United States Court of Appeals
For the First Circuit
No. 05-1606
PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION,
Plaintiff, Appellant,
v.
G. STEVEN ROWE, in his official capacity as
ATTORNEY GENERAL OF THE STATE OF MAINE,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. D. Brock Hornby, U.S. District Judge]
Before
Boudin, Chief Judge,
Torruella, Circuit Judge,
and Dyk,* Circuit Judge.
William J. Kayatta, Jr., with whom John J. Aromando, Catherine
R. Connors, Pierce Atwood LLP, Paul J. Ondrasik, Jr., Martin D.
Schneiderman, and Steptoe & Johnson LLP, were on brief, for
appellant.
Andrew L. Black, Assistant Attorney General, with whom Paul
Stern, Deputy Attorney General, G. Steven Rowe, Attorney General,
and Ronald W. Lupton, Assistant Attorney General, were on brief,
for appellee.
November 8, 2005
*
Of the Federal Circuit, sitting by designation.
Per Curiam. The panel unanimously affirms the district
court's grant of summary judgment for defendant on all claims. On
the ERISA preemption, due process, and Commerce Clause issues, the
panel unanimously adopts Judge Torruella's reasoning. As to the
association standing, Takings Clause, and First Amendment issues,
the joint concurring opinion of Chief Judge Boudin and Judge Dyk
represents the opinion of the court.
Affirmed.
"Opinion follows."
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TORRUELLA, Circuit Judge. This appeal arises from an
attempt by plaintiff-appellant Pharmaceutical Care Management
Association ("PCMA") to challenge the provisions of Maine's Unfair
Prescription Drug Practices Act ("UPDPA"), Me. Rev. Stat. Ann. tit.
22, § 2699 (2005). PCMA brought suit against defendant-appellee G.
Steven Rowe, Attorney General of the State of Maine, seeking to
obtain an order enjoining enforcement of the UPDPA. The parties
issued cross-motions for summary judgment, and the district court
denied PCMA's motion and granted the motion of the Attorney
General. PCMA now appeals this decision. For the reasons
hereinafter stated, we affirm the decision of the district court.
I. Factual Background
PCMA is a national trade association of pharmacy benefit
managers (PBMs). PBMs are major players in the delivery of health
care in the United States. They act as middlemen in the lucrative
business of providing prescription drugs. They serve as
intermediaries between pharmaceutical manufacturers and pharmacies
on the one hand (as the district court noted, the "supply" side of
the trade) and health benefit providers (e.g., insurers, self-
insured entities, health maintenance organizations, and public and
private health plans) on the other (the "demand" side). The
services that PBMs extend are designed to facilitate the provision
of prescription drug benefits to the people who utilize the
services of the health benefit providers.
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For example, PBMs often provide health benefit providers
with access to an established network of pharmacies, where
customers of the health benefit providers can obtain drugs at
certain set prices. PBMs negotiate volume discounts and rebates
with drug manufacturers by pooling substantial numbers of health
benefit providers. This pooling gives the PBMs tremendous market
power to demand concessions from the manufacturers. PBMs also
provide drug utilization review services and "therapeutic
interchange programs" (in other words, substituting a drug for the
one actually prescribed by a doctor).
In this role as intermediary, however, PBMs have the
opportunity to engage in activities that may benefit the drug
manufacturers and PBMs financially to the detriment of the health
benefit providers. For example, in cases of "therapeutic
interchange," a PBM may substitute a more expensive brand name drug
for an equally effective and cheaper generic drug. This is done so
that the PBM can collect a fee from the manufacturer for helping to
increase the manufacturer's market share within a certain drug
category. Similarly, a PBM might receive a discount from a
manufacturer on a particular drug but not pass any of it on to the
health benefit provider, keeping the difference for itself. The
health benefit provider, however, often has no idea that a PBM may
not be working in its interest. This lack of awareness is the
result of the fact that there is little transparency in a PBM's
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dealings with manufacturers and pharmacies. As the district court
noted, "[w]hether and how a PBM actually saves an individual
benefits provider customer money with respect to the purchase of a
particular prescription drug is largely a mystery to the benefits
provider." Pharm. Care Mgmt. Ass'n v. Rowe, No. 05-1606, 2005 U.S.
Dist. LEXIS 2339, at *6 (D. Me. Feb. 2, 2005).
With the aim of placing Maine health benefit providers in
a better position to determine whether PBMs are acting against
their interests, and correspondingly, to help control prescription
drug costs and increase access to prescription drugs, the Maine
Legislature enacted the UPDPA in the spring of 2003. The UPDPA
imposes a number of requirements on those PBMs that choose to enter
into contracts in Maine with "covered entities" -- meaning health
benefit providers and including, in part, insurance companies, the
state Medicaid program, and employer health plans. Such PBMs are
required to act as fiduciaries for their clients and adhere to
certain specific duties. For example, they must disclose conflicts
of interest, disgorge profits from self-dealing, and disclose to
the covered entities certain of their financial arrangements with
third parties. Me. Rev. Stat. Ann. tit. 22, §§ 2699(2)(A-G)
(2005). The disclosures made by the PBMs to the covered entities
are protected by confidentiality. None of the disclosures are
available to the public.
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PCMA, on behalf of its member PBMs, challenges the UPDPA
on five separate grounds. First, it claims that the Maine law was
preempted by either the Employee Retirement Income Security Act of
1974 ("ERISA") or the Federal Employee Health Benefits Act
("FEHBA"). PCMA's second argument is that the UPDPA violates the
Takings Clause of the Fifth Amendment because it conditions doing
business in Maine upon the forced disclosure or taking of
proprietary information. Third, PCMA states that the provisions of
the UPDPA violate due process because they provide no pre-
deprivation hearing. Fourth, the association claims that the UPDPA
disclosure provisions violate the First Amendment by compelling
commercial speech in the context of a voluntary business
relationship. PCMA's final argument is that the UPDPA violates the
Commerce Clause, either through its "extraterritorial reach" or by
excessively burdening interstate commerce.1
In the proceedings below, the parties issued cross-
motions for summary judgment. The magistrate judge responsible for
the case recommended to the district court that summary judgment be
1
PCMA also alleges a violation of 42 U.S.C. § 1983 (2000),
claiming that the UPDPA subjects PCMA's member PBMs to the
deprivation of "rights, privileges, or immunities secured by the
Constitution." The district court entered summary judgment in
favor of the appellee on this claim. It reasoned that since the
UPDPA did not run afoul of any of the federal rights raised by
PCMA, summary judgment was proper on PCMA's § 1983 claim. PCMA
raises this same § 1983 claim on appeal but provides no additional
discussion on the matter. Because we also find that the UPDPA is
not violative of any federal rights, we think the district court
was correct in disposing of this claim on summary judgment.
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entered in favor of the Attorney General on all claims. The
district court agreed with this recommendation and upheld the UPDPA
against all of PCMA's challenges. Upon careful review, we now
affirm.
II. Discussion
A. Standard of review
We review a district court's ruling on cross-motions for
summary judgment de novo. Calero-Cerezo v. Dep't of Justice, 355
F.3d 6, 19 (2004).
B. Preemption claims2
ERISA is "a comprehensive statute designed to promote the
interests of employees and their beneficiaries in employee benefit
plans." Shaw v. Delta Airlines, 463 U.S. 85, 90 (1983). The
statute includes a broadly-worded preemption provision, 29 U.S.C.
