United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 7, 2008 Decided April 18, 2008
No. 07-7062
PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION,
APPELLANT
v.
DISTRICT OF COLUMBIA AND
ADRIAN FENTY, IN HIS OFFICIAL CAPACITY AS MAYOR OF THE
DISTRICT OF COLUMBIA,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 04cv01082)
Paul J. Ondrasik, Jr. argued the cause for appellant. With
him on the briefs were Martin D. Schneiderman and Linda S.
Stein.
Robin S. Conrad and Jonathan D. Hacker were the brief for
amici curiae America's Health Insurance Plans, et al. in support
of appellant.
James C. McKay, Jr., Senior Assistant Attorney General,
Office of Attorney General for the District of Columbia, argued
the cause for appellee. With him on the brief were Peter J.
2
Nickles, Interim Attorney General, Todd S. Kim, Solicitor
General, and Lutz Alexander Prager. Edward E. Schwab,
Deputy Attorney General, entered an appearance.
Jan A. May, Bruce Vignery, and Michael Schuster were on
the brief for amici curiae American Association of Retired
Persons, et al. in support of appellee. Stacy J. Canan entered an
appearance.
Before: RANDOLPH and TATEL, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge RANDOLPH.
RANDOLPH, Circuit Judge: The plaintiff – the
Pharmaceutical Care Management Association – is a national
trade organization representing pharmacy benefit managers.
Pharmacy benefit managers act as “middlemen” hired by health
benefit providers (such as employers, health maintenance
organizations, and public and private health plans) “to provide
prescription drug benefit administration and management
services.”1 One important role of a pharmacy benefit manager
is to pool health benefit providers and negotiate discounts on
pharmaceuticals from manufacturers or pharmacies. See Fed.
Trade Comm’n, Pharmacy Benefit Managers: Ownership of
Mail-Order Pharmacies 41-60 (2005). A health benefit
provider may find it difficult to judge the value of a pharmacy
benefit manager’s services without information about the
relationships between the manager and manufacturers or
1
Thomas P. O’Donnell & Mark K. Fendler, Prescription or
Proscription? The General Failure of Attempts to Litigate and
Legislate Against PBMs as “Fiduciaries,” and the Role of Market
Forces Allowing PBMs to Contain Private-Sector Prescription Drug
Prices, 40 J. HEALTH L. 205, 205-07 (2007).
3
pharmacies. See Fed. Trade Comm’n & Dep’t of Justice,
Improving Health Care: A Dose of Competition ch. 7, at 16
(2004). For example, a pharmacy benefit manager could work
against the health benefit provider’s interest by substituting a
more expensive drug than the one prescribed in order to receive
a rebate from the manufacturer that is not passed on to – or
shared with – the health benefit provider. O’Donnell & Fendler,
40 J. HEALTH L. at 212; see also Pharmacy Benefit Managers at
59 (noting that large pharmacy benefit managers retained
between 30 and 65 percent of rebate payments in 2003).
The Association brought this action seeking an injunction
against the enforcement of the District of Columbia’s AccessRx
Act of 2004, D.C. CODE § 48-831.01 et seq. Title II of the Act
requires, among other things, pharmacy benefit managers to act
as fiduciaries, to disclose the content of their contracts with
pharmacies and manufacturers, and to pass on any payments or
discounts they receive from pharmacies or manufacturers. Id.
§ 48-832.01(b)-(c). Title II applies to pharmacy benefit
managers working with both employee-based and non-
employee-based health benefit providers. Id. § 48-831.02(4)(a).
Claiming that the Employee Retirement Income Security
Act of 1974 (ERISA) preempted Title II and that Title II was
otherwise unconstitutional, the Association obtained a
preliminary injunction against the enforcement of the District’s
statute. Pharm. Care Mgmt. Ass’n v. District of Columbia, No.
04-1082 (D.D.C. Dec. 21, 2004). While the District’s appeal of
the preliminary injunction was pending in this court, the First
Circuit upheld a Maine statute that is similar to Title II. Pharm.
Care Mgmt. Ass’n v. Rowe, 429 F.3d 294, 297 (1st Cir. 2005).
Because the Association was the losing party in Rowe, we
remanded this case to the district court to consider the preclusive
effect of the First Circuit’s opinion. Pharm. Care Mgmt. Ass’n
v. District of Columbia, 173 F. App’x 3 (D.C. Cir. 2006). The
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District then amended its AccessRx Act of 2004 to conform to
the Maine law. AccessRx Clarification Amendment Act of
2006, published as part of the Fiscal Year 2007 Budget Support
Act of 2006, 53 D.C. Reg. 6899 (Aug. 25, 2006). In granting
summary judgment against the Association, the district court
held that the amended AccessRx Act was nearly identical to the
Maine law, that the Association had a full and fair opportunity
to litigate its claims in Rowe, and that the Association’s loss in
Rowe precluded it from relitigating those claims in this case.
