.3d
1024, 1029 (9th Cir. 2003) (explaining that a “more stringent
test applies”). We have explained that “[p]arties that benefit
from a government contract are generally assumed to be inci-
dental beneficiaries,” rather than intended ones, and so “may
not enforce the contract absent a clear intent to the contrary.”
See Orff v. United States, 358 F.3d 1137, 1145 (9th Cir.
2004), aff’d on other grounds, 545 U.S. 596 (2005) (quoting
Klamath, 204 F.3d at 1211). This “clear intent” hurdle is not
satisfied by a contract’s recitation of interested constituencies,
Klamath, 204 F.3d at 1212, “[v]ague, hortatory pronounce-
ments,” id., “statement[s] of purpose,” Smith, 418 F.3d at
1037, “explicit reference to a third party,” Orff, 358 F.3d at
1145, or even a showing that the contract “operates to the
[third parties’] benefit and was entered into with [them] ‘in
mind,’ ” id. at 1147. Rather, we examine the “precise lan-
guage of the contract for a ‘clear intent’ to rebut the presump-
tion that the [third parties] are merely incidental
beneficiaries.” Id. at 1147 n.5.

   [4] Having done this analysis, we are persuaded that cov-
ered entities are intended beneficiaries of the PPA and,
accordingly, that Santa Clara has stated a breach of contract
               COUNTY OF SANTA CLARA v. ASTRA USA                     16573
claim on a third party beneficiary theory. At the outset, we
reject the suggestion that the availability of a third party con-
tract claim is conditioned on the contract’s inclusion of a pro-
vision expressly granting the third party the right to sue. Any
intended beneficiary has the right to enforce the obligor’s
duty of performance; the right to sue inheres in one’s status
as an intended beneficiary. See Klamath, 204 F.2d at 1211
n.2; see also Far W. Fed. Bank, S.B. v. Office of Thrift
Supervision-Director, 119 F.3d 1358, 1363 (9th Cir. 1997)
(“[A] third party who is an intended beneficiary of a contract
may sue to enforce the contract or to obtain an appropriate
remedy for breach.”); Restatement (Second) of Contracts
§ 304 (1981). To require additionally of intended beneficia-
ries that the contract by its terms provide for third party
enforcement would read the distinction between incidental
and intended beneficiaries out of the federal common law of
contracts. See United States v. City of Los Angeles, 288 F.3d
391, 403-04 (9th Cir. 2002) (“[W]e allowed intended third-
party beneficiaries to sue . . . and did not allow incidental
third-party beneficiaries to sue.”); Restatement (Second) of
Contracts § 302 (1981). In disavowing any absolute require-
ment that the contract expressly provide for third party
enforcement, we reaffirm Klamath’s “clear intent” principle
with respect to intended beneficiary status. We simply clarify
that if the plaintiff is an intended beneficiary — with Klamath
and progeny setting forth the requisite showing — then the
third party contract claim may go forward.6 Only when the
  6
    The Manufacturers suggest that US Ecology, Inc. v. United States, 245
F.3d 1352 (Fed. Cir. 2001), is to the contrary. Not so. The Federal Circuit
declined to allow third party beneficiary enforcement of the contract
because there was no “evidence of an intent by the federal government to
benefit” the plaintiffs. Id. at 1357; see also id. at 1356 (“It is undisputed
that the evidence contains no statement by the federal government that it
intended for the alleged contract to benefit any third party.”). US Ecology
reaffirmed the principle stated in the text. “In order to create rights in a
third party, ‘the contract must reflect[ ] the express or implied intention of
the parties to benefit the third party.’ ” Id. at 1356 (quoting Montana, 124
F.3d at 1273) (alteration in original). “One way” — but by no means the
exclusive one — of ascertaining whether the parties had such an intent is
to ask whether the contract expressly “confer[s] a right” to performance
on third parties. See id. (emphasis added).
16574         COUNTY OF SANTA CLARA v. ASTRA USA
plaintiff would qualify solely as an incidental beneficiary of
the government contract is it necessary to have an express,
specific statement of the promisor’s contractual liability to
that third party (such as by an express right-to-sue clause).
See Smith, 418 F.3d at 1038; Montana, 124 F.3d at 1273 &
n.6; Restatement (Second) of Contracts § 313(2) & cmt. a
(1981).

