Appendix — Group Life & Health Ins. Co. v. Royal Drug Co.
Supreme Court brief1979
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Supreme Court, U. §
FILED |
1978
APPENDIX _, we
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IN THE
Supreme Court of the United States
OCTOBER TERM, 1977
No. 77-952
Group LIFE AND HEALTH INSURANCE COMPANY,
also known as
BLUE SHIELD OF TEXAS, et al.,
Petitioners,
v.
RoyaL DruG Company, INC.,
doing business as
ROYAL PHARMACY OF CASTLE HILLS
and
DISCO PRESCRIPTION PHARMACY, et al.,
Respondents.
ON WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE FIFTH CIRCUIT
aan
PETITION FOR WRIT OF CERTIORARI FILED JANUARY 3, 1978
CERTIORARI GRANTED FEBRUARY 27, 1978
INDEX TO APPENDIX
Relevant Docket Entries:
FT ELE OE CRT Os EE Ie
I iia lca his delcitaiieiaahenetianeiainadsinantiadihnticees
its CN, TN ia a
Answer of Defendant Rieger/Medi-Save Pharmacies, Inc.,
I I CI aliens ditch nasheitinihechebchiatticiontidiphndbiindietiosndabibbeiinicinbdeness
Answer of Defendant The Sommers Drug Stores Company,
Ts, a alicia Ditech ctielninclasiaiisceittaatainiiti et tes
Answer of Defendant Group Life and Health Insurance
en , chetaeiobadaniniaesieedianemaiade
Answer of Defendant Walgreen Texas Co., June 27, 1975...
Joint Motion to Suspend Discovery and to Modify Order
Preliminary to Pre-Trial Conference, January 21, 1976....
Order of United States District Court for the Western Dis-
trict of Texas Approving Joint Motion to Suspend Dis-
covery and to Modify Order Preliminary to Pre-Trial
Conference, January 28, 1976 .....................-...-....2.---0.....
Motion of Defendant Group Life and Health Insurance Com-
pany to Dismiss, February 23, 1976 ............220000000-. 8
Affidavit of Steve G. McDonald, February 23, 1976 ..........
Group Life and Health Insurance Company Drug Supple-
ment Policy, dated April 1, 1969 (Exhibit A to McDonald
IEEE * hehindttditin byotpteegiaaeiclehalinidincstuhh ecedhchatiheededegnaiatanalliahadeheidstbacie
Participating Drug Pharmacy siociancats (Exhibit B to
i
Letter of Transmittal of Policy and Agreement to State
Board of Insurance, dated March 14, 1969 (Exhibit C to
I ete
Official Order No. 29701 of Texas Commissioner of Insur-
ance, dated June 18, 1969 (Exhibit D to McDonald Affi-
(ACRE ESA ERR SSRIS ces Leak 6 SILI A A De act» SAF RN a Ie
5la
59a
62a
ii
Official Order No. 30413 of Texas Commissioner of Insur-
ance, dated September 30, 1969 (Exhibit E to McDonald
Affidavit) -...............
Group Life and Health Insurance Company Drug Supple-
ment Policy, dated October 1, 1974 (Exhibit F to Mc-
Donald Affidavit)
Letter of Transmittal of Policy to State Board of Insurance,
dated September 23, 1974 (Exhibit G to McDonald Affi-
ES
Official Order No. 45511 of Texas Commissioner of Insur-
ance, dated October 1, 1974 (Exhibit H to McDonald
OE poet TaES Nel BACT
Motion of Defendant Walgreen Texas Co. to Dismiss, Feb-
TUALY 2B, 1976 .....-----.----------n-n--n--ceeenerorernesnnsnensnesnenennsnssnenes
Motion of Defendant The Sommers Drug Stores Company
to Dismiss, February 23, 1976 -...............--------------------------
Motion of Defendant Rieger/Medi-Save Pharmacies, Inc.
to Dismiss, February 25, 1976 ...............------------------------------
Stipulation of Plaintiffs and Defendant Rieger/Medi-Save
Pharmacies, Inc., March 11, 1976 ...............-..----------------------
Stipulation of Plaintiffs and Defendant The Sommers Drug
Stores Company, March 11, 1976 __........--------------------------
Stipulation of Plaintiffs and Defendant Walgreen Texas Co.,
- . xe
Affidavit of Bruce L. Busby, April 19, 1976 ......................-..--.
Affidavit of John Hannah, April 19, 1976 .............-.-.---.---------
Opinion of United States District Court for the Western
District of Texas, May 18, 1976 _............--...--..------------------
Final Order and Judgment of United States District Court
for the Western District of Texas, May 18, 1976 -..............