2
In addition to its claim that the UPDPA is preempted by ERISA,
PCMA argues that the UPDPA is also preempted by FEHBA. FEHBA
authorizes the Office of Personnel Management to negotiate
contracts with private carriers to provide health benefits for
federal employees, retirees, and their dependents. The statute
includes an express preemption provision, 5 U.S.C. § 8902(m)(1)
(2000), that is nearly identical to ERISA's preemption provision.
Therefore, we look to ERISA precedent in determining the scope of
the preemption provision under FEHBA. See Botsford v. Blue Cross
& Blue Shield of Mont., Inc., 314 F.3d 390, 393-94 (9th Cir. 2002)
(noting that the FEBHA preemption provision closely resembles
ERISA's preemption provision and that "precedent interpreting the
ERISA provision thus provides authority for cases involving the
FEHBA provision"). Because both parties here, as they did before
the district court, agree that "whether the FEHBA preempts the
UPDPA depends on essentially the same analysis as the question of
whether ERISA preempts the UPDPA," we confine our discussion here
to examining the scope of the ERISA preemption provision. Pharm.
Care Mgmt. Ass'n, 2005 U.S. Dist. LEXIS 2339, at *29.
-7-
§ 1144(a) (2000), that Congress included "to afford employers the
advantages of a uniform set of administrative procedures governed
by a single set of regulations." Fort Halifax Packing Co. v.
Coyne, 482 U.S. 1, 11 (1987). PCMA here claims that the UPDPA is
preempted by ERISA.
1.
In examining PCMA's preemption claim, a threshold issue
we must confront is whether the PBMs act as ERISA fiduciaries.3
This is an issue with high stakes, for classification as a
fiduciary or a nonfiduciary renders a defendant liable for
different types of damages. For example, under sections 409 and
502(a)(2) of ERISA, 29 U.S.C. §§ 1109(a), 1132(a)(2), an ERISA
fiduciary is personally liable for monetary damages, for
restitution, and for "such other equitable or remedial relief as
the court may deem appropriate." 29 U.S.C. § 1109(a). A non-
fiduciary, however, is not subject to monetary damages in a suit
brought under ERISA. See Mertens v. Hewitt Assocs., 508 U.S. 248,
262 (1993) (noting how "[p]rofessional service providers such as
3
Although the district court noted that "PCMA's member PBMs are
not ERISA fiduciaries," Pharm. Care Mgmt. Ass'n, 2005 U.S. Dist.
LEXIS 2339, at *16, and the parties state that they agree to this
fact, we feel it necessary to explore this issue in some depth
here, both because our subsequent analysis relies on its outcome
and because the briefs of the parties belie their mutual contention
that they are in agreement as to the status of PBMs under ERISA.
-8-
actuaries become liable for damages when they cross the line from
adviser to fiduciary").4
Under ERISA, a fiduciary is one who exercises
discretionary authority or control in the management and
administration of an ERISA plan. 29 U.S.C. § 1002(21)(A). See
also Mertens, 508 U.S. at 251, 262. The Attorney General argues
that since PBMs do not exercise discretionary authority or control
in the management and administration of ERISA plans, they are not
fiduciaries under the definition provided for under ERISA. PCMA,
in contrast, claims that the UPDPA makes PBMs fiduciaries in
performing administration activities for ERISA plans. The UPDPA,
after all, targets PBMs that contract with "covered entities" --
insurance companies, the state Medicaid program, and employer
health plans -- some of which may be ERISA plans. The UPDPA
requires PBMs to be fiduciaries of the covered entities with which
they contract. Therefore, when a PBM contracts with a covered
entity that happens to be an ERISA plan, the PBM is a fiduciary of
that ERISA plan.
Although the UPDPA does impose certain fiduciary duties
on the PBMs, these are duties imposed under state law. The key
4
In Mertens, the Supreme Court expressly reserved the question as
to whether ERISA provides for a cause of action against
nonfiduciaries who assist in a fiduciary's breach of duty. The
Court, however, did resolve the question as to whether a
nonfiduciary in such a suit would be subject to monetary damages.
See Mertens, 508 U.S. at 253-54.
-9-
issue here, however, is whether the PBMs are fiduciaries under the
definition of a fiduciary provided in ERISA. Our review of the
requirements imposed on the PBMs under the UPDPA lead us to believe
that the PBMs do not exercise "discretionary authority or control
in the management and administration of the plan." 29 U.S.C.
§ 1002(21)(A). For example, the UPDPA provisions requiring
disclosure of conflicts of interest and payments from drug
manufacturers are administrative provisions involving no discretion
on the part of the PBMs. Such duties are purely ministerial and
simply not sufficient for us to find that the PBMs are acting as
fiduciaries under ERISA.
2.
With that threshold matter disposed of, we are now able
to confront the main issue at hand: Is the UPDPA preempted by
ERISA? PCMA claims that ERISA does preempt the UPDPA because ERISA
preempts all state laws that "relate to any ERISA covered employee
benefit plan," 29 U.S.C. § 1144(a), regardless of whether an entity
is acting as a fiduciary or not. The state, in contrast, argues
that the UPDPA is not preempted by ERISA because ERISA only
preempts state laws relating to acts performed by ERISA
fiduciaries. Since the PBMs regulated by the UPDPA are not
fiduciaries under ERISA, there can be no preemption in this
instance.
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To answer the question of what exactly ERISA preempts, we
first turn to the statute itself. ERISA's preemption provision
states explicitly that ERISA "shall supersede any and all State
laws insofar as they may now or hereafter relate to any employee
benefit plan." 29 U.S.C. § 1144(a) (2000). Looking only at the
face of the statute, then, it appears that PCMA is correct. With
its broad and expansive language, the ERISA preemption provision
seems to say that all state laws that in any way "relate to" any
ERISA-covered employee benefit plan are preempted.
The Supreme Court, however, has stated that the language
of the ERISA preemption provision is not as broad as it seems. The
Court has emphasized that the expansive language of the provision
is still subject to "the starting presumption that Congress does
not intend to supplant state law" and has warned "that, unless
congressional intent to preempt clearly appears, ERISA will not be
deemed to supplant state law in areas traditionally regulated by
the states." New York State Conf. of Blue Cross & Blue Shield
Plans v. Travelers Ins. Co., 514 U.S. 645, 654, 661 (1995);
Carpenters Local Union No. 26 v. U.S. Fid. & Guar. Co., 215 F.3d
136, 139-40 (1st Cir. 2000).
Realizing, then, that the exact scope of the ERISA
preemption provision is imprecise and that the provision cannot be
read literally, the Court has developed a two-part test to
determine exactly what state laws ERISA preempts. The test
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established by the Court begins with reference to the preemption
provision itself. As already stated, ERISA expressly preempts "any
and all State laws insofar as they . . . relate to any employee
benefit plan." 29 U.S.C. § 1144(a) (2000). "[T]he incidence of
ERISA preemption turns on the parameters of the phrase 'relate
to.'" Carpenters Local Union No. 26, 215 F.3d at 139. The Court
has stated that a particular state law "relates to" an employee
benefit plan "if it [1] has a connection with or [2] a reference to
such a plan." California Div. of Labor Standards Enforcement v.
Dillingham Constr., N.A., Inc., 519 U.S. 316, 324 (1997);
Carpenters Local Union No. 26, 215 F.3d at 140. We use this test
to determine whether the UPDPA is preempted by ERISA.
a) The "connection with" prong
The Supreme Court has stated that when determining
whether a state law has a "connection with" ERISA plans, a court
must avoid an "uncritical literalism" and look instead to "the
objectives of the ERISA statute as a guide to the scope of the
state law that Congress understood would survive, as well as to the
nature of the effect of the state law on ERISA plans." Egelhoff v.