   [5] We hold that the parties to the PPA clearly intended to
grant covered entities enforceable rights as intended benefi-
ciaries of that agreement. See Kremen, 337 F.3d at 1029. In
determining this central question of the parties’ intent, we
look at the contract’s “text and purpose,” Smith, 418 F.3d at
1034, “[e]xamin[ing] . . . the contract as a whole,” Klamath,
204 F.3d at 1212. We also weigh the “circumstances of the
transaction,” Far West, 119 F.3d at 1364, which, when a con-
tract is mandated by a federal statute, includes the “governing
statute and its purpose,” Sec’y of State for Def. v. Trimble
Navigation Ltd., 484 F.3d 700, 706 (4th Cir. 2007) (internal
quotation marks omitted); see also Rendleman v. Bowen, 860
F.2d 1537, 1541-42 (9th Cir. 1988).

   [6] In acceding to the PPA, the Manufacturers undertook a
specific responsibility to the covered entities: “Pursuant to
[§ 256b], the Manufacturer agrees . . . . to charge covered
entities a price for each unit of the drug that does not exceed”
the ceiling price of that drug. See PPA § II(a) (emphasis
added). Smith, Kremen, Orff and Klamath — all of which
rejected plaintiffs’ claims to be intended beneficaries — are
distinguishable on this ground alone.7 There is a stark contrast
   7
     Cf. Smith, 418 F.3d at 1036-37 (agreement simply “specifie[d] that the
government’s obligation . . . is subject to . . . federal law,” confirmed
water district’s “agree[ment] to abide by the terms of . . . subcontracts”
and otherwise amounted to “hortatory statement[s] of purpose”); Kremen,
337 F.3d at 1029 (agreement only articulated defendant’s responsibility to
effectively, efficiently and timely manage Internet domain name registra-
tion system); Orff, 358 F.3d at 1145-46 (agreement “ma[de] reference” to
               COUNTY OF SANTA CLARA v. ASTRA USA                    16575
between “recitation of constituencies,” “explanatory recitals”
of purpose and references to individuals that the contracting
parties had “in mind” — all insufficient to “prove [the plain-
tiffs’] intended beneficiary status” — and the terms at issue
here. See Smith, 418 F.3d at 1037; Orff, 358 F.3d at 1147;
Klamath, 204 F.3d at 1212. Section II(a) of the PPA sets forth
an unambiguous, concrete limitation on how much the Manu-
facturers may charge the covered entities.8 Other provisions of
the PPA explain how to calculate the ceiling price, see PPA
§§ I(a), (b), (l), identify who is eligible to receive the dis-
counted price, see PPA §§ I(e), III(a), and require the parties
to maintain records relevant to those matters, see §§ PPA
II(c)-(f), III(b)-(c). Upon a fair reading of the PPA, we are
unable to discern any substantial purpose of the PPA other
than to grant eligible covered entities a discount on covered
drugs. We are therefore persuaded that the PPA, on its face,
was clearly intended to benefit the covered entities directly.

   [7] Consideration of § 256b, the “governing statute” speci-
fying the PPA’s terms, and its purposes reinforces this inter-
pretation. See Trimble Navigation, 484 F.3d at 706. (The PPA
itself provides that “ambiguities shall be interpreted in the
manner which best effectuates the statutory scheme.” See
PPA § VII(g).) Section II(a) of the PPA closely tracks Section
602 of the Veterans Health Care Act of 1992, which was
enacted to “require a manufacturer to extend the same price

