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State ex rel. Balderas v. Purdue Pharma L.P.

United States District Court, D. New Mexico

June 12, 2018

STATE OF NEW MEXICO, ex rel., HECTOR BALDERAS, ATTORNEY GENERAL, Plaintiff,
v.
PURDUE PHARMA L.P.; PURDUE PHARMA, INC.; THE PURDUE FREDERICK COMPANY, INC.; TEVA PHARAMACEUTICAL INDUSTRIES USA, INC.; CEPHALON, INC.; JOHNSON & JOHNSON; JANSSEN PHARMACEUTICALS, INC.; ORTHO-MCNEIL-JANSSEN PHARAMACEUTICALS, INC. n/k/a JANSSEN PHARMACEUTICALS, INC.; JANSSEN PHARAMACEUTICA INC. n/k/a JANSSEN PHARAMACEUTICALS, INC.; NORAMCO, INC.; ENDO HEALTH SOLUTIONS INC.; ENDO PHARMACEUTICALS, INC.; ALLEGRAN PLC f/k/a ACTAVIS PLC; WATSON PHARAMACEUTICALS, INC. n/k/a ACTAVIS, INC.; WATSON LABORATORIES, INC.; ACTAVIS LLC; ACTAVIS PHARMA, INC. f/k/a WATSON PHARMA, INC.; MALLINCKRODT PLC; MALLINCKRODT LLC; INSYS THERAPEUTICS, INC.; McKESSON CORPORATION; CARDINAL HEALTH INC.; CARDINAL HEALTH 105, LLC; CARDINAL HEALTH 108, LLC; CARDINAL HEALTH 110, LLC; CARDINAL HEALTH 200, LLC; CARDINAL HEALTH 414, LLC; CARDINAL HEALTH PHARMACY SERVICES, LLC; and AMERISOURCEBERGEN DRUG CORP., Defendants.

          MEMORANDUM OPINION AND ORDER

         THIS MATTER is before the Court on Distributor Defendants' Joint Motion to Stay Pending Ruling by the Judicial Panel on Multidistrict Litigation [Doc. 5]; Plaintiff's Motion to Remand [Doc. 10]; and Plaintiff's Motion to Expedite Briefing on its Motion to Remand [Doc. 11]. After careful consideration of the motions, briefs, and relevant law, the Court concludes that Plaintiff's Motion to Remand should be granted, and that the remaining motions should be denied as moot.

         I. BACKGROUND

         Plaintiff State of New Mexico ex rel. Hector Balderas, Attorney General, filed this lawsuit in the First Judicial District of the State of New Mexico against manufacturers and wholesale distributors of prescription opioids, alleging that Defendants improperly marketed and distributed prescription opiate medications nationwide. According to Plaintiff's First Amended Complaint (Complaint) McKesson Corporation and other Distributor Defendants[1] habitually failed to monitor, report, investigate, and refuse suspicious orders[2] for prescription opioids originating from New Mexico in violation of the New Mexico Controlled Substances Act and the federal Controlled Substances Act (FCSA), resulting in the diversion of these drugs into non-medical, illicit channels. Plaintiff's Complaint alleges that Defendants are liable on eight counts: public nuisance under N.M. Stat. Ann. § 30-8-8-1 and New Mexico's common law (Count I); violation of New Mexico's Unfair Practices Act, N.M. Stat. Ann. §§ 57-12-1 to -26 (Count II); violation of New Mexico's Medicare Fraud Act, N.M. Stat. Ann. §§ 30-44-1 to -8 (Count III); violation of New Mexico's Racketeering Act, N.M. Stat. Ann. §§ 30-42-1 to -6 (Count IV); conspiracy to violate New Mexico's Racketeering Act (Count V); violation of New Mexico's Fraud Against Taxpayers Act, N.M. Stat. Ann. §§ 44-9-1 to -14 (Count VI); negligence (Count VII); and negligence per se (Count VIII). The Complaint alleges that Defendants' conduct exacted a huge financial burden on the State of New Mexico, and Plaintiff seeks various damages against Defendants for their alleged role in igniting an opioid epidemic. In addition to seeking temporary and permanent injunctions, various statutory damages and attorneys' fees, Plaintiff requests past and future damages for

(A) money wrongfully paid for opioids through government-funded insurance; (B) costs for providing medical care, additional therapeutic care and prescription drug purchases, and other treatments for patients suffering from opioid-related addiction or disease, including overdoses and deaths; (C) costs for providing treatment, counseling, and rehabilitation services; (D) costs for providing treatment of infants born with opioid-related medical conditions; (E) costs for providing welfare for children whose parents suffer from opioid-related disability or incapacitation; and (F) costs associated with law enforcement and public safety relating to the opioid epidemic.