Egelhoff, 532 U.S. 141, 147 (2001) (citing Travelers, 514 U.S. at
656 and Dillingham, 519 U.S. at 325) (internal quotation marks
omitted). According to the Court, "[t]he basic thrust of the pre-
emption clause . . . was to avoid a multiplicity of regulation in
order to permit the nationally uniform administration of employee
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benefit plans." Travelers, 514 U.S. at 657. State laws that
impede this goal of national uniformity will be preempted.
Therefore, we must determine here whether the UPDPA, in placing
fiduciary duties and administrative burdens on PBMs operating in
Maine, thereby precludes the ability of plan administrators to
administer their plans in a uniform fashion.
In several different cases, the Supreme Court has found
this goal of "national uniformity" to be compromised (and therefore
the state law was preempted). For example, in Alessi v. Raybestos-
Manhattan, Inc., 451 U.S. 504, 526 (1981), the Court invalidated a
New Jersey law that prohibited offsetting worker compensation
payments against pension benefits. "Since such a practice [was]
permissible under federal law and the law of other States, the
effect of the [state] statute was to force the employer either to
structure all its benefit payments in accordance with New Jersey
law, or to adopt different payment formulae for employees inside
and outside the State." Fort Halifax, 482 U.S. at 10 (discussing
the holding in Alessi). Similarly, in Egelhoff, the Supreme Court
found that "[u]niformity [was] impossible" with regard to a
Washington statute that provided that the designation of a spouse
as the beneficiary of a nonprobate asset was revoked automatically
upon divorce. Egelhoff, 532 U.S. at 148. The Court held that the
statute was preempted by ERISA because "[p]lan administrators
[could not] make payments simply by identifying the beneficiary
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specified by the plan documents. Instead, they [had to]
familiarize themselves with [specific] state statutes so that they
[could] determine whether the named beneficiary's status [had] been
'revoked' by operation of law." Id. at 148-49.5
In contrast to the state laws at issue in Alessi and
Egelhoff, the goal of national uniformity poses no problems in the
instant case. In no way does the UPDPA circumscribe the ability of
plan administrators to structure or administer their ERISA plans.
As the district court stated, "[t]he fact that the UPDPA requires
PBMs to engage in certain 'required practices' in Maine, such as
divulging the terms of contracts with pharmaceutical manufacturers
5
Alessi and Egelhoff are not the only cases in which the Supreme
Court has encountered a state law that "created the prospect that
an employer's administrative scheme would be subject to conflicting
requirements." Fort Halifax, 482 U.S. at 10. For example, in
Shaw, the Court found that two New York laws were preempted by
ERISA. One of those laws, New York's Human Rights Law, prohibited
"employers from structuring their employee benefit plans in a way
that discriminated on the basis of pregnancy." Shaw, 463 U.S. at
97. The second, New York's Disability Benefits Law, required
"employers to pay employees specific benefits." Id. The Court
held that these laws were preempted by ERISA because they "could
have been honored only by varying the subjects of a plan's benefits
whenever New York law might have applied, or by requiring every
plan to provide all beneficiaries with a benefit demanded by New
York law. Travelers, 514 U.S. at 657 (discussing the holding in
Shaw). Similarly, in FMC Corp. v. Holliday, 498 U.S. 52 (1990),
the Court discussed a Pennsylvania law that prohibited plans from
"requiring reimbursement [from the beneficiary] in the event of
recovery from a third party." Id. at 60. The law was likewise
preempted by ERISA because the law "require[d] plan providers to
calculate benefit levels in Pennsylvania based on expected
liability conditions that differ from those in States that have not
enacted similar antisubrogation legislation, [thereby]
frustrat[ing] plan administrators' continuing obligation to
calculate uniform benefit levels nationwide." Id.
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and labelers does not restrict the freedom of employee benefit
plans to administer or structure their plans in Maine precisely as
they would elsewhere." Pharm. Care Mgmt. Ass'n, 2005 U.S. Dist.
LEXIS 2339, at *23-24. This is simply not a case where "uniformity
is impossible . . . [because] plans are subject to different legal
obligations in different States." Egelhoff, 532 U.S. at 148.
In attempting to demonstrate that the UPDPA would require
employee benefit plans to implement unique measures in Maine, PCMA
points to the way in which the UPDPA attempts "to dictate the terms
of contracts between ERISA plans and PBMs, including by redefining
the duties and liabilities of PBMs to such plans, their sponsors
and participants." PCMA also points out how the UPDPA "attempts
to regulate plans' relationship[s] with PBMs when PBMs perform
administrative functions for such plans." Although the ERISA plans
can re-evaluate their working relationships with the PBMs if they
wish in light of the UPDPA, nothing in the UPDPA compels them to do
so. This is not an instance, such as that confronted by the
Supreme Court in Egelhoff, where the plan administrators were bound
to a particular choice of rules -- rules mandated by the state for
determining beneficiary status. The plan administrators here have
a free hand to structure the plans as they wish in Maine. We find,
therefore, that the UPDPA does not have an impermissible
"connection with" ERISA plans.
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b) The "reference to" prong
A state law is preempted by ERISA by virtue of an
impermissible "reference to" an ERISA plan "[w]here a State's law
acts immediately and exclusively upon ERISA plans . . . or where
the existence of ERISA plans is essential to the law's operation."
Dillingham, 519 U.S. at 325.
In Carpenters Local Union No. 26, when explaining the
scope of this test in light of the Supreme Court's decisions in
Travelers and Dillingham, we discussed two prior precedents of our
own: McCoy v. Mass. Inst. of Tech., 950 F.2d 13 (1st Cir. 1991) and
Williams v. Ashland Eng'g Co., 45 F.3d 588 (1st Cir. 1995). McCoy
dealt with a Massachusetts mechanics' lien statute that, "by its
terms, inured to the advantage of 'the trustee or trustees of any
fund or funds, established pursuant to section 302 of the Taft
Hartley [Act].'" Carpenters Local Union No. 26, 215 F.3d at 142
(noting also that any plan that grants benefits under section 302
is by definition an ERISA plan). Williams, in contrast, dealt with
a bond statute covering public works projects. Id. at 143. We
noted that this bond statute differed from the mechanics' lien
statute in McCoy in that the "bond statute makes no direct
reference to section 302" (and hence, no direct reference to ERISA)
and in that the language of the bond statute was not at all "ERISA-
specific." Id. The relevant language in Williams stood "at the
end of a long list of items," most of which had "nothing whatever
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to do with ERISA." Id. In Carpenters Local Union No. 26, we noted
that the specific reference to an ERISA plan in McCoy was what gave
rise to ERISA preemption. Id. at 142.
We think the UPDPA is similar to the state law at issue
in Williams. The existence of ERISA plans is not at all essential
to the operation of the UPDPA. The UPDPA applies regardless of
whether PBMs are serving ERISA plans. The law applies with respect
to a broad spectrum of health care institutions and health benefit
providers, including but not limited to ERISA plans. "Covered
entities" under the UPDPA includes health plans, labor union plans,
association plans, insurance companies, HMOs, medical service
organizations, and the state Medicaid program. Me. Rev. Stat. Ann.
tit. 22, § 2699(1)(A).
PCMA, in support of its proposition that ERISA plans are
essential to the UPDPA's operation, cites to Dist. of Columbia v.
Greater Washington Bd. of Trade, 506 U.S. 125 (1992). In that
case, the law at issue required an employer who provided health
insurance coverage to its employees to provide equivalent coverage
to injured employees eligible for workers' compensation benefits.
The coverage for injured employees was "measured by reference to
'the existing health insurance coverage' provided by the employer,"
which the Court found to be a "reference to" an ERISA plan and
therefore preempted under ERISA. Id. at 130.