the plaintiffs only in context of setting forth “conditions precedent” that
they had to satisfy); Klamath, 204 F.3d at 1211-12 (agreement “grant[ed]
discretion to the United States . . . to enforce the Contract by taking con-
trol of the Dam” and “preserve[d] the United States’ ultimate control over
the Dam”).
   8
     Although the PPA does not state in so many words that it was entered
into “for the benefit” of the covered entities, see Far West, 119 F.3d at
1364 n.2, we have never conditioned our analysis of intended beneficiary
status on formalistic recitals. Cf. United States v. FMC Corp., 531 F.3d
813, 822 (9th Cir. 2008) (“[A] contract can use whatever terms the parties
wish to express their agreement.”).
16576         COUNTY OF SANTA CLARA v. ASTRA USA
reduction to a covered entity for a drug or biological as is pro-
vided under the Medicaid outpatient drug rebate program.”
Joint Explanatory Statement on H.R. 5193, 138 Cong. Rec.
S17890, 1992 U.S.C.C.A.N. 4186, 4211. Its purpose was “to
enable . . . certain Federally-funded clinics [i.e., covered enti-
ties] to obtain lower prices on the drugs that they provide to
their patients” by prohibiting “Medicaid matching funds
[from being] available for State spending on [a manufactur-
er’s covered drugs] unless the manufacturer enters into, and
complies with, an agreement . . . under which these protected
purchasers [e.g., covered entities] would pay the same amount
for a covered outpatient drug that Medicaid pays.” H.R. Rep.
No. 102-384(II), at 7-8 (1992) (emphasis added). “In giving
these ‘covered entities’ access to price reductions the Com-
mittee intends to enable these entities to stretch scarce Federal
resources as far as possible, reaching more eligible patients
and providing more comprehensive services.” Id. at 12
(emphasis added). Thus, although we agree with the Manufac-
turers that § 256b’s general purpose is to “conserve federal
resources so as to reach as many eligible patients as possible,”
the legislative history makes plain that Congress intended to
accomplish this objective by enabling covered entities (and
other “protected” purchasers, a revealing choice of words) to
obtain discounted prices on covered drugs through the PPAs.9

   Relying on D’Amato v. Wisconsin Gas Co., 760 F.2d 1474
(7th Cir. 1985), the Manufacturers contend that the PPA’s
provision of an “elective” or “informal” dispute resolution
process means the parties intended to preclude third party
enforcement of the contract by the covered entities. Sections
IV(a), (b) and (d) of the PPA allow manufacturers to refer cer-
tain disputes they have with covered entities to the Secretary
  9
   Protected purchasers also include the Department of Veterans Affairs,
the Department of Defense, the Public Health Service and the Indian
Health Service. See Veterans Health Care Act of 1992 § 603(a), Pub. L.
No. 102-585, 106 Stat. 4943, 4972 (codified at 38 U.S.C. § 8126(b)); H.R.
Rep. No. 102-384(II), at 7-8.
               COUNTY OF SANTA CLARA v. ASTRA USA                    16577
to conduct an investigation. If the Secretary then finds that the
covered entity is in violation, he may impose monetary liabil-
ity or remove the entity from the list of eligible entities.10
Conversely, if the Secretary believes a manufacturer has over-
charged covered entities, he may initiate an “informal dispute
resolution process,” which could result in the covered entities
being reimbursed and the manufacturer’s PPA being termi-
nated. See PPA § IV(c). The Manufacturers also cite DHHS’s
regulations, which, apart from the PPA, establish a “voluntary
process for the resolution of certain disputes between manu-
facturers and covered entities concerning compliance with the
provisions” of § 256b. See Manufacturer Audit Guidelines
and Dispute Resolution Process, 61 Fed. Reg. 65,406-01,
65,411-13 (Dec. 12, 1996). This process is also voluntary:
“Covered entities or manufacturers are not required to enter
this informal process for resolution of disputes . . . .” Id. at
65,411.