Opinion of United States Court of Appeals for the Fifth
Circuit, August 8, 1977
el
Page
76a
116a
117a
iii
Judgment of United States Court of A peals Fifth
Circuit, August 8, 1977 f ; echoes
Notice of Order Denying Petition for Reheari
hearing En Banc, October 27, 1977 snes ihicusbandi
EXHIBITS TO APPENDIX
Excerpts from Deposition of Judith J
ge . Johnson, November
Blue Shield of Texas Form Letter and Enclos ici
ures (Partici-
pating Drug Pharmacy Agreement, Drug Manual, Decals
and Forms) (Exhibit 2 to Johnson Deposition)
Letter from Ernest A. Maxwell to The Sommers Drug Stores
Company, dated October 9, 1974 (Exhibi
etc (Exhibit 4 to Johnson
Letter from Judy Johnson to Patts Dru
g Store, dated D
cember 20, 1974 (Exhibit 7 to Johnson Deposition) 7"
Memorandum from David Thigpen to Ra
y Pace, dated N
vember 19, 1974 (Exhibit 12 to Johnson Deposition) 2
Memorandum from David Thigpen to Jud
y Johnson, dated
November 19, 1974 (Exhibit 18 to Johnson Deposition) ..
Participating Drug Pharmacy Agreement Betw
t een G
Life and Health Insurance Company and Walgreen ti /
Texas, dated January 27, 1970 ;
eee nee we wenn
SPOR mma meee ee we es eeeeeeeeennnee
Memorandum Entitled “Special Plan Meetings: Auto Pre-
scription Drug Program” (Exhibit 23 to
— Johnson Depo-
Letter from M.C. Rotter to Tom L. Beaucham
p, Jr., dated
May 28, 1968 (Exhibit 32 to Johnson Deposition)
Excerpts from Deposition of Lee Helis, November 21, 1975...
— from Deposition of Steve G. McDonald, November
. 5 Rs ,
Page
139a
140a
14la
159a
194a
196a
198a
199a
200a
205a
276a
278a
288a
iv
Drug Supplement Policy of Group Life and Health Insur-
ance Company, dated April 1, 1969, Disapproved by Order
No. 29701 of Texas Commissioner of Insurance, dated
June 18, 1969 (Exhibit 37 to McDonald Deposition)..........
Drug Supplement Policy of Group Life and Health Insur-
ance Co., dated October 1, 1974, Approved By Order No.
45511 of Texas Commissioner of Insurance, dated October
1, 1974 (Exhibit 39 to McDonald Deposition) -..................
ae
Participating Drug Pharmacy Agreement Between Group
Life and Health Insurance Company and Drug Mart
Pharmacy, dated October 12, 1974 (Exhibit 6 to Pogue
TD cecccictentisinimnnictenpeninnineaiemie maple
Letter from Steve G. McDonald to Robert C. McAnelly, dated
March 14, 1969 (Exhibit 51 to Pogue Deposition) .............
Group Life and Health Insurance Company Drug Supple-
ment Policy, dated April 1, 1969 (Exhibit 52 to Pogue
Deposition) -.........
Official Order No. 29701 of Texas Commissioner of Insur-
ance, dated June 18, 1969 (Exhibit 53 to Pogue Deposi-
RR Re eee
Letter from Paul D. Connor to Hon. Crawford Martin,
dated August 21, 1969 (Exhibit 54 to Pogue Deposition) -.
Official Order No. 29701 of Texas Commissioner of Insur-
ance, dated September 30, 1969 (Exhibit 55 to Pogue
TINY coccceicccterepeevecesenseees-ccennienpeesensietenenenennsennantanettnngsvoranie
Letter from Paul D. Connor to Hon. Crawford Martin, dated
October 1, 1969 (Exhibit 56 to Pogue Deposition) ............
Letter from Steve G. McDonald to A. W. Pogue, dated Sep-
tember 23, 1974 (Exhibit 57 to Pogue Deposition) ..........
Group Life and Health Insurance Company Drug Supple-
ment Policy, dated October 1, 1974 (Exhibit 59 to Pogue
Deposition)
OO ERR REET Ee
Page
303a
3lla
319a
367a
370a
372a
374a
377a
Vv
Official Order No. 45511 of Texas Commissioner of Insur-
ance, dated October 1, 1974 (Exhibit 6
ee ( : sas Pogue Depo-
— from Deposition of Paul D. Connor, December 30,
Excerpts from Deposition of Robert C. M ecem
ber 30, 1975 ....... tase aon
Excerpts from Deposition of Donald H. B
a. ae - Bunnell, December
Articles of Incorporation of Group Life and Health Insur-
ance Company, dated December 15, 1960 ibi
Bunnell Deposition) vos seabed
Certificate of Authority No. 2246 Issued to Group Life and
Health Insurance Company, dated December 15
“ys of . 19
(Exhibit 65 to Bunnell Deposition)... vid
Texas Attorney General Opinion No. WW-1475, d
‘ - , dated De-
cember 11, 1962 (Appendix I to Brief of Appellee Group
Life and Health Insurance Company)
Page
385a
387a
409a
42la
430a
470a
Date
6/25/76
7/16/76
7/21/76
8/2/76
8/2/76
8/4/76
9/7/76
9/8/76
9/24/76
9/24/76
9/24/76
10/4/76
10/6/76
10/12/76
10/26/76
10/27/76
10/27/76
11/4/76
1/10/77
vii
RELEVANT DOCKET ENTRIES
COURT OF APPEALS
FILINGS/ PROCEEDINGS
Fig. Duplicate Notice of Appeal and Clerk’s Statement
of Docket Entries
Fig. Notice of Election [Under] Rule 30(c) [Deferred
Appendix]
Fig. Appellants’ Designation
Fig. Amended Notice of Appeal, filed in D.C. 6/23/76
Fig. Record on Appeal
Fig. Exhibits to Brief
Fig. Brief for Appellants
Flg. Appellants’ Designation
Fig. Appellee’s Designation (Group Life)
Fig. Brief for Appellee Group Life and Health Insur-
ance Company
Fig. Brief for Appellee Rieger, et al.