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As we pointed out in Carpenters Local Union No. 26,
however, the law at issue in Greater Washington contained a
specific reference to an ERISA plan. See Carpenters Local Union
No. 26, 215 F.3d at 144 n.7. Such a law would be completely
inoperable if the reference to the ERISA plan were omitted. It
relied on the reference for its operation. The UPDPA, in contrast,
has no such deficiency. Although the UPDPA does operate to
regulate PBMs that contract with employee health plans -- some of
which may happen to be ERISA plans -- it also operates upon the
state Medicaid program and on insurance companies. If the
reference to employee health plans was deleted from the text of the
UPDPA, the statute would still be operable.6 As we have stated
previously, "[a] state law that applies to a wide variety of
situations, including an appreciable number that have no specific
linkage to ERISA plans, constitutes a law of general application
for purposes of 29 U.S.C. § 1144." Carpenters Local Union No. 26,
215 F.3d at 144-45 (adding that "state laws of general application
are safe from ERISA preemption").
6
We also note that in Dillingham, the Supreme Court faced a
similar situation with apprenticeship programs. Since the Court
found that the "approved apprenticeship programs [in that case]
need not necessarily be ERISA plans," it refused to find that the
California law at issue there "ma[de] reference to" ERISA plans.
Dillingham, 519 U.S. at 325.
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c) Alternative enforcement mechanism
PCMA, therefore, is unable to show that the UPDPA
"relates to" an employee benefit plan under either the "connection
with" or "reference to" prongs of the test prescribed by the
Supreme Court. PCMA, however, offers an alternative argument. It
states that the UPDPA's remedial scheme (i.e., the UPDPA's
enforcement provision in Me. Rev. Stat. Ann. tit. 22, § 2699(4)
(2005)) conflicts with the "exclusive" remedial scheme set forth by
Congress in ERISA (in 29 U.S.C. § 1132 (2000)) and is therefore
preempted.
The civil enforcement provision of ERISA, 29 U.S.C.
§ 1132 (2000), provides a mechanism by which plan participants,
beneficiaries, fiduciaries, and the Secretary of Labor can sue to
enforce rights expressly guaranteed by ERISA. 29 U.S.C. § 1132
(2000) (ERISA § 502(a)). Accordingly, "ERISA preemption proscribes
the type of alternative enforcement mechanism that purposes to
provide a remedy for the violation of a right expressly guaranteed
and exclusively enforced by the ERISA statute." Carpenters Local
Union No. 26, 215 F.3d at 141. In Ingersoll-Rand Co. v. McClendon,
498 U.S. 133 (1990), the Supreme Court specifically recognized that
a state law can be preempted as an alternative enforcement
mechanism to ERISA § 502(a).
ERISA, however, does not preempt state laws that "touch
upon enforcement but have no real bearing on the intricate web of
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relationships among the principal players in the ERISA scenario
(e.g., the plan, the administrators, the fiduciaries, the
beneficiaries, and the employer)." Carpenters Union Local No. 26,
215 F.3d at 141. Here, the UPDPA targets the PBMs, which, as
stated above, are not ERISA fiduciaries. As such, they are outside
of the "intricate web of relationships among the principal players
in the ERISA scenario." Id. The district court correctly noted
that "[a]lthough ERISA prescribes the duties that are owed by ERISA
entities to one another, and prescribes remedies for their breach,
it is not designed to regulate or afford remedies against entities
that provide services to plans." Pharm. Care Mgmt. Ass'n, 2005
U.S. Dist. LEXIS 2339, at *28-29. Therefore, we hold that the
UPDPA does not provide an alternative enforcement mechanism to
ERISA's civil enforcement scheme and is not preempted.
PCMA, however, points to the Supreme Court's recent
decision in Aetna Health, Inc. v. Dávila, 124 S. Ct. 2488 (2004).
PCMA argues that in Dávila, the Court held that state causes of
action purporting to supplement ERISA §502(a) are preempted "even
if the elements of the state cause of action [do] not precisely
duplicate the elements of an ERISA claim." Id. at 2499-2500. In
that case, however, the plaintiffs were plan participants and
beneficiaries who brought suit "only to rectify a wrongful denial
of benefits promised under ERISA-regulated plans" and who did not
attempt to remedy any violation of a legal duty independent of
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ERISA. Id. at 2492-93, 2498. In other words, all the parties in
that case were part of the "intricate web of relationships among
the principal players in the ERISA scenario." Carpenters Union
Local No. 26, 215 F.3d at 141. That was the reason that the state
remedy in that case was preempted. Therefore, PCMA's use of Dávila
is misplaced.
C. Takings claim
Under the UPDPA, PBMs are required to disclose to their
customers in Maine information concerning the discounts and other
contract terms that they are able to negotiate with drug
manufacturers and pharmacies. According to the PCMA, this
information is confidential and proprietary and is to be considered
a "trade secret." Because the UPDPA requires PBMs to disclose
these trade secrets as a condition of doing business in Maine, PCMA
contends that the UPDPA effects a regulatory taking, and this
requires "just compensation" under the Fifth Amendment. "A
regulatory taking transpires when some significant restriction is
placed upon an owner's use of his property for which 'justice and
fairness' require that compensation be given." Philip Morris Inc.
v. Reilly, 312 F.3d 24, 33 (1st Cir. 2002) (quoting Goldblatt v.
Hempstead, 369 U.S. 590, 594 (1962)).
1.
Before we reach the merits of such a claim, however, we
first must assess whether PCMA has standing to bring a takings
-21-
claim here. The district court held that PCMA did not have
standing. Standing decisions are reviewed by this court de novo.
Donahue v. City of Boston, 304 F.3d 110, 116 (1st Cir. 2002); Nyer
v. Winterthur Int'l, 290 F.3d 456, 459 (1st Cir. 2002).
"[A]n association has standing to bring suit on behalf of
its members when: (a) its members would otherwise have standing to
sue in their own right; (b) the interests it seeks to protect are
germane to the organization's purpose; and (c) neither the claim
asserted nor the relief requested requires the participation of
individual members in the lawsuit." Hunt v. Washington State Apple
Adver. Comm'n, 432 U.S. 333, 343 (1977). The third factor of this
test is prudential. United Food and Commercial Workers Union Local
751 v. Brown Group, Inc., 517 U.S. 544, 557 (1996). PCMA here has
the burden to prove it has standing. Harvey v. Veneman, 396 F.3d
28, 34 (1st Cir. 2005); Donahue, 304 F.3d at 116.
The main point of conflict in this case regards the
third, prudential, prong of the Hunt test: "Neither the claim
asserted nor the relief requested requires the participation of
individual members in the lawsuit." The district court concluded
that the third factor for associational standing had not been met
because at least one PBM would have to participate in the suit to
prove that property was being taken. Also, the court noted that
because some PBMs might not be affected if they did not possess
trade secrets (because they had already contracted away access to
-22-
this information), the claim would require member-by-member
scrutiny. We disagree.
PCMA is indeed required to introduce evidence "pertaining
to how, inter alia, one or more of its members develops, and
maintains the secrecy of, its information and how one or more of
its members would be injured by disclosure." Pharm. Care Mgmt.
Ass'n, 2005 U.S. Dist. LEXIS 2339, at *39. However, in Playboy
Enters., Inc. v. Pub. Serv. Comm'n of Puerto Rico, 906 F.2d 25 (1st
Cir. 1990), we noted that "just because a claim may require proof
specific to individual members of an association does not mean the
members are required to participate as parties in the lawsuit."