   D’Amato does not support the Manufacturers’ argument.
There, the plaintiffs attempted to bring suit as third party ben-
eficiaries of affirmative action provisions whose inclusion in
procurement contracts was required by Section 503 of the
Rehabilitation Act of 1973. As a threshold matter, the con-
tracts themselves suggested that the plaintiffs were not
intended beneficiaries; they were “not directed at the handi-
capped in any way but instead focus[ed] exclusively on the
government-contractor relationship.” D’Amato, 760 F.2d at
1479. The court found further support for its conclusion that
the disabled were not intended beneficiaries in Section 503
  10
     The informal dispute resolution remedies against the covered entities
run through the Secretary, who has the power to “establish a mechanism
to ensure that covered entities comply” with the Section 340B program’s
requirements      and     sanction    them     for    noncompliance.     See
§ 256b(a)(5)(A)(ii), (D). We construe these PPA provisions as simply
restating the covered entities’ statutory obligations, because as a matter of
federal common law, even a third party beneficiary “cannot be bound to
a contract it did not sign.” See Comer v. Micor, Inc., 436 F.3d 1098, 1102
(9th Cir. 2006).
16578         COUNTY OF SANTA CLARA v. ASTRA USA
and its implementing regulations, which established an
administrative remedy for any “handicapped individual [who]
believe[d] any contractor has failed . . . to comply” with the
affirmative action provisions and emphasized the resolution
of disputes “by informal means, including conciliation[ ] and
persuasion.” See id. at 1477 n.1, 1481-82 (citing 29 U.S.C.
§ 793(b) and 41 C.F.R. § 60-741.28(a) (1984)).

   We perceive four material differences between the contract
and statute in D’Amato and those here. First, as discussed
above, the PPA sets forth the contracting parties’ clear intent
to directly benefit the covered entities. Cf. id. at 1479-80. Sec-
ond, § 256b says nothing about the covered entities’ remedies,
whether judicial or administrative. Cf. id. at 1481 (“The statu-
tory grant of one remedy . . . without mention of any other . . .
implies that Congress intended to bar other remedies.”)
(emphasis added). Third, allowing covered entities to bring
suit as third party beneficiaries would not conflict with the
PPA’s informal dispute resolution process, given that the enti-
ties themselves are unable to initiate that process.11 Last, the
voluntary administrative dispute resolution procedure created
by DHHS’s regulations expressly leaves open resort to “other
remedies which may be available under applicable principles
of law.” See 61 Fed. Reg. at 65,412; see also id. at 65,411
(“[Covered] entities are only encouraged to participate in the
process before seeking other remedies.”). In sum, neither the
PPA nor § 256b establishes an exclusive “elaborate adminis-
trative procedure,” D’Amato, 760 F.2d at 1482, that — were
such a procedure to exist — would signal the parties’ intent
  11
     Cf. FMC Corp., 531 F.3d at 823 (declining to recognize intended ben-
eficiary status because that would “grant a broader range of dispute-
resolving rights to [third parties] than to the [contracting] parties,” who
were required to exhaust the contract’s “prescribed dispute resolution
mechanisms” before bringing suit). By contrast, the PPA provides that its
informal dispute resolution process will not “preclude the Manufacturer or
the Secretary from exercising such other remedies as may be available by
law.” See PPA § IV(e).
              COUNTY OF SANTA CLARA v. ASTRA USA                 16579
to deny covered entities the right to enforce the PPA through
litigation as intended beneficiaries.

   The Manufacturers’ remaining arguments against the cov-
ered entities’ intended beneficiary status are no more convinc-
ing. First, they contend it is “illogical” that the United States
and the Manufacturers would have intended to expose them-
selves to suit by the large number of covered entities, about
13,000 reported as of this writing.12 The breadth and indefi-
niteness of a class of beneficiaries is entitled to some weight
in negating the inference of intended beneficiary status. See
Price v. Pierce, 823 F.2d 1114, 1121 (7th Cir. 1987) (com-
menting that parties would not likely have intended that “al-
most every lower-income person in the United States” could
enforce the contract). But numbers alone are not determina-
tive. For example, in Hook v. State of Ariz., Dep’t of Corr.,
972 F.2d 1012, 1014-15 (9th Cir. 1992), we recognized all
inmates of the Arizona prison system as intended beneficia-
ries of a consent decree regulating mail policies. Similarly in
this case, covered entities constitute a narrow, well-defined
class, not at all akin to members of the public at large. See
§ 256b(a)(4) (defining “covered entity”); PPA § III(a) (mak-
ing available list of eligible covered entities), § IV(b) (proce-
dure for challenging eligibility of covered entities).

