MSP Recovery Claims, Series LLC v. Mallinckrodt Ard Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

WESTERN DIVISION

MSP Recovery Claims, Series LLC, )

et al., )

) Case No. 3:20 C 50056

Plaintiffs, )

) Judge John Z. Lee

v. )

)

Mallinckrodt ARD Inc., et al. )

)

Defendants. )

MEMORANDUM OPINION AND ORDER

Plaintiffs, consisting of MSP Recovery Claims, Series LLC (“MRCS”), MAO-

MSO Recovery, II, LLC, Series PMPI, and MSP Claims 1, LLC, filed an amended

class action complaint against Defendants Mallinckrodt plc and Mallinckrodt ARD,

Inc. (together, “Mallinckrodt”), as well as Express Scripts Holding Company,

Express Scripts, Inc., Curascript, Inc., and United Biosource LLC (together, “the

Express Scripts Entities”), alleging that Defendants have violated various federal

and state antitrust statutes and consumer-protection laws by artificially inflating

the price of the drug Acthar. Defendants have filed two motions to dismiss. For the

reasons set forth below, those motions are granted.

Background1

The specialty drug Acthar is an adrenocorticoptropic hormone currently

1 The following facts are taken from Plaintiffs’ amended complaint and are accepted

as true at this stage. See Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008)

(stating that, at the motion-to-dismiss stage, the court “accept[s] as true all well-pleaded

facts alleged”).

approved by the FDA for various uses, including the treatment of certain rare

illnesses such as infantile spasms and nephrotic syndrome. First Am. Compl.

(“FAC”) ¶¶ 106–109, ECF No. 165.

Medicare Advantage plans (“MA Plans”) are third-party payers that provide

Medicare benefits to their beneficiaries. Id. ¶ 1. Plaintiffs allege the Defendants

took actions to force these MA Plans to pay supra-competitive prices for Acthar.

Certain of these MA Plans have assigned to Plaintiffs their rights to recover for the

alleged overpayment. By way of example, MRSC asserts that it has obtained

assignments from (1) SummaCare, Inc., (2) EmblemHealth Services Company,

(3) ConnectiCare, Inc.,2 (4) University Health Care MSO, Inc. (“UNHC”), and

(5) Alianza Profesional de Cuidado Meidco (“APCM”), id. ¶¶ 16–20. MAO-MSO

Recovery II claims that it has an assignment from Preferred Medical Plan, Inc.

(“PMPI”), id. ¶¶ 65–67; and MSPA Claims 1 asserts an assignment from

Professional Health Choice (“PHC”), id. ¶¶ 69–73. Between 2013 and 2017, the MA

Plans that assigned their rights to Plaintiffs paid $125,550,620.09 for Acthar

prescriptions on behalf of their beneficiaries. Id. ¶ 6.

Plaintiffs claim that the Defendants have engaged in certain monopolistic

and anti-competitive behavior to artificially inflate the price of Acthar. Id. ¶ 7.

2 The Defendants, noting that the EmblemHealth and ConnectiCare assignments took

effect after Plaintiffs filed their original complaint (but before they filed their amended

complaint), contend that those assignments “are insufficient to convey constitutional

standing to Plaintiffs.” Mem. in Supp. of Mallinckrodt’s Mot. to Dismiss at 4, ECF No. 188;

see Mem. in Supp. of Express Scripts Entities’ Mot. to Dismiss at 13–14, ECF No. 191. But,

for reasons discussed below, the Court is not persuaded that Plaintiffs’ constitutional (or

prudential) standing depends on the EmblemHealth and ConnectiCare assignments.

Specifically, Plaintiffs assert that Mallinckrodt (formerly, Questcor

Pharmaceuticals), which manufactures and sells Acthar, acquired the rights to

Acthar’s only viable alternative, Synacthen, and then chose to withhold it from the

market in order to maintain its monopoly pricing. Id. ¶¶ 163–183. Mallinckrodt

agreed to pay $100 million to the Federal Trade Commission to settle claims that it

violated antitrust laws by purchasing the rights to Synacthen. Id. ¶ 179.