Fig. Motion for Leave to File Reply Brief in Excess
Pages (Granted, 10/12/76)
Fig. Appellants’ Supplemental Designation
Fig. Reply Brief for Appellants
Fig. Motion for Extension of Time to File Appendix
Fig. Exhibits
Fig. Motion for Leave to File Supplemental Record
(Granted, 10/27/76)
Fig. Appendix
Fig. Motion of Appellees, Sommers Drug Stores Com-
pany, et al., to designate counsel for oral argument
Date
1/13/77
1/19/77
1/20/77
3/28/77
4/13/77
6/3/77
6/23/77
6/27/77
8/8/77
8/8/77
8/22/77
9/6/77
9/12/77
9/19/77
viii
Fig. Appellants’ Letter dated 1/11/77 citing recent
decision of the Fourth Circuit Court of Appeals
Fig. Appellee’s (Walgreen Texas Co.) Letter dated
1/11/77
Fig. Letter of Appellee Group Life and Health Insur-
ance Company, dated 1/17/77 responding to Appel-
lants’ letter dated 1/11/77 and citing recent opinions,
copies attached
Fig. Appellants’ letter dated 3/24/77 citing recent
opinion of the U.S. Court of Appeals for the Fourth
Circuit
Fig. Letter of Appellee, Group Life and Health Insur-
ance Company, dated 4/11/77 enclosing recent opin-
ion of the U.S. Court of Appeals for the Fourth
Circuit
Fig. Appellants’ letter dated 5/30/77 enclosing a copy
of opinion in Barry Vv. St. Paul Fire & Marine Ins. Co.
Fig. Letter of Appellee, Group Life and Health Insur-
ance Company, dated 6/21/77 enclosing copy of recent
decision from U.S. Court of Appeals for the District
of Columbia
Fig. Appellants’ letter dated 6/27/77 replying to Appel-
lees’ letter dated 6/21/77
Opinion Rendered
[Judgment of U.S. Court of Appeals for the Fifth
Circuit]
Fig. Petition for Rehearing En Banc
Fig. Brief of Amicus Curiae (R.B. Cousins) in support
of Petition for Rehearing En Banc
Fig. Amicus Curiae (Allstate Insurance Company)
Fig. Order Granting Motion of Allstate Insurance Com-
pany for Leave to File Brief as Amicus Curiae in
support of Appellees’ Petition for Rehearing and
Rehearing En Banc and for Extension to file same
to 9/19/77
—
ee
Date
9/20/77
9/22/77
10/27/77
11/3/77
11/9/77
11/10/77
11/14/77
12/6/77
12/16/77
ix
Fig. Brief of Amicus Curiae, Allstate Insurance Com-
pany, in support of Petition for Rehearing En Banc
on behalf of Appellees, Group Life and Health Insur-
ance Company
Fig. Appellees’ Supplement to Petition For Rehearing
En Bane
Order Denying Rehearing En Banc
Fig. Motion for Stay of Mandate
Fig. Appellees’ Reply to Appellants’ Opposition to Ap-
pellees’ Motion for Stay of Mandate
Fig. Appellants’ Supplemental Response to Appellees’
Reply to Appellants’ Opposition to Motion for Stay of
Mandate
[Order Granting Motion for Stay of Mandate]
Fig. Motion for Further Stay of Mandate
[Order Granting Motion tor Further Stay of Mandate]
Date
5/29/75
5/30/75
6/4/75
6/16/75
6/20/75
6/23/75
6/23/75
6/26/75
6/27/75
6/27/75
6/27/75
7/30/75
8/7/75
8/8/75
8/11/75
8/13/75
on | eT a TE
x
DISTRICT COURT
FILINGS/ PROCEEDINGS
Original Complaint, filed. [J] ury demand
Summonses issued. (4)
2. Summons (Sommers Drug Stores) re/ex 6-2-75.
8. Summons (Gibson Pharmacy by serving Sec. of
State of Texas) re/ex 6-3-75.
Original Ans. of Deft., Rieger/Medi-Save Pharma-
cies, Inc., filed.
Marshal’s Return on Complaint and Summons
re/ex 6/10/75.
Deft. Answer [The Sommers Drug Store Company]
and Jury Demand, filed.