Playboy Enters., 906 F.2d at 35. (emphasis in original). We think
that to be true here. Even though a takings inquiry is intensely
fact specific and PCMA will be required to introduce proof of
specific PBM practices and effects of the UPDPA on specific PBMs,
we see no reason that PCMA's member PBMs would be required to
participate as parties in this litigation.
In Playboy Enters., we discussed the Supreme Court's
holding in Warth v. Seldin, 422 U.S. 490 (1975). Playboy Enters.,
906 F.2d at 35. In Warth, the Court held that an association had
no standing to sue on behalf of its members when seeking monetary
relief to compensate for its members' injuries. Warth, 422 U.S. at
515-16. In Playboy Enters., we noted that "the crucial reason [in
Warth] for requiring the members' participation as parties must
-23-
have been so that the members [rather than the association] could
recover their own damages, should they prevail." Playboy Enters.,
906 F.2d at 35 (emphasis in original). The association in that
case was not entitled to be compensated for the various injuries
suffered by its members. "The members' participation as parties
was necessary so that judgment could be entered in their favor."
Id. at 35-36 (emphasis in original). In the instant case, however,
there is no similar claim for monetary damages. PCMA requests only
equitable relief. Such a remedy would, if granted, "inure to the
benefit of those members of the association actually injured."
Warth, 422 U.S. at 515. There is, in other words, no need here for
the member PBMs to participate as parties. As such, PCMA does have
associational standing to assert its claim.
2.
With the disposal of that threshold jurisdictional issue,
we can now address the merits of PCMA's takings claim. Here, PCMA
brings a facial challenge to the UPDPA, asserting that the UPDPA
violates the Takings Clause of the Fifth Amendment because it
conditions doing business in Maine upon the forced disclosure or
taking of proprietary information.
In the takings context, a facial challenge is usually
ripe "the moment the challenged regulation or ordinance is passed."
Suitum v. Tahoe Reg'l Planning Agency, 520 U.S. 725, 736 n.10
(1997). To succeed on a facial challenge to a statute, however, is
-24-
very difficult. As we have noted before, a plaintiff wishing to
bring a facial challenge "face[s] an uphill battle." Reilly, 312
F.3d at 52 (Lipez, J., dissenting) (quoting Keystone Bituminous
Coal Assn. v. DeBenedictis, 480 U.S. 470, 495 (1987)). "A facial
challenge to a legislative Act is . . . the most difficult
challenge to mount successfully, since the challenger must
establish that no set of circumstances exists under which the Act
would be valid." Pharm. Research & Mfrs. of Am. v. Concannon, 249
F.3d 66, 77 (1st Cir. 2001) (internal quotation marks omitted).
Here, this would mean that PCMA has the burden to prove that every
disclosure under the UPDPA, if uncompensated, would result in an
unconstitutional taking.
PCMA, however, has not met this burden. This is a result
of the differing circumstances of PCMA's member PBMs. There are
certain PBMs that have already disclosed extensive information to
their clients, pursuant to contract or in the context of annual
audits. The state writes, for example, about how
. . . Medco [a PBM] allows United Healthcare
[a client] virtually unfettered access to
Medco's contracts, contract terms, rebates,
records and information; virtually complete
audit rights; and even the ability to
participate in negotiations with the drug
manufacturers. Appellee Br. 31-32.
All of this information is now also required to be disclosed under
the UPDPA. See, e.g., Me. Rev. Stat. Ann. tit. 22, § 2699(2)(D)
(2005) (requiring disclosure of all financial and utilization
-25-
information requested by a covered entity relating to the provision
of services to that covered entity).
None of this information, however, can in any way be
considered a trade secret. Under Maine law, a trade secret is
"information . . . that . . . [d]erives independent economic value
. . . from not being generally known to and not being readily
ascertainable by proper means by other persons who can obtain
economic value from its disclosure or use and . . . is the subject
of efforts that are reasonable under the circumstances to maintain
its secrecy." Me. Rev. Stat. Ann. tit. 10, § 1542(4) (2005). See
also Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1002 (1984)
("Because of the intangible nature of a trade secret, the extent of
the property right therein is defined by the extent to which the
owner of the secret protects his interest from disclosure to
others.").
The information disclosed as a result of these client
contracts, however, is readily available. The record is replete
with evidence demonstrating that the PBMs that made these contracts
have taken no special steps to protect their information. For
example, Timothy Wentworth, the group President of National
Accounts for Medco, stated that he was not aware of any written
security policy prohibiting the removal of client contracts at
Medco. Other PBMs keep these client contracts in unlocked cabinets
-26-
"in public areas such as hallways." Therefore, such information --
at least under Maine law -- cannot be considered a "trade secret."
Given that there are no trade secrets involved with these
client contracts, there is no "property" subject to the Takings
Clause. See Monsanto, 467 U.S. at 1002 ("If an individual
discloses his trade secret to others who are under no obligation to
protect the confidentiality of the information, or otherwise
publicly discloses the secret, his property right is
extinguished."). Hence, many disclosures required from the PBMs
under the UPDPA would not be considered unconstitutional takings.
Therefore, PCMA cannot show that every disclosure under the UPDPA
will result in an unconstitutional taking, for there are clear and
obvious circumstances when disclosures under the UPDPA are not
unconstitutional takings. We therefore hold that PCMA's facial
takings claim fails on the merits.
D. Due Process claim
As the district court recognized, this claim "tags along"
with PCMA's takings claim. In Zinermon v. Burch, 494 U.S. 113, 132
(1990), the Supreme Court held that due process requires that "[i]n
situations where the State feasibly can provide a predeprivation
hearing before taking property, it generally must do so regardless
of the adequacy of a postdeprivation tort remedy to compensate for
the taking." As we have already discussed, however, PCMA has not
been able to show that the UPDPA effects a taking. Since there is
-27-
no taking and no deprivation, it follows that no predeprivation
hearing is required. The district court was therefore correct to
grant summary judgment in favor of the state on this claim.
E. First Amendment claim
The district court also found that the provisions of the
UPDPA do not violate the First Amendment. PCMA claims that the
UPDPA violates the First Amendment because it compels PBMs to
engage in speech -- in the form of mandated disclosures -- as a
condition of doing business in Maine. In a number of different
cases, the Supreme Court has recognized that compulsion to speak
may be as violative of the First Amendment as prohibitions on
speech. See, e.g., Zauderer v. Office of Disciplinary Counsel of
the Supreme Court of Ohio, 471 U.S. 626 (1985); Wooley v. Maynard,
430 U.S. 705 (1977); Miami Herald Publ'g Co. v. Tornillo, 418 U.S.
241 (1974). We agree with PCMA that a compelled disclosure, such
as the one here, does indeed implicate the First Amendment.
In assessing whether the disclosures mandated by the
UPDPA are violative of the provisions of the First Amendment, the
initial question we must confront is the nature of the speech. The
degree of protection afforded by the First Amendment depends on
whether the speech here is commercial speech or noncommercial
speech.7 "'[C]ommercial speech' is entitled to the protection of
7
The district court simply assumed that the speech at issue here
is "commercial speech." We, however, think that the classification
of speech in this case is not at all clear and deserves a full
-28-
the First Amendment, albeit to protection somewhat less extensive
than that afforded 'noncommercial speech.'" Zauderer, 471 U.S. at
637; see also Ohralik v. Ohio State Bar Ass'n., 436 U.S. 447, 456
(1978) ("[W]e . . . have afforded commercial speech a limited
measure of protection, commensurate with its subordinate position
in the scale of First Amendment values, while allowing modes of
regulation that might be impermissible in the realm of
noncommercial expression."); Bolger v. Youngs Drug Prods. Corp.,
463 U.S. 60, 64-65 (1983) ("[t]he Constitution accords less
protection to commercial speech than to other constitutionally
safeguarded forms of expression.").