According to Plaintiffs, Mallinckrodt also entered into two exclusive

agreements relating to Acthar distribution, one that made CuraScript the exclusive

distributor of Acthar, and one that made United Biosource the exclusive operator of

the “Acthar Support & Access Program,” through which all Acthar prescriptions

must be obtained, id. ¶¶ 131–33. Plaintiffs assert that these agreements effectively

eliminated any incentive for Express Scripts Holding Company and Express Scripts,

Inc. (collectively, “ESI”)—one of the largest pharmacy benefit managers in the

United States and an affiliate of CuraScript and United Biosource—to negotiate

lower prices for Acthar on behalf of its clients. Id. ¶¶ 31, 153. Since 2001, Acthar’s

end-payer price has grown by 107,400%. Id. ¶ 146.

Based on this conduct, Plaintiffs allege that Mallinckrodt and the Express

Scripts Entities violated multiple sections of the Sherman Act, see 15 U.S.C. §§ 1–3

(Counts I and II), various state antitrust laws (Count III), and various state

consumer-protection laws (Count IV). FAC at 42–121. Plaintiffs seek injunctive

relief as to their federal claims and damages and injunctive relief as to their state

claims. Id. ¶¶ 203, 212, 220, 446.

Mallinckrodt and the Express Scripts Entities have each filed motions to

dismiss Plaintiffs’ amended complaint. See Mallinckrodt’s Mot. to Dismiss, ECF

No. 187; Mem. in Supp. of Mallinckrodt’s Mot. to Dismiss, ECF No. 188; Express

Scripts Entities’ Mot. to Dismiss, ECF No. 190; Mem. in Supp. of Express Scripts

Entities’ Mot. to Dismiss, ECF No. 191.

Legal Standard

To survive a motion to dismiss pursuant to Rule 12(b)(6), a complaint must

“state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550

U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads

factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009). In this way, the complaint must put the defendants on “fair notice of what

the . . . claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555

(quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).

In addition, when considering motions to dismiss, the Court accepts “all well-

pleaded factual allegations as true and view[s] them in the light most favorable to

the plaintiff.” Lavalais v. Vill. of Melrose Park, 734 F.3d 629, 632 (7th Cir. 2013).

At the same time, “allegations in the form of legal conclusions are insufficient to

survive a Rule 12(b)(6) motion.” McReynolds v. Merrill Lynch & Co., Inc., 694 F.3d

873, 885 (7th Cir. 2012) (citing Iqbal, 556 U.S. at 678).

Analysis

I. Prudential Standing

A. MSP Recovery Claims, Series LLC

As Mallinckrodt points out, several of the exemplar assignments were

ultimately assigned to designated subseries of MRSC that are not named plaintiffs,

as opposed to MRSC itself. See, e.g., FAC ¶ 63 (explaining that all rights from the

assignment with SummaCare were later assigned to “Series 16-11-509, a series of

MSP Recovery Claims, Series LLC”); see generally MSP Recovery Claims, Series

LLC v. Farmers Ins. Exch., No. 2:17-cv-02522-CAS, 2018 WL 5086623, at *13 (C.D.

Cal. Aug. 13, 2018) (“Under Delaware law, an LLC may establish one or more ‘series

of members, managers or [LLC] interests’ which ‘may have separate rights, powers

or duties with respect to specified property or obligations of the [LLC] or profits and

losses associated with specified property or obligations’ as well as a ‘separate

business purpose or investment objective.’” (quoting Del. Code Ann. tit. 6, § 18-

215(a))).

But Mallinckrodt’s argument that MRCS lacks standing to sue on behalf of

its series is unpersuasive.3 See Mem. in Supp. of Mallinckrodt’s Mot. to Dismiss at

3–4. Delaware law “permit[s] an LLC to sue on behalf of its series if provided for in

3 Although Mallinckrodt frames this issue as one of Article III standing, Mem. in

Supp. of Mallinckrodt’s Mot. to Dismiss at 3–4, the Court deems it more properly a matter

of prudential standing. See G&S Holdings LLC v. Continental Cas. Co., 697 F.3d 534, 540

(7th Cir. 2012) (stating that the “prudential limitations on the exercise of federal

jurisdiction” include that, “in general, the plaintiffs must assert their own legal rights and

interests, and cannot rest their claims to relief on the legal rights or interests of third

parties”).