Compl., Prayer for Relief, ¶ 9.

         McKesson filed a notice of removal in this Court, asserting that because Defendants' “duties governing reporting and shipping ‘suspicious' orders [] arise solely from the federal Controlled Substances Act, ” this Court has federal jurisdiction over Plaintiff's Complaint under the FCSA. Notice of Removal, Doc. 1, ¶¶ 8, 16. In its Motion to Remand, Plaintiff argues that its 167-page Complaint does not allege any federal claims. Indeed, Plaintiff contends that the Complaint explicitly disavows all federal causes of action, see e.g. Compl. ¶ 47, (“federal question subject matter jurisdiction pursuant to 28 U.S.C. § 1331 is not invoked by the Complaint … nowhere herein does Plaintiff plead … any cause of action or request any remedy that arises under federal law.”) Plaintiff also claims that, despite the Complaint's references to federal law and regulations that are incorporated into various analogous New Mexico laws and regulations, the Complaint does not rely on federal law to generate a cause of action. See Id. ¶ 48 (“In this complaint, Plaintiff cites federal statutes and regulations. Plaintiff does so to state the duty owed under New Mexico tort law, not to allege an independent federal cause of action and not to allege any substantial federal question ….”)

         Plaintiff explains in its Motion to Remand that New Mexico law “parallels” federal law applicable to manufacturer and wholesale drug distributors, and that in order to comply with state law, Defendants must also comply with federal law. The Complaint describes some state law duties that incorporate federal standards, or require compliance with both New Mexico and federal law. For instance, the Complaint explains how “[t]he [NMCSA] and Administrative Code incorporate by reference relevant federal laws and regulations.” Compl. ¶ 162 (citing N.M. Code R. § 16.19.8.13(I) and N.M. Stat. Ann, §§ 30-31-13(C), 30-31-16(A)). Further, “wholesale drug distributors shall operate in compliance with applicable federal, state, and local laws and regulations” and “[w]holesale drug distributors that deal in controlled substances shall register with the [New Mexico Board of Pharmacy] and with the [federal Drug Enforcement Agency].” Compl. ¶ 162 (citing N.M. Code. R. § 16.19.8.13(I) & (I)(2)). The same rules require that “any diversion of a prescription drug be reported to the New Mexico Pharmacy Board, the FDA, and … the DEA” and that this same duty exists under federal regulations, which are incorporated by reference.” Compl. ¶ 163 (citing N.M. Code. R. § 16.19.8.13(I) & (F)(5); §§ 30-31-13(C), 30-31-16(A)). Plaintiff's Complaint also cites New Mexico regulations that require the Distributor Defendants to guard against and report “diversion” of prescription opioids. For example, under N.M. Code. R. § 16.19.8.13(F) “[w]holesale distributors shall report any theft, suspect theft, diversion or other significant loss of any prescription drug … to the board ….” And under N.M. Code. R. § 16.19.20.48(A) distributors and manufacturers “shall provide effective controls and procedures to guard against theft and diversion of controlled substances.” See Compl. ¶¶ 161, 163.

         Plaintiff's Complaint also alleges that two DEA letters, written in 2006 and 2007, reminded registered wholesale distributors such as Distributor Defendants of “their statutory and regulatory duties” to monitor and report suspicious orders of controlled substances. Compl. ¶¶ 167, 172, 173. The letters explained to the Distributor Defendants that they represented “one of the key components of the distribution chain, ” and that “[i]f the closed system is to function properly … distributors must be vigilant in deciding whether a prospective customer can be trusted to deliver controlled substances only for lawful purposes.” Id. ¶ 167. The 2006 letter stated that “a distributor has a statutory responsibility to exercise due diligence to avoid filling suspicious orders” that could find their way into illicit channels. Id. ¶ 172. And the 2007 letter reminded distributors to “maintain effective controls against diversion” and “design and operate a system to disclose to the registrant suspicious orders.” Id. ¶ 173.