   We are also unmoved by the Manufacturers’ protest that
they “surely would not have agreed to subject themselves to
a large number of lawsuits that could undermine the confiden-
tiality” of pricing data through discovery, given the PPA’s
inclusion of a confidentiality provision.13 The confidentiality
  12
      See Department of Health and Human Services, Office of Pharmacy
Affairs, Growth of 340B Covered Entity Sites From 01/1998 to Present,
http://opanet.hrsa.gov/opa/Report/StatisticalReport.aspx.
   13
      This argument is problematic for another, more pragmatic reason,
which is that the PPA was not a conventionally negotiated contract. Pre-
sumably, the Manufacturers would have preferred not to give covered
entities any discount at all, but they faced an overwhelmingly powerful
16580          COUNTY OF SANTA CLARA v. ASTRA USA
provision itself, however, contemplates that such information
could well be subject to disclosure for purposes of enforcing
the PPA’s discount pricing requirements beyond any actions
the Secretary might initiate. Section V(a) specifies that infor-
mation disclosed to the Secretary by the Manufacturers, “ex-
cept as otherwise required by law, will not be disclosed by the
Secretary or his designee in a form which reveals the Manu-
facturer, except as necessary to carry out the provisions of
[§ 256b] and to permit review by the [OIG].” (Emphasis
added.) As the italicized phrases highlight, the confidentiality
provision anticipates that disclosures could be required other
than to or by the Secretary. A district court’s discovery order
compelling the production of documents would be a disclo-
sure “required by law”; and it would be the manufacturer, not
the Secretary, disclosing the information. To the extent a drug
company would rightly be concerned about sensitive pricing
information, district courts routinely enter protective orders to
prevent the undue disclosure of commercially sensitive infor-
mation. See Fed. R. Civ. P. 26(c); Phillips ex rel. Estates of
Byrd v. Gen. Motors Corp., 307 F.3d 1206, 1210-12 (9th Cir.
2002). Thus we are unwilling to read the PPA’s confidential-
ity proviso as negating third party covered entities’ right to
enforce the discount pricing requirements themselves.

                                  II.

  Although we conclude that covered entities are intended
beneficiaries of the PPA, and so would ordinarily be entitled

incentive to accept the PPA. Eligibility for a number of substantial federal
healthcare programs is conditioned on having an effective § 256b agree-
ment with the Secretary. See § 1396r-8(a)(1), (a)(5)(A); see generally
Joint Explanatory Statement on H.R. 5193, 138 Cong. Rec. S17890, 1992
U.S.C.C.A.N. 4186, 4211 (explaining that § 256b makes the “use of fed-
eral matching funds for payment for a covered outpatient drug [by State
Medicaid programs] . . . contingent on . . . a manufacturer’s entering into
[ ] an agreement . . . under which the manufacturer agrees to provide
rebates or discounts to” covered entities).
               COUNTY OF SANTA CLARA v. ASTRA USA                    16581
to bring suit to enforce it, the Manufacturers urge that this is
not the usual intended beneficiary case and that permitting
third party enforcement of the PPA would conflict with Con-
gress’ intent in creating the Section 340B program.14 In this
vein, they point to Santa Clara’s concession before the district
court that there is no private federal cause of action under
§ 256b.15 See generally Alexander v. Sandoval, 532 U.S. 275
(2001). Because Congress did not provide a statutory remedy,
the Manufacturers argue, it necessarily did not intend to allow
covered entities to make an “end-run” around the statutory
scheme by pursuing contractual remedies under the federal
common law.