Marshal’s Return on Complaint & Summons re/ex
6/10/75
Answer of Deft. Group Life & Health Ins. Co.,
filed.
Request for Production of Documents by Deft.
Group Life & Health Insurance Co. (First set),
Joel H. Pullen, Attorney for Pitfs., filed.
Answer of Def. Walgreen Texas Co. and Jury De-
mand, filed.
. Agreed Motion for Ext. of Time to Resp. to Deft’s
Request for Prod. of Doc., filed.
Order Granting Agreed Motion for Ext. of Time
To Resp. to Deft’s Request for Prod. of Doc., filed.
Order Preliminary to Pre-Trial Conference, filed.
Pitfs’ Objections and Ans. to Request for Prod.
of Doc., filed.
Pitfs’ Motion to Bifurcate Discovery & for Pro-
tective Order, filed.
Date
8/20/75
8/20/75
8/25/75
8/25/75
8/25/75
8/26/75
8/27/75
8/29/75
9/10/75
9/29/75
9/29/75
11/14/75
12/3/75
16.
17.
18.
19.
20.
21.
xi
Opposition of Deft. Group Life & Health Ins. Co.
to Pitfs’ Motion to Bifurcate Discovery & in the
Alternative for Protective Order Pursuant to Rule
26, Fed. Rules of Civil Proc., filed.
Memo Brief of Deft. Group Life & Health Ins. Co.
in Opposition to Pitfs’ Motion to Bifurcate Dis-
covery & in the Alternative for Protective Order,
filed.
Deft., Rieger-Medi-Save, Inc.’s, Response in Oppo-
sition to Pitfs’ Motion to Bifurcate Discovery &
for Alternative Relief, filed.
Brief in Support of Deft., Rieger-Medi-Save, Inc.’s
Response in Opposition to Plitfs’ Motion to Bifur-
cate Discovery & for Alternative Relief, filed.
Opposition of Deft., Walgreen Texas Co., to Motion
of Pitfs’ Motion to Bifurcate Disc. & in the Alter-
native, for Protective Order, filed.
Response of Deft., the Sommers Drug Stores Co.,
to Pitfs’ Motion to Bifurcate Discovery and in the
Alternative for Protective Order, filed.
22. Brief of Pitfs in Resp. to Defts’ Opposition to
25.
26.
Pitfs’ Motion to Bifurcate Discovery, filed.
Reply of Deft. Group Life & Health Ins. Co. to
Brief of Pitfs. in Response to Defts’ Opposition
to Pitfs’ Motion to Bifurcate Discovery, filed.
Notice Duces Tecum to Take Deposition Upon Oral
Examination, filed.
Order Denying Pitfs’ Motion to Bifurcate Dis-
covery & in the Alternative for Protective Order,
filed.
Order Requiring Stipulation of Positions on Dis-
puted Discovery, filed.
Notice of Intent to Take Deposition.
Stipulation of Dismissals. Filed.
Date
12/12/75
12/12/75
12/12/75
12/12/75
12/15/75
12/15/75
12/23/75
12/23/75
12/23/75
12/23/75
12/23/75
1/6/76
1/6/76
31.
32.
36.
37.
xii
Notice Duces Tecum to take Deposition Upon Oral
Examination. Filed. (Mr. A. W. Pogue)
Notice Duces Tecum to take Deposition Upon Oral
Examination of Mr. R. C. McAnelly. Filed.
Notice Duces Tecum to take Deposition Upon Oral
Examination of Mr. Donald H. Bunnell. Filed.
Notice Duces Tecum to take Deposition Upon Oral
Examination of Mr. Paul D. Connor. Filed.
Ordered that the Stipulation of Dismissals is ap-
proved and cause is dismissed with prejudice as
to Alamo Heights Pharmacy, Inc., Patts Drug,
Inc., d/b/a Patt’s Drug Store No. 1, Thomas J.
Parma d/b/a Parma’s Pharmacy, Baylor Parsons
d/b/a Parson’s Pharmacy, James Pollock d/b/a
Pollock’s Pharmacy, Physicians & Surgeons Phar-
macy, Inc., and Charles Griffin d/b/a Dellview
Drug Store.
DOCKET CALL: Pre-Trial Order due April, 1976.
Case will be called for announcements and possible
setting on March-April Docket.
Amended Notice to take Deposition Upon Oral
Examination of Paul D. Connor. Filed.
. Amended Notice to take Deposition upon Oral Ex-
amination of R. C. McAnelly. Filed.
Amended Notice Duces Tecum to take Deposition
Upon Oral Examination of A. W. Pogue. Filed.
Amended Notice Duces Tecum to take Deposition
Upon Oral Examination of Donald H. Bunnell.
Filed.
Motion to Compel Discovery Filed.
Marshals Return on Deposition Subpoena Received
(Re/ex 12/29/75) (A. W. “Woody” Pogue).
Marshals Return on Deposition Subpoena Received
(Re/ex 12/29/75) (R. C. MeAnelly).