If the speech here is of a commercial nature, there is a
reduced burden on the state to justify the UPDPA. See Zauderer,
471 U.S. at 650-651; Riley v. Nat'l Fed'n of the Blind of North
Carolina, Inc., 487 U.S. 781, 796 n.9 (1988) ("Purely commercial
speech is more susceptible to compelled disclosure requirements.").
If, however, the speech is of a noncommercial nature, the compelled
disclosure will be subject to "exacting First Amendment scrutiny."
Riley, 487 U.S. at 798. In such a case, the state, to justify its
law, would have to advance a compelling state interest and also
show that the means chosen to accomplish that interest are narrowly
tailored. See id. at 795 (noting that a statute that mandates
speech "that a speaker would not otherwise make necessarily alters
analysis.
-29-
the content of the speech" and that such a statute is therefore
considered a content-based regulation of speech); Madsen v. Women's
Health Ctr., 512 U.S. 753, 790-91 (1994) (noting that content-based
regulations receive strict scrutiny).
We have stated that commercial speech is defined as
"expression related solely to the economic interests of the speaker
and its audience." El Día, Inc. v. Puerto Rico Dept. of Consumer
Affairs, 413 F.3d 110, 115 (1st Cir. 2005) (citing Central Hudson
Gas & Elec. Corp. v. Public Serv. Comm'n of New York, 447 U.S. 557,
561 (1980)). Although it is a close question, we think that the
speech mandated by the UPDPA meets this definition. Many of the
UPDPA's provisions are overtly geared at the economic interests of
the PBMs and the covered entities. See, e.g., Me. Rev. Stat. Ann.
tit. 22, § 2699(2)(F) (requiring PBMs to disclose and disgorge any
payment or benefit based on volume of sales or classes or brands of
prescription drugs). Even those provisions of the UPDPA that are
on their face less related to "economic interests" -- e.g., id.
§ 2699(2)(C) (requiring PBMs to disclose conflicts of interest) --
are aimed at eliminating certain PBM practices that unnecessarily
increase the cost of prescription medications.
We discuss this case, therefore, on the basis that
commercial speech is at issue. In Zauderer, the Supreme Court held
that "[b]ecause the extension of First Amendment protection to
commercial speech is justified principally by the value to
-30-
consumers of the information such speech provides," a party who was
faced with a disclosure requirement had only a minimal interest in
withholding the information requested of him by law. Zauderer, 471
U.S. at 651. The Court also held that the party's rights are
adequately protected "as long as disclosure requirements are
reasonably related to the State's interest in preventing deception
of consumers." Id.8
Applying these principles here, we find that the UPDPA
disclosure provisions do not run afoul of the First Amendment.
PCMA's member PBMs only have a minimal interest in withholding the
information the UPDPA requires from them, especially given Maine's
interest in ensuring that its citizens receive the best and most
cost-effective health care possible. The information disclosed
under the UPDPA will help the "covered entities" that are
responsible for paying for medications in Maine ensure that they
and their customers are not adversely affected by the abuses and
self-dealing of certain PBMs. Furthermore, we think it obvious
that the UPDPA's disclosure requirements are "reasonably related"
to Maine's interest in preventing deception of consumers and
increasing public access to prescription drugs. Id. As the
district court noted, these disclosure requirements are
8
In its reply brief, PCMA states that the holding in Zauderer is
"limited to potentially deceptive advertising directed at
consumers." Appellant Reply Br. 28. None of the cases it cites,
however, support this proposition, and we have found no cases
limiting Zauderer in such a way.
-31-
designed to create incentives within the
market for the abandonment of certain
practices that are likely to unnecessarily
increase cost without providing any
corresponding benefit to the individual whose
prescription is being filled and that appear
to be designed merely to improve a drug
manufacturer's market share.
Pharm. Care Mgmt. Ass'n, 2005 U.S. Dist. LEXIS 2339, at *82-83.
PCMA argues that the PBMs' interest in not disclosing,
rather than being minimal, is acute. This is because "the
compelled speech takes their valuable property." Appellant Reply
Br. 28. Aside from the fact that PCMA offers no proof supporting
this contention, we have already held that PCMA failed to show that
the UPDPA effects a taking of the PBMs' property. We do not see
how the situation is any different in the First Amendment context.
We think, therefore, that the district court was correct in holding
that UPDPA's provisions do not contravene the First Amendment.
F. Commerce Clause claim
The district court held that the UPDPA was not in
violation of the Commerce Clause. The Commerce Clause provides
that Congress shall have the power "to regulate Commerce . . .
among the several States." U.S. Const. art. I, § 8, cl. 3. It has
long been understood, however, that this affirmative grant of
authority to Congress necessarily encompasses a limitation on the
power of states to enact legislation that burdens the flow of
interstate commerce. This restriction on the states, known as the
dormant Commerce Clause, is not absolute and in the absence of
-32-
conflicting legislation by Congress, "the States retain authority
under their general police powers to regulate matters of legitimate
local concern, even though interstate commerce may be affected."
Maine v. Taylor, 477 U.S. 131, 138 (1986) (internal quotation marks
omitted).
PCMA argues that the UPDPA violates the dormant Commerce
Clause on two grounds. First, it claims that the UPDPA has
"extraterritorial reach." A state statute is per se invalid under
the dormant Commerce Clause when it "regulates commerce wholly
outside the state's borders or when the statute has a practical
effect of controlling conduct outside of the state." Pharm.
Research & Mfrs. of Am., 249 F.3d at 79. A statute has this
impermissible extraterritorial reach if it "necessarily requires
out-of-state commerce to be conducted according to in-state terms."
Id. (quoting Cotto Waxo Co. v. Williams, 46 F.3d 790, 794 (8th Cir.
1995)).
The Supreme Court has discussed "extraterritorial reach"
in a number of cases. PCMA, for example, invokes Edgar v. MITE
Corp., 457 U.S. 624, 640-43 (1982), a case involving an Illinois
law that sought to regulate tender offers for the stock of Illinois
corporations. The law required that all such offers be registered
in advance with the Illinois Secretary of State. Under the terms
of the statute, a Delaware corporation soliciting the shares of an
Illinois corporation from a resident of Arkansas would be required
-33-
to register with the state of Illinois. The Supreme Court,
however, struck down the statute under the dormant Commerce Clause,
noting that the law "directly regulates transactions which take
place across state lines, even if wholly outside the State of
Illinois." Edgar, 457 U.S. at 641.
The district court, similarly, discussed Brown-Forman
Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573
(1986). In that case, the Supreme Court invalidated a provision of
the New York Alcoholic Beverage Control Law that required liquor
distillers and producers doing business in New York to affirm that
their prices were no higher than the lowest price at which the same
product would be sold in any other state during the month. The
Court determined that this was extraterritorial reach violative of
the Commerce Clause because during the period that the affirmation
was in effect, New York made it illegal, without prior permission
from state authorities, for a distiller or producer to reduce its
price in other states. Thus, the New York law effectively regulated
the price at which liquor was sold in other states. As the Court
stated, "[f]orcing a merchant to seek regulatory approval in one
State before undertaking a transaction in another directly
regulates interstate commerce." Brown-Forman, 476 U.S. at 582.