the operating agreement.” Farmers Ins. Exch., 2018 WL 5086623, at *13. And, in

response to Mallinckrodt’s motion to dismiss, MRSC has attached its operating

agreement, which states that “the Company is authorized to pursue or assert any

claim or suit capable of being asserted by any designated series arising from, or by

virtue of an assignment to a designated series.” ECF No. 197-1 at 1. “[T]he Court

construes . . . [the] filing of . . . MSP Recovery Claims, Series LLC’s operating

agreement as a Rule 15(d) supplemental pleading and finds it sufficient to

demonstrate plaintiff’s standing to assert claims on behalf of its series assignees.”

Farmers Ins. Exch., 2018 WL 5086623, at *14.

B. Standing to pursue injunctive relief.

The Court also rejects Defendants’ argument that Plaintiffs have not

plausibly alleged prudential standing to seek injunctive relief. 4 Cf. Biomed

Pharms., Inc. v. Oxford Health Plans (N.Y.), Inc., 775 F. Supp. 2d 730, 736 (S.D.N.Y.

2011) (where assignment “limit[ed] Biomed’s right to sue . . . to actions for money

damages[,] . . . the assignment provision d[id] not grant Biomed the right to seek

‘declatory and/or injunctive relief’”).

It is true that the assignments appear to focus on claims for damages. See,

e.g., FAC Ex. D, PMPI Recovery Agreement at 2, ECF No. 165-4 (stating that “MSP

4 Defendants again present this issue as one of Article III standing, see Mem. in Supp.

of. Mallinckrodt’s Mot. to Dismiss at 5; Mem. in Supp. of Express Scripts Entities’ Mot. to

Dismiss at 11–13. But the question here is whether claims for injunctive relief were

assigned to the Plaintiffs or instead retained by the assigners, a matter of prudential

standing. See RK Co. v. See, 622 F.3d 846, 851 (7th Cir. 2010) (“[P]rudential limitations

include concerns about a claim’s rightful owner.”).

Recovery’s services focus on the analysis, identification and recovery of conditional

payments that have already been made by [PMPI].” (emphasis added)); FAC Ex. M,

APCM Assignment at 1, ECF No. 165-13 (stating in the preamble that “MSP

Recovery desires to provide certain services to prosecute and recover amounts owed

on the Assigned Claims.” (emphasis added)).

But the Court is persuaded that language in the assignments is sufficiently

broad to encompasses the injunctive relief Plaintiffs seek. For instance, the

SummaCare assignment transfers “all rights and claims against . . . third parties .

. . including claims under consumer protection statutes and laws.” FAC Ex. A,

SummaCare Recovery Agreement at 4, ECF No. 165-1 (emphasis added); see also

PMPI Recovery Agreement at 3 (containing nearly identical language); FAC Ex. G,

EmblemHealth Assignment Agreement at 2, ECF No. 165-7 (containing nearly

identical language); FAC Ex. K, UNHC Recovery Agreement at 3, ECF No. 165-11

(containing similar language); FAC Ex. M, APCM Recovery Agreement at 2–3, ECF

No. 165-13 (containing similar language).

Furthermore, the ConnectiCare assignment contains the same language,

while also emphasizing that “[t]his Assignment includes all of Assignor’s right, title

and interest in and to the Assignor’s any legal or equitable actions, rights, causes of

action or lawsuits of any nature whatsoever, arising out of or in connection with [the

Assignor’s right to seek reimbursement and recover payments].” FAC Ex. I,

ConnectiCare Assignment at 2, ECF No. 165-9 (emphases added).5

5 As Defendants note, the PHC assignment Plaintiffs have attached to the amended

complaint does not identify the claims that were assigned. Specifically, the agreement

Furthermore, while Defendants contend that the scope of Plaintiffs’

assignments are limited in time and, therefore, cannot include claims for

prospective injunctive relief, Plaintiffs have plausibly alleged that their rights

under the assignments are ongoing. See, e.g., SummaCare Recovery Agreement at

6 (explaining that the assignment, which was effective as of May 12, 2017, “shall

have an initial term of one . . . year” and “shall automatically renew for successive

terms of one . . . year unless terminated as set forth below”); UNHC Recovery

Agreement at 6 (containing similar language); APCM Recovery Agreement at 5

(containing similar language). This is enough at the pleading stage.

