California High Court: Pharmacies That 'Passed On' Higher Costs Have UCL Injury

SAN FRANCISCO - (Mealey's) Pharmacies have standing to pursue unfair competition law (UCL) claims alleging that they paid higher prices because of price fixing by pharmaceutical companies, even though they passed the higher prices on to consumers, the California Supreme Court held July 12 (James Clayworth, et al. v. Pfizer, Inc., et al., No. S166435, Calif. Sup.).

Proposition 64's addition of an "injury in fact" requirement to the UCL, Business and Professions Code Section 17200, does not change this outcome, the court reasoned.  The voters who enacted Prop 64 "clearly intended to restrict UCL standing, they just as plainly preserved standing for those who had had business dealings with a defendant and had lost money or property as a result of the defendant's unfair business practices," the court held.

The argument that the pharmacies have not suffered a compensable loss conflates questions of standing with questions of what remedies might be available, the court held.

Several pharmacies sued pharmaceutical companies in the Alameda County Superior Court, alleging that the companies violated the UCL and the Cartwright Act, Business and Professions Code Sections 16720 and 16726, by conspiring to fix prices in the U.S. market.  James Clayworth was the named plaintiff.

Discovery showed that the pharmacies passed on all of the claimed overcharges to their customers.  The pharmaceutical companies were granted summary judgment on the "pass-on defense."  The pharmaceutical companies are Pfizer Inc., Abbott Laboratories, Amgen Inc., Allergan Inc., AstraZeneca International, Boehringer Ingelheim Pharmaceuticals, Bristol-Myers Squibb Co., Eli Lilly & Co., Hoffman-LaRoche Inc., Johnson & Johnson Health Care Systems Inc., Merck & Co., Novartis Pharmaceuticals Corp., Pharmaceutical Research and Manufacturers of America and Wyeth Pharmaceuticals.  The pharmacies appealed.

On appeal, the First District Court of Appeal held that the pharmacies could not be awarded monetary relief under the UCL because they did not "have an ownership interest in whatever funds they paid as a result of any overcharge."  The pharmacies appealed to the California Supreme Court, which agreed to hear the case.

The Supreme Court said that the pharmacies had business dealings with the pharmaceutical companies and lost money in the form of overcharges that constituted unfair business practices.

That a party may ultimately be unable to prove a right to damages (or, here, restitution) does not demonstrate that it lacks standing to argue for its entitlement to them," the court held.

Having determined that the pharmacies have standing to pursue their UCL claims, the court held that the pharmaceutical companies failed to identify why the pharmacies could not obtain injunctive relief if they were to prove that an unfair business practice had occurred.

The appellate court's determination that the pharmacies cannot obtain injunctive relief because they lack standing is erroneous, the court said.  "To the extent the holding rests on the conclusion that even if pharmacies had standing, they could not seek injunctive relief unless they could also seek restitution, it is similarly erroneous," the court said.  Injunctive relief and restitution are two wholly independent remedies, and the UCL does not prevent injunctive relief when restitution would be improper, the court concluded.

Additionally, the court held that pharmaceutical companies cannot defend allegations of price fixing under the state's business and professions code by arguing that the pharmacies "passed on" the higher prices to consumers.  "We conclude that under the Cartwright Act, as under federal law, generally no pass-on defense is permitted.  While the text of the Cartwright Act does not answer the question, the Legislature's actions in response to Illinois Brick Co. v. Illinois ([1977] 431 U.S. 720) and related federal statutory amendments reveal a clear legislative preference for the Hanover Shoe v. United Shoe Mach. ([1968] 392 U.S. 481) rule," the court held.

[Editor's Note:  Full coverage will be in the July issue of Mealey's California Section 17200 Report.  In the meantime, the opinion is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #58-100728-039Z.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor Bryan Redding at 610-205-1124, or e-mail him at bryan.redding@lexisnexis.com.