PCMA draws here on this idea of "extraterritorial reach"
and attempts to apply it to the UPDPA. It argues that if a PBM
operating outside of Maine enters into a contract outside of Maine
-34-
with a national insurer similarly operating beyond the state's
borders but licensed in the state, the PBM would have to comply
with the UPDPA's disclosure requirements. "This is exactly the
sort of extraterritorial reach condemned in Edgar v. MITE Corp.,"
says PCMA.
We beg to differ. There is a key difference between the
UPDPA and the laws in Edgar and Brown-Forman. In Edgar and Brown-
Forman, the state laws at issue gave the state power to determine
whether a transaction in another state could occur at all. For
example, the law in Edgar gave the Illinois Secretary of State
power to determine whether to allow a tender offer by a Delaware
corporation for stock held by an Arkansas resident. Similarly, the
New York law in Brown-Forman gave the New York State Liquor
Authority power to determine whether a liquor distiller or producer
would be permitted to reduce its price in other states. It was
this sort of "extraterritorial reach" that led the Court to
invalidate the statutes at issue in those cases.
The UPDPA, however, does not give Maine any such
authority. Under the UPDPA, a transaction outside of Maine between
two parties -- for example, between PCMA's hypothetical out-of-
state PBM and insurance company -- can take place regardless of
whether Maine consents or not. Maine law does not "regulate . . .
[the] out-of-state transaction, either by its express terms or by
its inevitable effect." Pharm. Research & Mfrs. of Am., 249 F.3d
-35-
at 81. Maine does not dictate the terms of such a transaction.
Nor is Maine in any way "project[ing] its legislation" into those
other states. Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 521
(1935). It simply requires that PBMs, should they choose to do
business within Maine, provide "covered entities" with certain
information about their business relationships. In other words,
the UPDPA does not require out-of-state commerce to be conducted
according to in-state terms. It requires only that in-state
commerce be conducted according to in-state terms. See Me. Rev.
Stat. Ann. tit. 22, § 2699(1)(B), (3) & (5) (2005) (showing that
the UPDPA covers only contracts entered in Maine with respect to
covered entities in Maine). In light of this distinction, we think
that the UPDPA cannot properly be said to have an extraterritorial
reach violating the Commerce Clause.
Alternatively, PCMA argues that the UPDPA violates the
Commerce Clause under the more lenient test set out by the Supreme
Court in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). Under
that test -- to be used when the state statute at issue regulates
evenhandedly and has only incidental effects on interstate commerce
-- courts employ a balancing approach whereby they examine whether
the state's interest is legitimate and whether the burden on
interstate commerce clearly exceeds the local benefits. Pike, 397
U.S. at 142. Since we have held that the UPDPA is not per se
invalid because it does not effect any "extraterritorial reach,"
-36-
and because the Maine statute does regulate evenhandedly and has
only incidental effects on interstate commerce, we employ here the
Pike balancing test to assess the constitutionality of the UPDPA.
In Pharm. Research & Mfrs. of Am., we noted that the Pike
test involves three separate steps. First, we are to evaluate the
nature of the putative local benefits advanced by the statute.
Second, we must examine the burden the statute places on interstate
commerce. Finally, we are to consider whether the burden is
"clearly excessive" as compared to the putative local benefits.
Pharm. Research & Mfrs. of Am., 249 F.3d at 83-84.
The putative local benefits of the UPDPA are clear. The
aim of the UPDPA is to reduce the costs of, and increase the
public's access to, prescription drugs. The law was designed to
deal with "one of the serious problems of our time." Id. at 80.
PCMA, for its part, thinks these benefits are not likely to
materialize as a result of the UPDPA. It is not the place of this
court, however, to pass judgment on the wisdom of the policies
adopted by the Maine legislature. See Kassel v. Consol.
Freightways Corp., 450 U.S. 662, 679 (1981) (Brennan, J.,
concurring) (stating that courts should refrain from attempting to
"second-guess the empirical judgments of lawmakers concerning the
utility of legislation"). Furthermore, as the district court
points out, under Pike, it is the putative local benefits that
-37-
matter. It matters not whether these benefits actually come into
being at the end of the day.
On the "burden" side of the Pike balancing equation, PCMA
only asserts that as a result of the UPDPA, certain PBMs will no
longer do business in Maine. PCMA states that "the extraordinary
restrictions imposed [by the UPDPA] on the business operations of
pharmacy benefit managers (PBMs) will make it virtually impossible
to establish or maintain a prescription drug program that relies on
a for-profit PBM for administrative services." In Pharm. Research
& Mfrs. of Am., we said that "[a]rguably, the only burden imposed
on interstate commerce by the . . . Act [in that case] is its
possible effects on the profits of the individual manufacturers."
Pharm. Research & Mfrs. of Am., 249 F.3d at 84. We think the same
to be true here. However, as we noted in Pharm. Research & Mfrs.
of Am., such a burden is not violative of the Commerce Clause
because the Clause "protects the interstate market, not particular
interstate firms, from prohibitive or burdensome regulations." Id.
(quoting Exxon Corp. v. Governor of Md., 437 U.S. 117, 127-28
(1978)).
Even if such a burden was cognizable under the Commerce
Clause, at the very least the burden on interstate commerce in this
instance would not be "clearly excessive" as compared to the local
-38-
benefits provided by the UPDPA.9 Pharm. Research & Mfrs. of Am.,
249 F.3d at 84; see Edgar, 457 U.S. at 643 ("[F]or even when a
state statute regulates interstate commerce indirectly, the burden
imposed on that commerce must not be excessive in relation to the
local interests served by the statute."). "[T]he burden of proving
'excessiveness' falls upon the [plaintiff], not the state," N.H.
Motor Transp. Ass'n v. Flynn, 751 F.2d 43, 48 (1st Cir. 1984), and
PCMA here has clearly failed to carry that burden.
Given the set of competing concerns we are presented with
here, we think the district court was correct in asserting that
PCMA "failed to provide the court with any great weight to place on
the excessive burden side of the scale." Pharm. Care Mgmt. Ass'n,
2005 U.S. Dist. LEXIS 2339, at *73-74. When measuring PCMA's
concern about its members' profits against the increased access to
prescription drugs for Maine citizens, the local benefits clearly
outweigh any incidental burden on interstate commerce.
Accordingly, PCMA's Commerce Clause claim fails under the balancing
test set forth in Pike.
III. Conclusion
For the reasons set forth above, we affirm the decision
of the district court.
"Concurrence follows."
9
It is not the case, as the appellants claim, that "the UPDPA
must fall if any burden is imposed on interstate commerce."
-39-
BOUDIN, Chief Judge, and DYK, Circuit Judge, Concurring.
The association standing question in this case is difficult. There
is no well developed test in this circuit as to how the third prong
of the Hunt test--whether "the claim asserted [or] the relief
requested requires the participation of individual members in the
lawsuit," Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333,
343 (1977)--applies in cases where injunctive relief is sought.
This prong of the test is prudential rather than constitutional in
nature, United Food & Commercial Workers Union Local 751 v. Brown
Group, Inc., 517 U.S. 544, 555 (1996), and there exists some
latitude in case-by-case judgments.
That only injunctive relief is sought here distinguishes
this case from damages cases; in those, association standing is
precluded where the damages turn upon the varying circumstances of
the individual plaintiffs. See Warth v. Seldin, 422 U.S. 490, 515-
16 (1975). Where only injunctive relief is sought, an association
may sometimes be allowed to sue even if some proof from individual
non-party members is required; on the other hand, plenty of
injunction cases have been dismissed because of the need for
individualized proof.10
10
E.g., Ga. Cemetery Ass'n. v. Cox, 353 F.3d 1319, 1322 (11th Cir.