   [8] The starting point of this argument is the truism that
federal common law, of which the federal common law of
contracts forms a part, “is ‘subject to the paramount authority
of Congress.’ ” City of Milwaukee v. Illinois & Michigan, 451
U.S. 304, 313 (1981) (quoting New Jersey v. New York, 283
U.S. 336, 348 (1931)). We presume that Congress legislates
with the expectation that the principles of the federal common
law “will apply except ‘when a statutory purpose to the con-
trary is evident.’ ” Astoria Fed. Savings & Loan Ass’n v.
Solimino, 501 U.S. 104, 108 (1991) (quoting Isbrandtsen Co.
v. Johnson, 343 U.S. 779, 783 (1952)). However, when Con-
gress “speak[s] directly” to a question addressed by the fed-
eral common law, it may displace it even without
“affirmatively proscrib[ing]” its use. United States v. Texas,
507 U.S. 529, 534 (1993); see also Gardiner v. Sea-Land Ser-
vice, Inc., 786 F.2d 943, 947 (9th Cir. 1986). “In evaluating
   14
      Although this argument was raised for the first time in the Manufac-
turers’ reply to Santa Clara’s opposition to its motion to dismiss and the
district court did not address it, we will pass on the merits here. The issue
is one of law and has been fully briefed by both parties. See Pocatello
Educ. Ass’n v. Heideman, 504 F.3d 1053, 1060 n.5 (9th Cir. 2007); Bibeau
v. Pac. Northwest Research Foundation Inc., 188 F.3d 1105, 1111 n.5 (9th
Cir. 1999).
   15
      Santa Clara has not pursued this matter on appeal, so we assume with-
out deciding that § 256b does not create a private cause of action.
16582          COUNTY OF SANTA CLARA v. ASTRA USA
the displacement issue, courts must assess the scope of the
legislation and whether the legislative scheme addresses the
problem formerly governed by federal common law.” Gardi-
ner, 786 F.2d at 947.16 The Manufacturers, relying almost
exclusively on Grochowski v. Phoenix Constr., 318 F.3d 80
(2d Cir. 2003), contend that § 256b does just that and, there-
fore, to allow covered entities to enforce the PPA as a matter
of contract would be inconsistent with Congress’ choice of
remedies.

   In Grochowski, the Second Circuit did not permit the plain-
tiffs to bring suit as third party beneficiaries of a contract
between the contractor defendants and New York City’s pub-
lic housing authority. See 318 F.3d at 83. Under the Davis-
Bacon Act, 40 U.S.C. § 3141, all construction contracts for
federally funded projects must include the following provi-
sion: “[t]he Contractor shall pay to all laborers . . . not less
than the wages prevailing in the locality of the Project, as pre-
determined by the Secretary of Labor of the United States.”
Id. (first alteration in original). Exercising his authority under
40 U.S.C. § 3145 to “prescribe reasonable regulations for con-
tractors” subject to the Davis-Bacon Act, the Secretary of
Labor established an administrative remedial scheme. See id.
at 85; Chan v. City of New York, 1 F.3d 96, 102 (2d Cir. 1993)
(citing 29 C.F.R. §§ 1.8, 5.6(a)(3), 5.11). Given these admin-
   16
      This is a different and less demanding inquiry than that used to evalu-
ate whether a federal statute preempts a state-law cause of action, see City
of Milwaukee, 451 U.S. at 316-17; cf. Medtronic, Inc. v. Lohr, 518 U.S.
470, 485 (1996), or whether a federal statute’s comprehensive remedial
scheme impliedly displaces a more general federal private cause of action
such as 42 U.S.C. § 1983, see Middlesex County Sewerage Auth. v. Nat’l
Sea Clammers Ass’n, 453 U.S. 1, 20-21 (1981); Flores v. Arizona, 516
F.3d 1140, 1174-75 (9th Cir. 2008). See generally Resolution Trust Corp.
v. Frates, 52 F.3d 295, 296-97 (10th Cir. 1995) (explaining difference
between preemption of state law and supersession of the federal common
law). We conclude that § 256b does not abrogate the cause of action ordi-
narily provided by the federal common law of contracts; thus it does not
preempt a state-law contract cause of action, if that indeed is how Santa
Clara’s claim should be characterized. See supra note 5.
                COUNTY OF SANTA CLARA v. ASTRA USA                       16583
istrative remedies, and the absence of an explicit private cause
of action, Grochowski concluded that the “plaintiffs[’] efforts
to bring their claims as state common-law [contract] claims
[were] clearly an impermissible ‘end run’ ” around congres-
sional intent as to the availability of remedies under the
Davis-Bacon Act. 318 F.3d at 86.