Date
1/6/76
1/6/76
1/6/75
1/6/76
1/6/76
1/6/76
1/6/76
1/6/76
1/6/76
1/6/76
1/6/76
1/6/76
1/6/76
39.
40.
xiii
Marshals Return on Deposition Subpoena Received
(Re/ex 12/30/75) (Donald H. Bunnell).
Marshals Return on Deposition Subpoena Received
(Re/ex 12/29/75) (Paul D. Connor).
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Dellmar Pharmacies, Inc. d/b/a Dellmar
Pharmacy #4. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Delimar Pharmacies, Inc. d/b/a Dellmar
Pharmacy +4. Filed.
. Notice Duces Tecum to Take Deposition Upon Oral
Exam of Blauser’s Pharmacy, Inc. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Parker’s Pharmacy, Inc. Filed.
43. Notice Duces Tecum to Take Deposition Upon Oral
Exam of Highland Hills Pharmacy, Inc. Filed.
44. Notice Duces Tecum to Take Deposition Upon Oral
45.
46.
47.
49.
Exam of Craig Bell d/b/a Bell Pharmacy. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Royal Drug Co., Inc. d/b/a Pharmacy
of Castle Hills and Disco Prescription Pharmacy.
Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of White Cross Professional Pharmacy, Inc.,
d/b/a White Cross #1 and #4. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Blanco Pharmacy, Inc. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Econodose Systems, Inc. d/b/a Medical
Center Pharmacy. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Gustin Hncir d/b/a Turner’s Pharma-
cists. Filed.
Date
1/6/76
1/6/75
1/6/76
1/6/76
1/6/76
1/6/76
1/12/76
1/15/76
1/15/76
1/16/76
1/19/76
1/21/76
51.
52.
53.
58.
xiv
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Carlos Diaz d/b/a Valley View Phar-
macy. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Alfred Sangalli d/b/a Star Drug Store.
Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Blanco Southside Pharmacy, Inc. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Rodolfo L. Davila, Inc. d/b/a Davila
Pharmacy. Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Rong, Inc. d/b/a Economy Pharmacy.
Filed.
Notice Duces Tecum to Take Deposition Upon Oral
Exam of Zarzamora Pharmacy, Inc. Filed.
Notice Int. to Take Depo. Pursuant to Rule
30(b) (6), filed.
Notice of Intention to Take Depos. of Rieger/Medi-
Save Pharmacies, filed.
Notice of Intention to Take Depos. of Walgreen
Texas Co., filed.
[no item 59]
60.
61.
Deposition of Donald H. Bunnell, filed.
ORDER Approving Stipulation of Dismissals (Dis-
missing with prejudice Alamo Hgts. Pharmacy,
Inc.; Patts Drug, Inc. dba Patt’s Drug Store #1;
Thomas J. Parma dba Parma’s Pharmacy; Baylor
Parscn’s dba Parson’s Pharmacy; James Pollock
dba Pollock’s Pharmacy; Physicians & Surgeons
Pharmacy, Inc; Charles Griffin dba Dellview Drug
Store).
Joint Motion to Suspend Discovery and to Modify
Order Preliminary to Pre-Trial Conference, filed.
Date
1/23/76
1/28/76
2/2/76
2/23/76
2/23/76
2/23/76
2/23/76
2/23/76
2/25/76
2/25/76
3/10/76
3/11/76
3/11/76
3/12/76
3/15/76
ORDER Approving Joint Motion to Suspend Dis-
covery and to Modify Order Preliminary to Pre-
Trial Conference, filed.
64. Deposition of Paul D. Connor and A. W. Pogue,
filed.
65. Deposition of Robert C. McAnelly, filed.
S
67.
75.
76.
Motion of Def., Group Life & Health Ins. Co.,
to Dismiss, filed.
Brief of Def., Group Life and Health Ins. Co. in
Support of Motion to Dismiss, filed.
Motion of Def., Walgreen Texas Co., to Dismiss,
filed.
. Motion of Def., The Sommers Drug Stores Co., to
Dismiss, filed.
Brief of Sommers Drug Stores Co., in Support of
Motion to Dismiss, filed.
. Def., Rieger/Medi-Save Pharmacies, Inc.’s Motion
to Dismiss, filed.
Memorandum Brief in Support of Def., Rieger/
Medi-Save Pharmacies, Inc.’s Motion to Dismiss,
filed.
. Motion to Extend Time for Filing Defs’ Response
and Brief to Defs’ Motion to Dismiss, filed.
. Stipulation of Plfs. & Def., Rieger/Medi-Save
Pharmacies, Inc., filed.
Stipulation of Plfs. and Def., Sommers Drug
Stores Co., filed.
Stipulation of Plfs. and Def., Walgreen Texas Co.,
filed.
DOCKET CALL: Hearing on Motion to Dismiss
requested by Mr. Pullen and set for April 19, 1976
at 2:30 P.M. All briefs are to be filed in advance.
Set on June, 1976 Docket. Settlement not possible
at this time.
Date
3/19/76 77.