         McKesson responds that all of Defendants' duties to monitor for, report, and refuse suspicious orders for prescription opioids arise solely under the FCSA and its implementing regulations. See Notice of Removal, ¶ 8. Specifically, Defendants' duty to disclose suspicious orders derives from a federal regulation, 21 C.F.R. § 1301.74(b), and McKesson argues that Plaintiff identified no “provision of New Mexico law or regulation that contains a requirement analogous to the federal CSA's suspicious order-reporting requirement.” Id. ¶ 22 n. 4. Concerning the Drug Distributor's duty to not ship suspicious orders, McKesson does not argue that the FCSA itself imposes such a duty. Rather, according to McKesson “[t]he source of the asserted legal duty to suspend shipments of suspicious orders” arises from an interpretation of the FCSA by the DEA in the 2006 and 2007 letters. Id. ¶ 38. McKesson argues that although Plaintiff's claims are packaged as state law negligence, fraud, public nuisance, unfair practices, and racketeering claims, each claim is predicated upon disclosure and shipping duties arising only under federal law. See Def.'s Resp. to Mot. to Remand, p. 8 (“the Complaint repeatedly restates the same federal question: did the Distributor Defendants violate the DEA's suspicious order-reporting requirement, 21 C.F.R. § 1301.74(b), and a related DEA ‘shipping requirement' [i.e. the 2006 and 2007 DEA letters].'”) McKesson thus argues that this Court has subject matter jurisdiction because Plaintiff pleads facially federal claims in Counts I-VII, and that all of Plaintiffs claims depend on a substantial federal question - namely, the meaning and application of the FCSA, its implementing regulations, and the DEA letters.

         II. PROCEEDINGS

         In the background of this case is a Judicial Panel on Multidistrict Litigation (JPML) that formed a multidistrict litigation (MDL) arising from nationwide lawsuits addressing similar issues raised in this case. On December 7, 2017 the JPML centralized proceedings in the United States District Court for the Northern District of Ohio before the Honorable Dan A. Polster. On April 26, 2018, the day after McKesson filed its Notice of Removal, Defendant Cardinal Health Entities filed a tag-along notice with the JPML requesting that this case be transferred to the MDL proceedings in the Northern District of Ohio. Plaintiff objected to transfer before the JPML, and the parties will finalize arguments and briefing before the Panel on June 12, 2018. McKesson has advised this Court that the Distributor Defendants expect that, as a matter of course, in two or three months the JPML will issue an order conditionally transferring this case to the MDL proceeding, and therefore request a stay of all proceedings in this Court until the JPML makes a decision.[3] In his first Case Management Order, Judge Polster placed a moratorium on various motions, except for State remand motions. McKesson argues that Plaintiff will have a federal forum before Judge Polster to argue its motion to remand, and therefore Plaintiff would not be prejudiced by staying proceedings until this case is transferred as a matter of course to Ohio. Plaintiff counters that Judge Polster has yet to develop a procedure addressing State remand motions, and that “bounc[ing]” this case “between federal courts lacking subject matter jurisdiction” would result in needless delay and waste judicial resources. Pl.'s Resp. to Mot. to Stay 8, Doc. 24.

         III. LEGAL STANDARD

         “Federal courts are courts of limited jurisdiction, possessing only that power authorized by Constitution and statute.” Gunn v. Minton, 568 U.S. 251, 256 (2013). Removal statutes are to be strictly construed, and the party invoking federal jurisdiction bears the burden of proof with a presumption against federal jurisdiction. See Dutcher v. Matheson, 733 F.3d 980, 985 (10th Cir. 2013). Any doubts regarding subject matter jurisdiction are to be resolved against removal. See Fajen v. Found. Reserve Ins. Co., 683 F.2d 331, 333 (10th Cir. 1982). In its notice of removal, McKesson argues that two statutory provisions confer federal jurisdiction: 28 U.S.C. § 1331 and 28 U.S.C. § 1441. See Notice of Removal 5. Section 1441(a) permits the removal of “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” Section 1331, the “general federal-question statute, ” Michigan v. Bay Mills Indian Cmty., ___U.S. ___, 134 S.Ct. 2024, 2030 n. 2 (2014), gives district courts original jurisdiction over “all civil actions arising under the Constitution, laws, or treaties of the United States.” A case improperly removed to federal court must be remanded to state court. See 28 U.S.C. § 1447.

         Section 1331 “is invoked by and large by plaintiffs pleading a cause of action created by federal law.” Grable & Sons Metal Prods., Inc. v. Darue Eng'g & Mfg.,545 U.S. 308, 312 (2005). However, causes of action under state law may nonetheless “arise under” federal law for purposes of § 1331 even when the complaint does not explicitly plead a federal cause of action if the four-pronged Grable test is met. Under that test, “federal jurisdiction over a state law claim will lie if a federal issue is: (1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” Gunn, 568 U.S. at 258. Supreme Court decisions since Grable have suggested that Grable's recognition of jurisdiction absent a federal cause of action is of limited scope, noting that only a “slim category” of cases satisfy the four-prong Grable test. Empire Healthchoice Assurance, Inc. v. McVeigh,547 U.S. 677, 701 (2006). The Supreme Court has stressed that “it takes more than a federal element to open the arising under door, ” id., and that mere allegations of a “federal issue” are not a “password opening federal courts to any state action embracing a point of federal law.” Grable, 545 U.S. at 314. Thus the “mere presence” of a federal issue in a state cause of ...


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