   [9] Assuming Grochowski was correctly decided, the case
is clearly inapposite on its own terms.17 Its analytical under-
pinning was the “ ‘elemental canon’ of statutory construction
that where a statute expressly provides a remedy, ‘courts must
be especially reluctant to provide additional remedies.’ ” Id.
at 85 (quoting Karahalios v. Nat’l Fed’n of Employees, Local
1263, 489 U.S. 527, 533 (1989)) (emphasis added). Here,
§ 256b does not “expressly provide” any remedies to covered
entities.18 And unlike the Davis-Bacon Act, § 256b is silent
about the agency’s power to promulgate regulations against
manufacturers with the force of law. Cf. § 256b(a)(5)(A)(ii)
(“The Secretary shall establish a mechanism to ensure that
covered entities comply . . . .”) (emphasis added). Although
the Secretary may terminate the PPA with a manufacturer for
a violation of its provisions, this remedy is a matter of con-
tract, not statute. See PPA § VI(c). Reflecting this paucity of
statutory authority, DHHS’s regulations establish only an
informal, nonexclusive dispute resolution process, in which
neither covered entities nor manufacturers are required to par-
ticipate. See 61 Fed. Reg. at 65,411. Nothing in the statute
  17
      Because the Grochowski plaintiffs’ contract claims were based on
state law, not federal law, it is puzzling that the majority did not frame its
analysis in terms of whether Congress intended to preempt those claims.
See, e.g., Grochowski, 318 F.3d at 90-91 (Lynch, J. dissenting); Cox v.
NAP Constr. Co., Inc., 10 N.Y.3d 592, 603-07 (N.Y. 2008).
   18
      Section 256b does provide a number of remedies against covered enti-
ties. See, e.g., § 256b(a)(5)(C) (“A covered entity shall permit the Secre-
tary and [manufacturers] . . . to audit . . . records of the entity that directly
pertain to the entity’s compliance” with the program.); (a)(5)(D) (“If the
Secretary finds . . . that a covered entity is in violation . . . the covered
entity shall be liable . . . .”).
16584       COUNTY OF SANTA CLARA v. ASTRA USA
suggests that Congress intended that DHHS create a substi-
tute, administrative remedial scheme for covered entities to
invoke against manufacturers. Thus, there is nothing “addi-
tional” about the federal common law contract remedy that
the covered entities could invoke as intended beneficiaries of
the PPA. Cf. Golt v. United States, 186 F.3d 1158, 1164 (9th
Cir. 1999) (holding that Civil Service Reform Act, which
expressly created exclusive administrative remedy, abrogated
remedies under federal common law).

   [10] Permitting covered entities to sue as intended benefi-
ciaries of the PPA is therefore wholly compatible with the
Section 340B program’s objectives. Cf. Trimble Navigation,
484 F.3d at 707 (“[R]ecognition of third-party beneficiary sta-
tus in a contract made under a statutory scheme must accord
with that scheme . . . .”); Restatement (Second) of Contracts
§ 313(1) (1981) (limiting application of third party benefi-
ciary doctrine when it “would contravene the policy of the
law authorizing the contract or prescribing remedies for its
breach”). As we have explained, the Section 340B program
was created to give covered entities discounts so they could
“stretch scarce Federal resources as far as possible, reaching
more eligible patients and providing more comprehensive ser-
vices.” H.R. Rep. No. 102-384(II), at 12 (1992). Federal com-
mon law contract remedies are one way of ensuring that drug
companies comply with their obligations under the program
and provide those discounts. See Price, 823 F.2d at 1121
(observing that it “seemed more sensible” to permit third par-
ties to sue as intended beneficiaries than to “place the entire
burden of enforcement” on the government).