3/24/76 178
4/5/76 79
4/15/76 80
4/15/78 81.
4/9/76 82.
4/19/76 83.
4/19/76 84.
5/18/76 84.
xvi
ORDER Allowing 10 days to Respond after filing
of the last of the depositions of Steve G. McDonald,
Judith S. Johnson and Lee Helis, filed.
. Depositions of Judith S. Johnson, Lee Helis and
Steve G. McDonald, filed.
. Plaintiffs’ Brief in Opposition to Defendants’ Mo-
tion to Dismiss, filed.
. Defendant’s Rieger/Medi-Save Pharmacies, Inc.,
Reply Brief in Support of its Motion to Dismiss,
filed.
Reply of Defendant Group Life and Health Ins.
Co. to Plaintiffs’ Brief in Opposition to Motion to
Dismiss, filed.
Affidavit in Support of Defendant Rieger/Medi-
Save Pharmacies, Inc.’s Motion to Dismiss, filed.
Reply of Def., The Sommers Drug Stores Co. to
Plaintiffs’ Brief in Opposition to Motion to Dis-
miss, filed.
HEARING ON MOTION TO DISMISS: Movant,
Group Life Ins., et al, announced ready. Respond-
ent announced ready. Mr. Kaiser asked Court to
treat this motion as a Motion for Summary Judg-
ment. Respondent argued against in that in this
instance with reference to drugs, Blue Cross &
Blue Shield are not in insurance business. Both
sides agreed to an Interlocutory Appeal, whether
the Court decides for plaintiff or defendant. Mr.
Kaiser cited cases he wishes the Court to consider.
Mr. Pullen cited the State Board of Insurance does
not feel it has the right to regulate pharmacies.
Any additional authorities are to be given to the
Court by Friday. The Court will take this matter
under advisement. Decision on motion will prob-
ably be ready in a week.
MEMORANDUM OPINION, filed. (Including
Findings of Fact and Conclusions of Law contain-
ed therein.)
wameneees ee en a ee
Date
5/18/76
6/16/76
6/16/76
6/23/76
6/23/76
6/24/76
7/2/76
7/9/76
7/16/76
7/26/76
1/7/78
1/7/78
86.
93.
95.
xvii
- ORDER (consistent with the Memo. Opinion and
Findings of Fact and Conclusions of Law) render-
ing judgment for and in behalf of Defts. Group
Life and Health Ins. Co., aka/Blue Shield of Texas,
Walgreen Texas Co., The Sommers Drug Stores
Co. Se ere Pharmacies, Inc. with
respec aintiffs’ Claims i-
manera under the federal anti
Notice of Appeal, filed. Cy. to Court of A peals
for Fifth Circuit. mites
Bond for Costs on Appeal Secured b
ear y Cash De-
Amended Notice of Appeal, filed.
- Amended Bond for Costs on Appeal Secured by
Cash Deposit, filed.
ae of Contents of Record on Appeal,
. Designation of Deft. Group Life & Health Ins. Co.
of Transcript and Additional Parts to be included
in the Record on Appeal, filed. ae
Appellants’ Supplemental Designation of Contents
of Record on Appeal, filed. Cy. to Court of Ap-
Transcript of Hearing on Motions to Dismiss
April 19, 1976, filed. ™ ”
ORIGINAL RECORD ON APPEAL MAILED
a to Court of Appeals for the Fifth
ircui
. Copy from the Fifth Circuit of Appellees’ Motion
for Stay of Mandate, filed.
Order from the Fifth Circuit GRANTING Appel-
lees Motion for Stay of the Issuance of the Man-
date pending Petition for Writ of Certiorari, filed.
la
COMPLAINT, MAY 29, 1975
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
Civil Action No. SA 75 CA 131
—
ROYAL DruG COMPANY, INC. d/b/a ROYAL PHARMACY OF
CASTLE HILLS and DISCO PRESCRIPTION PHARMACY,
BLAUSER’S PHARMACY, INC., PARKERS PHARMACY, INC.,
CHARLES GRIFFIN d/b/a DELLVIEW DRUG STORE, JAMES
POLLOCK, d/b/a POLLOCK’s PHARMACY, THOMAS J.
PARMA, d/b/a PARMA’S PHARMACY, CRAIG BELL, d/b/a
BELL PHARMACY, GEORGE STONE, d/b/a OLMOS PHAR-
MACY, ALAMO HEIGHTS PHARMACY, INC., PATTS DRUG,
INC. d/b/a PATT’s DRUG STORE No. 1, BAYLOR PARSONS
d/b/a PARSONS PHARMACY, HIGHLAND HILLS PHAR-
MACY, INC., ECONODOSE SYSTEMS, INC. d/b/a MEDICAL
CENTER PHARMACY, GUSTAVE HNCIR, d/b/a TURNERS
PHARMACISTS, PHYSICIAN & SURGEONS PHARMACY, INC.,
CARLOS DIAZ d/b/a VALLEY VIEW PHARMACY, ALFRED
SANGALLI, d/b/a STAR DRUG STORE, BLANCO PHARMACY,
INC., BLANCO SOUTHSIDE PHARMACY, INC., DAN PARADA
d/b/a DAN’S PHARMACY, RopoLFo L. Davia, INC.
d/b/a DAVILA PHARMACY, DELLMAR PHARMACIES, INC.
d/b/a DELLMAR PHARMACY #4, RoNnG, INC. d/b/a
ECONOMY PHARMACY #1, ZARZAMORA PHARMACY, INC.
and WHITE CROSS PROFESSIONAL PHARMACY, INC. d/b/a
WHITE Cross #1 and d/b/a WHITE Cross #4
V.