Pharm. Care Mgmt. Ass’n v. District of Columbia, 477 F. Supp.
2d 86 (D.D.C. 2007).
The question on appeal is whether the judicially-created
doctrine of collateral estoppel bars the Association’s claims. We
are concerned with what is known as non-mutual defensive
estoppel. This aspect of the doctrine precludes a plaintiff from
contesting an issue it has previously litigated and lost in another
case against a different defendant. The estoppel here would be
non-mutual because if the Association had won its case against
the Maine law, the District would not have been barred from
defending its identical statute. (To hold otherwise would be to
deprive the District of due process – it would not have had its
day in court. See Blonder-Tongue Labs., Inc. v. Univ. of Ill.
Found., 402 U.S. 313, 329 (1971); Hansberry v. Lee, 311 U.S.
32, 40 (1940).) The preclusion is defensive because the
defendant invokes the bar against the plaintiff’s claims.
Compare Parklane Hosiery Co. v. Shore, 439 U.S. 322, 329
(1979) (offensive), with Blonder-Tongue, 402 U.S. at 330
(defensive).
Even when collateral estoppel would otherwise apply, there
are numerous exceptions. Of particular importance in this case
is the exception for cases presenting “unmixed questions of
law.” Collateral estoppel does not apply with the same force to
unmixed questions of law as it does to mixed questions of law
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and fact or to pure questions of fact. See United States v.
Stauffer Chem. Co., 464 U.S. 165, 170-71 (1984); Montana v.
United States, 440 U.S. 147, 162-63 (1979); United States v.
Moser, 266 U.S. 236, 242 (1924). Although the Supreme Court
has acknowledged that the purpose and application of this
exception are not entirely clear, the exception continues to have
force. Stauffer Chem. Co., 464 U.S. at 171-72.
In cases involving mutual collateral estoppel, the exception
applies only if the issue is one of law and the facts of the cases
are substantially unrelated. RESTATEMENT (SECOND) OF
JUDGMENTS § 28(2)(a); see also Stauffer Chem. Co., 464 U.S. at
171, 173. Less is required for the exception to apply in a case
of non-mutual estoppel – such as this case. In a non-mutual
case, “an issue is not precluded if it is ‘one of law and treating
it as conclusively determined would inappropriately foreclose
opportunities for obtaining reconsideration of the legal rule upon
which it was based.’” Chicago Truck Drivers Union (Indep.)
Pension Fund v. Century Motor Freight, Inc., 125 F.3d 526, 531
(7th Cir. 1997) (quoting RESTATEMENT § 29(7)). To apply
collateral estoppel under these circumstances would prevent the
court from performing its function of developing the law. Id.
(citing RESTATEMENT § 29 cmt. i).
We do not believe collateral estoppel bars the Association’s
claims. Both parties agree that the issues presented here are
legal. To foreclose our reconsideration of the legal issues would
not aid judicial economy. See Hardison v. Alexander, 655 F.2d
1281, 1288 (D.C. Cir. 1981). A trade association could readily
avoid the estoppel consequence of a loss by having one or more
of its members bring the lawsuit. Applying collateral estoppel
here would also freeze the development of the law in an area of
substantial public interest. See RESTATEMENT § 29 cmt. i.
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In addition, practical considerations counsel against
application of collateral estoppel in this case. Collateral
estoppel is generally inappropriate when the issue is one of law
and there has been a change in the legal context after the first
decision. RESTATEMENT § 28(2)(b); see, e.g., Montana, 440
U.S. at 161; Am. Med. Int’l, Inc. v. Sec’y of HEW, 677 F.2d 118,
120-21 (D.C. Cir. 1981); Kania v. Fordham, 702 F.2d 475, 476
n.2 (4th Cir. 1983). After the First Circuit’s decision in Rowe,
the Department of Labor promulgated a rule requiring ERISA
plans to disclose information about their contracts with service
providers. Annual Reporting and Disclosure, 72 Fed. Reg.
64,710 (Nov. 16, 2007). In order to facilitate the plans’ ability
to make these disclosures, the Labor Department has proposed
a rule that would require service providers to disclose certain
financial information to the plans they serve. Reasonable
Contract or Arrangement Under Section 408(b)(2) – Fee
Disclosure, 72 Fed. Reg. 70,988 (Dec. 13, 2007). Pharmacy
benefit managers are listed among the service providers required
to make disclosures, id. at 70,989, and at least some of the
information the draft rule requires them to disclose is similar to
that required under Title II of the District’s AccessRx Act.
These developments, particularly if the proposed rule is
promulgated, may change the legal analysis regarding ERISA
preemption, though we emphasize that we express no opinion on
the merits of the preemption issue.
For the foregoing reasons, the order granting the District’s
motion for summary judgment is vacated and the case is
remanded for consideration on the merits.
So ordered.