Accordingly, the Court is satisfied that Plaintiffs have “allege[d] sufficient

factual matter, accepted as true, to nudge [their] claim that they are assignees of

the rights at issue ‘across the line from conceivable to plausible.’” MSPA Claims 1,

LLC v. Allstate Ins. Co., No. 17 C 1340, 2019 WL 4305519, at *2 (N.D. Ill. Sept. 11,

2019) (quoting Twombly, 550 U.S. at 570). 6

states that PHC “assign[s] and transfer[s] . . . the rights and causes of action set forth” in

a specific exhibit, yet Plaintiffs have not provided the Court with that exhibit. FAC Ex. F,

PHC Agreement at 1, ECF No. 165-6.

6 Mallinckrodt’s assertion that the exemplar assignments are limited to claims under

the Medicare Secondary Payer Provision also is unavailing. See Mem. in Supp. of

Mallinckrodt’s Mot. to Dismiss at 5–8. To support this contention, Mallinckrodt cites a

portion of the PMPI Assignment that in fact defeats its argument. See id. at 7 (“[A]ll claims

that have been or can be identified by MSP Recovery as being recoverable by the Client

pursuant to the Medicare Secondary Payer Act or any other contractual, statutory, equitable

or legal basis, whether state or federal, . . . and/or as a result of payments made for or on

behalf of a Medicaid beneficiary or as a result of any payment(s) made through any health

plan, shall be deemed Assigned Claims.” (emphasis added) (quoting PMPI Recovery

Agreement at 2)).

II. Antitrust Standing

Where Plaintiffs’ claims flounder are on the shores of antitrust standing.

“‘Antitrust standing’ refers to ‘doctrines that have arisen to clarify the

circumstances under which a particular [entity] may recover from an antitrust

violator.’” In re Broiler Chicken Antitrust Litig., 290 F. Supp. 3d 772, 810 (N.D. Ill.

2017) (quoting Loeb Indust., Inc. v. Sumitomo Corp., 306 F.3d 469, 480 (7th Cir.

2002)). “The two most prominent doctrines were set forth by the Supreme Court in

Illinois Brick Co. v. Illinois[, 431 U.S. 720, 737 (1977)], which held that indirect

purchasers are prohibited from seeking damages under federal antitrust law, and

Associated General Contractors of California, Inc. v. California State Council of

Carpenters[, 459 U.S. 519, 535 (1983)], which imposed a version of proximate

causation on antitrust claims.” In re Broiler Chicken, 290 F. Supp. 3d at 810–11.

Although states generally interpret their antitrust laws consistent with

federal case law, the Supreme Court held in California v. ARC America Corp., 490

U.S. 93 (1989), that state legislatures could “repeal” Illinois Brick and thus provide

for damages under state antitrust law for indirect purchasers. See In re Broiler

Chicken, 290 F. Supp. 3d at 811. Furthermore, in deciding whether to apply

Associated General Contractors to state-law antitrust claims—as opposed to a

different, and potentially more permissive proximate-cause test—courts look to

whether the relevant states’ highest courts have ruled on the issue. See City of

Rockford v. Mallinckrodt ARD, Inc., 360 F. Supp. 3d 730, 759 (N.D. Ill. 2019).

Here, despite its length, Plaintiffs’ amended complaint lacks sufficient facts

from which the Court can assess whether Plaintiffs meet the standard laid out in

Associated General Contractors or “even the least stringent state’s ‘proximate cause’

test.” Id. at 760. As Plaintiffs acknowledge, five of the seven assigners purchased

Acthar from entities that have no affiliation with Defendants, including Caremark,

LLC; Walgreens Specialty Pharmacy, LLC; Procare Pharmacy, LLC; and OptumRx,

Inc. See FAC ¶¶ 241, 265, 281, 568, 670; Resp. to Mots. to Dismiss at 12 n.16, ECF

No. 197. And this is difficult to square with Plaintiffs’ claim that “Defendants

control 100% of the [Acthar] market in . . . price,” and that they “own and operate

the supply chain.” Resp. to Mots. to Dismiss at 12 & n.16; see, e.g., Erie Ins. Co. v.