Group LIFE AND HEALTH INSURANCE COMPANY a/k/a
BLUE SHIELD and/or BLUE CrRoss-BLUE SHIELD OF
TEXAS, WALGREEN TEXAS COMPANY, SOMMERS DRUG
STORE, RIEGER-MEDI-SAVE, INC. d/b/a GIBSONS PHAR-
MACY
2a
Complaint
ORIGINAL COMPLAINT
TO SAID HONORABLE COURT:
inti i i i i dants for the
Plaintiffs bring this action against defen
amount of damages suffered and to be suffered by oe
due to the defendants’ violation of the anti-trust laws
the United States and the State of Texas and allege as
follows:
i i i- t Act
This action arises under the Sherman Anti Trus
of July 2, 1890, 15 U.S.C.A. Sects. 1-7, and rer
Clayton Anti-Trust Act of October 15, 1914, 15 U.S.C.A.
section 12 et seq.
II
1. The plaintiff, ROYAL DRUG COMPANY, INC.,
d/b/a Royal Pharmacy of Castle Hills and Disco Pre-
scription Pharmacy, is a corporation organized and exist-
ing under the laws of the State of Texas, with its prin-
cipal place of business in San Antonio, Bexar County,
Texas.
2. The plaintiff, BLAUSER’S PHARMACY, INC., is
a corporation organized and existing under the laws of
the State of Texas, with its principal place of business
in San Antonio, Bexar County, Texas.
3. The plaintiff, PARKERS PHARMACY, INC., is a
corporation organized and existing under the laws of the
State of Texas, with its principal place of business in
San Antonio, Bexar County, Texas.
4. The plaintiff, CHARLES GRIFFIN d/b/a Dellview
Drug Store, is a resident of San Antonio, Bexar County,
Texas.
a
Os 6 as os ee Pee vn -
3a
Complaint
5. The plaintiff, JAMES POLLOCK d/b/a Pollock’s
Pharmacy, is a resident of San Antonio, Bexar County,
Texas.
6. The plaintiff, THOMAS J. PARMA d/b/a Parma’s
Pharmacy, is a resident of San Antonio, Bexar County,
Texas.
7. The plaintiff, CRAIG BELL d/b/a Bell Pharmacy,
is a resident of San Antonio, Bexar County, Texas.
8. The plaintiff, GEORGE STONE d/b/a Olmos Phar-
macy, is a resident of San Antonio, Bexar County, Texas.
9. The plaintiff, ALAMO HEIGHTS PHARMACY,
INC., is a corporation organized and existing under the
laws of the State of Texas, with its principal place of
business in San Antonio, Bexar County, Texas.
10. The plaintiff, PATTS DRUG, INC. d/b/a Patt’s
Drug Store No. 1, is a corporation organized and existing
under the laws of the State of Texas, with its principal
place of business in San Antonio, Bexar County, Texas.
11. The plaintiff, BAYLOR PARSONS d/b/a Parsons
Pharmacy, is a resident of San Antonio, Bexar County,
Texas.
12. The plaintiff, HIGHLAND HILLS PHARMACY,
INC., is a corporation organized and existing under the
laws of the State of Texas, with its principal place of
business in San Antonio, Bexar County, Texas.
13. The plaintiff, ECONODOSE SYSTEMS, INC.
d/b/a Medical Center Pharmacy, is a corporation organ-
ized and existing under the laws of the State of Texas,
with its principal place of business in San Antonio, Bexar
County, Texas.
14. The plaintiff, GUSTAVE HNCIR d/b/a Turners
Pharmacists, is a resident of San Antonio, Bexar County,
Texas.
4a
Complaint
15. The plaintiff, PHYSICIAN & SURGEONS PHAR-
MACY, INC., is a corporation organized and existing
under the laws of the State of Texas, with its principal
place of business in San Antonio, Bexar County, Texas.
16. The plaintiff, CARLOS DIAZ d/b/a Valley View
Pharmacy, is a resident of San Antonio, Bexar County,
Texas.
17. The plaintiff, ALFRED SANGALLI d/b/a Star
Drug Store is a resident of San Antonio, Bexar County,
Texas.
18. The plaintiff, BLANCO PHARMACY, INC., is a
corporation organized and existing under the laws of the
State of Texas, with its principal place of business in San
Antonio, Bexar County, Texas.