                            III.

   [11] Finally, we decline at this time to invoke the doctrine
of primary jurisdiction, which would require that Santa
Clara’s contract claim be stayed or dismissed without preju-
dice pending its referral to the Secretary for agency resolu-
tion. The doctrine of primary jurisdiction “is a prudential
            COUNTY OF SANTA CLARA v. ASTRA USA             16585
doctrine under which courts may, under appropriate circum-
stances, determine that the initial decisionmaking responsibil-
ity should be performed by the relevant agency rather than the
courts.” Syntek Semiconductor Co., Ltd. v. Microchip Tech.
Inc., 307 F.3d 775, 780 (9th Cir. 2002). “[P]rimary jurisdic-
tion is properly invoked when a claim is cognizable in federal
court but requires resolution of an issue of first impression, or
of a particularly complicated issue that Congress has commit-
ted to a regulatory agency.” Id. (quoting Brown v. MCI Wor-
ldCom Network Servs., Inc., 277 F.3d 1166, 1172 (9th Cir.
2002)). The doctrine does not require that all claims touching
on an agency’s expertise first be decided by the agency, how-
ever. See id. “The particular agency deferred to must be one
that Congress has vested with the authority to regulate an
industry or activity such that it would be inconsistent with the
statutory scheme to deny the agency’s power to resolve the
issues in question.” United States v. Culliton, 328 F.3d 1074,
1082 (9th Cir. 2003) (internal quotation marks omitted). To
determine whether primary jurisdiction should be applied, we
have “employed such factors as (1) the need to resolve an
issue that (2) has been placed by Congress within the jurisdic-
tion of an administrative body having regulatory authority (3)
pursuant to a statute that subjects an industry or activity to a
comprehensive regulatory authority that (4) requires expertise
or uniformity in administration.” Syntek, 307 F.3d at 781.

   [12] In determining whether to invoke primary jurisdiction,
we also consider the procedural posture of the case. At the
motion to dismiss stage, we apply a standard derived from
Rule 12(b)(6) jurisprudence: whether the complaint plausibly
asserts a claim that would not implicate the doctrine. See Ash-
croft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (requiring that a
complaint be facially plausible to survive a motion to dis-
miss); Davel Commc’ns, Inc. v. Quest Corp., 460 F.3d 1075,
1088 (9th Cir. 2006) (noting that the Rule 12(b)(6) standard
governs a primary jurisdiction claim). Having been advised of
the Secretary’s views, we conclude that Santa Clara’s com-
16586          COUNTY OF SANTA CLARA v. ASTRA USA
plaint does not require referral under this standard.19 At this
stage, the nature of the breaches Santa Clara will seek to
prove is unclear, but the Secretary has indicated that at least
some possible disputes could be resolved by a court without
DHHS’s expertise. Thus, we decline to invoke primary juris-
diction at this time, but leave open the possibility that the dis-
trict court may decide after further factual development that
referral to the Secretary is appropriate.

                            CONCLUSION

   As intended direct beneficiaries of the PPA, covered enti-
ties may enforce the Manufacturers’ ceiling price obligations
under the federal common law of contracts. Although the stat-
ute mandating the PPA does not create a federal private cause
of action, allowing Santa Clara’s contract claim to go forward
is consistent with Congress’ intent in enacting the legislative
scheme. Because that claim could plausibly be adjudicated
without DHHS’s expertise, invoking primary jurisdiction is
not appropriate at this time.

   REVERSED and REMANDED.

   19
      At our invitation, the United States submitted a brief to articulate the
Secretary’s views on whether we should invoke primary jurisdiction to
allow DHHS to resolve Santa Clara’s claims. See Brief for the United
States of America as Amicus Curiae in Support of the Judgment Below,
County of Santa Clara v. AstraZeneca Pharmaceuticals LP, No. 09-15216
(9th Cir. Oct. 27, 2009); cf. supra note *.