Amazon.com, Inc., 925 F.3d 135, 144 (4th Cir. 2019) (describing supply chains as

including “manufacturers,” “distributors,” and “retailers.”). Because it is not clear

what role these intermediary entities are playing or how that role is consistent with

Plaintiffs’ theory of antitrust standing, the Court cannot determine whether

Plaintiffs’ have satisfied the proximate causation requirement under Associated

General Contractors or some relevant lesser state standard. See City of Rockford,

360 F. Supp. 3d at 753 (“Until [the Court] knows the contours of [intermediary] CVS’

role in supplying Acthar to [plaintiff’s] employee’s spouse, the Court is not able to

engage in a complete application of the AGC factors to [plaintiff].”).

To be sure, two of Plaintiffs’ assigners—EmblemHealth and ConnectiCare—

purchased Acthar from Accredo Health Group Inc. (“Accredo”), which Plaintiffs

contend is an “ESI-affiliated entity.” Resp. to Mots. to Dismiss at 12 n.15. But the

amended complaint only makes a few brief references to Accredo, which is not a

Defendant in this action. FAC ¶¶ 27, 128, 132. This is not enough to plausibly

establish that Accredo was a co-conspirator in the alleged conspiracy, and thus not

enough to plausibly argue that EmblemHealth and ConnectiCare were entitled to

sue the named Defendants for damages notwithstanding the applicability of Illinois

Brick. Cf. City of Rockford, 360 F. Supp. 3d at 748–751 (discussing the “co-

conspirator” exception to Illinois Brick). And, even setting aside Illinois Brick,

Plaintiffs must provide more information as to Accredo’s role in supplying Acthar to

EmblemHealth and ConnectiCare’s beneficiaries, as well as Accredo’s role vis-à-vis

the named Defendants, before the Court can determine whether standing plausibly

exists under AGC or any other proximate-cause test. As such, Plaintiffs’ federal and

state antitrust claims (Counts I, II, and III) are dismissed.

Finally, the Court concludes that Plaintiffs’ state consumer-protection claims

suffer from the same shortcomings. As in City of Rockford, “[t]he parties put forth

no argument that [Associated General Contractors] is irrelevant to state-law

consumer protection claims.” 360 F. Supp. 3d at 759 n.18; see also In re Aluminum

Warehousing Antitrust Litig., No. 13-md-2481 (KBF), 2014 WL 4277510, at *38

(S.D.N.Y. Aug. 29, 2014) (dismissing indirect-purchaser plaintiffs’ state consumer-

protection claims because plaintiffs “failed to include any specific allegations of

proximate cause,” and “every state statute requires a direct or indirect allegation

supporting proximate cause”). Thus, for purposes of this order, “the Court considers

all of the state laws invoked by the [amended complaint] as state laws that implicate

Plaintiffs’ antitrust standing.” City of Rockford, 360 F. Supp. 3d at 759 n.18. And

because, as noted above, Plaintiffs have not pleaded sufficient facts to meet even

the least stringent state’s proximate-cause test, the Court dismisses Plaintiffs’

consumer-protection claims (Count IV).

Finally, Defendants argue that the Court should not provide Plaintiffs with

another opportunity to amend their complaints. But, discovery remains ongoing,

and the Court finds that Defendants would suffer no undue prejudice if Plaintiffs

are permitted to file a second amended complaint to address the deficiencies

outlined here. Therefore, the Court grants Plaintiffs leave to file a second amended

complaint. Any such complaint must be filed within 45 days of this order.7

Conclusion

For the foregoing reasons, Defendants’ motions to dismiss are granted.

Plaintiffs’ amended complaint is dismissed without prejudice. Plaintiffs may file a

second amended complaint within 45 days of this order.

ENTERED: 3/23/20

John Z. Lee

United States District Court Judge

7 Because standing is a threshold issue and any amendment likely will impact the

nature and scope of Plaintiffs’ claims, the Court declines to address Defendants’ arguments

under Rule 12(b)(6) at this time.

12

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