2003); Rent Stabilization Ass'n. v. Dinkins, 5 F.3d 591, 596-97 (2d
Cir. 1993); Kan. Health Care Ass'n. v. Kan. Dept. of Soc. & Rehab.
Svcs., 958 F.2d 1018, 1022-23 (10th Cir. 1992).
-40-
There is one decision in this circuit upholding
association standing in a case dealing with injunctive relief.
Playboy Enters. v. Pub. Svc. Comm'n of P.R., 906 F.2d 25 (1st Cir.
1990), cert. denied, 498 U.S. 959 (1990). In that case, however,
the impact on individual members necessary for injunctive relief
was readily established as to at least one member. Furthermore,
the challenged law in Playboy was a state statute regulating
expression; in such cases, courts are generally more inclined to
permit jus tertii claims. See Osediacz v. City of Cranston, 414
F.3d 136, 140 (1st Cir. 2005). Playboy is not an open door for
association standing in all injunction cases where member
circumstances differ and proof of them is important.
Sensibly, the Third Circuit in Pennsylvania Psychiatric
Society v. Green Spring Health Services, Inc., 280 F.3d 278 (3d
Cir. 2002), cert. denied, 537 U.S. 881 (2002), did not adopt an
all-or-nothing test. The court there stated that it would allow
for association standing if proof as to member circumstances were
"limited," but it noted that "conferring associational standing
would be improper for claims requiring a fact-intensive-individual
inquiry." Id. at 286-87. This is not a complete compendium of
relevant considerations, but it is a useful start.
In this case, putting to one side their generic weakness,
individual takings claims could in principle be significantly
strengthened or weakened by the particularized circumstances of
-41-
each individual member. Furthermore, there appears to be
considerable variation in each member company's particular
circumstances--for example, whether a member already discloses the
information in question to its customers, the methods by which it
stores copies of its contracts, and so on. The district court
acted reasonably in concluding that in this case the association
should not be allowed to sue as to the takings claim and that
individual members should bring their own cases.
However, as we are dealing with a matter of prudential
standing, the limitation has no Article III implications. Because
at least some members could doubtless show that their materials
were not disclosed and were well protected, the district court
sensibly went on to forestall individual actions that would
inevitably follow a dismissal of the association's takings claim on
standing grounds. It correctly held that even if association
standing were assumed to be adequate, such takings claims fail on
the merits.
Putting aside a separate threshold concern,11 the Supreme
Court in Ruckelshaus v. Monsanto, 467 U.S. 986 (1984), made clear
that trade secrets--as defined by state law--can constitute
11
Typically, no injunctive relief claim based on taking would be
ripe until state compensation remedies were exhausted, Williamson
County Reg'l Planning Comm'n v. Hamilton Bank of Johnson City, 473
U.S. 172, 195 (1985), but because there may be some circumstances
that avoid this bar, see Philip Morris, Inc. v. Reilly, 312 F.3d 24
(1st Cir. 2002) (en banc), we do not address this issue.
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property interests for Takings Clause purposes. Id. at 1003-04.
It is far from clear that the Maine courts would find the
information required to be disclosed here to represent a trade
secret under Maine law. However, as there is no definitive state
court judgment on this issue, it is possible that the information
sought to be disclosed could potentially represent a valid property
interest for Takings Clause purposes.
Nevertheless, even assuming a property interest, the
Maine statute does not work a full taking. It does not confiscate
the supposed trade secret in the conventional sense; at most, it
requires limited disclosure to customers of transactions possibly
adverse to the customers' interests, which may reduce the value of
the trade secret to the PBM. PBMs may still negotiate rebate
contracts with drug companies, but their plan customers may--as a
result of PBMs' disclosures--look elsewhere for benefits
management.
In this context, a takings claim is far from
straightforward. In Penn Central Transportation Co. v. City of New
York, 438 U.S. 104 (1978), the Supreme Court--while noting that
such analyses are "essentially ad hoc, factual inquiries"--outlined
three relevant factors in determining whether a regulation effects
a taking: (1) "the extent to which the regulation [would]
interfere[] with distinct investment-backed expectations"; (2)
"[t]he economic impact of the regulation on the claimant"; and (3)
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"the character of the governmental action." Id. at 124. Given the
absence of a full-scale taking and the presence of a traditional
regulatory interest, it is enough to defeat the takings claim that
no reasonable investment-backed expectation is present at all. See
Good v. United States, 189 F.3d 1355, 1363 (Fed. Cir. 1999), cert.
denied, 529 U.S. 1053 (2000).
Under the terms of the statute, the PBMs' disclosure
requirements run only to their "covered entity" customers and apply
only to contracts entered into or renewed after the statute's
effective date, namely, September 13, 2003 (three months after the
statute was enacted). As the district court noted, PBMs and drug
manufacturers typically negotiate their rebate terms on an annual
basis. More than two years have elapsed since the statute gave
warning of the new regime (in June 2003), so one-year rebate
contracts negotiated before that date have expired or have been
renewed in the teeth of the statute, and any rebate contracts first
entered into after June 2003 would have been made with knowledge of
the statute's requirements. There is no basis for forward-looking
injunctive relief with respect to rebate contracts entered into
after the statute's effective date.
Even as applied to trade secrets arising before the
statute's effective date, the statute would not constitute a
taking. "A manufacturer or vendor has no constitutional right to
sell goods without giving to the purchaser fair information of what
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it is that is being sold." Corn Prods. Ref. Co. v. Eddy, 249 U.S.
427, 431 (1919). PBMs should therefore have expected the
possibility that they would have to disclose to their covered
entity customers information needed to forestall what could
reasonably be deemed abusive control. PBMs are undoubtedly aware
of the heavily regulated nature of the healthcare industry; in
fact, as the district court noted, they are already subject to
extensive regulation under federal and state law.
If PBMs truly assumed that they would be free from
disclosure requirements of the sort set forth in the Maine law
here, this would be more wishful thinking than reasonable
expectation. Whether or not the law strikes the right economic
balance between competing producer and consumer interests, it is no
more a taking than the requirement that public corporations
disclose private corporate information about financial prospects to
the public through regular SEC filings.
Lastly, PCMA's First Amendment claim is completely
without merit. So-called "compelled speech" may under modern
Supreme Court jurisprudence raise a serious First Amendment concern
where it effects a forced association between the speaker and a
particular viewpoint. See, e.g., Wooley v. Maynard, 430 U.S. 705
(1977) (requiring all New Hampshire drivers to display "Live Free
or Die" on their license plates); Miami Herald Publ'g Co. v.
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Tornillo, 418 U.S. 241 (1974) (requiring newspapers to afford
political candidates a right to reply to editorial critiques).
What is at stake here, by contrast, is simply routine
disclosure of economically significant information designed to
forward ordinary regulatory purposes--in this case, protecting
covered entities from questionable PBM business practices. There
are literally thousands of similar regulations on the books--such
as product labeling laws, environmental spill reporting, accident
reports by common carriers, SEC reporting as to corporate losses
and (most obviously) the requirement to file tax returns to
government units who use the information to the obvious
disadvantage of the taxpayer.
The idea that these thousands of routine regulations
require an extensive First Amendment analysis is mistaken.
Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985),
makes clear "that an advertiser's rights are adequately protected
as long as disclosure requirements are reasonably related to the
State's interest in preventing deception of consumers." Id. at
651. This is a test akin to the general rational basis test
governing all government regulations under the Due Process Clause.
The test is so obviously met in this case as to make elaboration
pointless.
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Pharmaceutical Care Management Ass'n v. Rowe
Court: Court of Appeals for the First Circuit
Date filed: 2005-11-08
Citations: 429 F.3d 294
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