19. “he plaintiff, BLANCO SOUTHSIDE PHAR-
MACY, INC., is a corporation, organized and existing
under the laws of the State of Texas, with its principal
place of business in San Antonio, Bexar County, Texas.
20. The plaintiff, DAN PARADA d/b/a Dan’s Phar-
macy, is a resident of San Antonio, Bexar County, Texas.
21. The plaintiff, RODOLFO L. DAVILA, INC. d/b/a
Davila Pharmacy, is a corporation organized and existing
under the laws of the State of Texas, with its principal
place of business in San Antonio, Bexar County, Texas.
22. The plaintiff, DELLMAR PHARMACIES, INC.
d/b/a Dellmar Pharmacy #4, is a corporation organized
and existing under the laws of the State of Texas, with
its principal place of business in San Antoniv Bexar
County, Texas.
28. The plainiiff, RONG, INC. d/b/a Economy Phar-
macy #1, is a corporation organized and existing under
the laws of the State of Texas, with its principal place
of business in San Antonio, Bexar County, Texas.
=
5a
Complaint
24. The plaintiff, ZARZARMORA PHARMACY, INC.,
is a corporation organized and existing under the laws of
the State of Texas, with its principal i i
place of busine
San Antonio, Bexar County, Texas. Pa
25. The plaintiff, WHITE CROSS PROFESSI
PHARMACY, INC. d/b/a White Cross #1 and Wate
Cross #4, is a corporation organized and existing under
the laws of the State of Texas, with its principal place
of business in San Antonio, Bexar County, Texas.
All of Plaintiffs own and operate one or more phar-
macies in San Antonio, Bexar County, Texas, and are in
the business of compounding and dispensin ~
drugs for public sale. pensing prescription
III
1. Defendant GROUP LIFE AND HEALTH IN
SUR-
ANCE COMPANY, a/k/a BLUE SHIELD and/or BLUE
CROSS-BLUE SHIELD OF TEXAS, may be served by
serving the Insurance Commissioner of the State of Texas
in Austin, Texas. Such defendant is hereinafter referred
to as “BLUE CROSS-BLUE SHIELD.”
2. Defendant WALGREEN TEXAS COMPAN
Ya
WALGREEN DRUG STORES, may be served by a
its Agent for Service, Mary Wilson, 8110 Kempwood,
Houston, Texas. Such defendant is herei
weary Ph ont ereinafter referred
3. Defendant SOMMERS DRUG STORES CO
. a/k
SOMMERS REXALL DRUG STORES, CO., ae te
served by serving its Agent for Service, Walter M. Corri-
gan, 3130 E. Houston Street, San Antonio, Texas. Such
defendant is hereinafter referred to as “SOMMERS.”
6a
Complaint
4. Defendant RIEGER-MEDI-SAVE, INC., d/b/a
GIBSONS PHARMACY, may be served by serving the
Secretary of State of the State of Texas. Such defendant
is hereinafter referred to as “GIBSONS.”
IV
1. The defendant, WALGREEN TEXAS CO., is a
corporation organized and existing under the laws of the
State of Texas, and operates numerous drug stores en-
gaged in the business of compounding and dispensing
prescription drugs for public sale under the name of
WALGREEN DRUG STORES and in various GLOBE
DISCOUNT STORES.
2. The defendant, REIGER-MEDI-SAVE, INC., is a
corporation organized and existing under the laws of the
State of Texas, which operates numerous drug stores en-
gaged in the business of compounding and dispensing
prescription drugs for public sale in GIBSON DISCOUNT
STORES.
3. The defendant, SOMMERS DRUG STORES CO.,
is a corporation organized and existing under the laws of
the State of Texas, which operates numerous drug stores
engaged in the business of compounding and dispensing
prescription drugs for public sale under its own name.
Vv
1. All of said defendants, other than BLUE CROSS-
BLUE SHIELD, are in competition with plaintiffs in con-
nection with the compounding and dispensing of prescrip-
tion drugs for public sale in San Antonio and Bexar
County, Texas.
2. Defendant GROUP LIFE AND HEALTH INSUR-
ANCE COMPANY a/k/a Blue Shield and/or Blue Cross-
7a
Complaint
Blue Shield of Texas, is one of the largest, if not the
largest, company engaged in the business of selling in-
surance coverage providing for payment of part of the
cost to its policyholders of drugs and pharmaceutical
products, all as more fully set out below.
VI
COUNT ONE
1. Defendants have and are engaged in an agreement,
combination and conspiracy to fix the retail price of drugs
and pharmaceuticals. Such agreement, combination and
conspiracy has been carried out by their entering into an
Agreement between defendants and BLUE CROSS-BLUE
SHIELD whereby said parties agree upon and fix prices
and charges to be charged to the generai public for the
compounding and dispensing of prescription drugs. Spe-
cifically, defendant BLUE CROSS-BLUE SHIELD and
each of the other defendants have entered into a Partici-
pating Drug Pharmacy Agreement, hereinafter called
“Agreement”, Said Agreement specifies the amount to be
received by each pharmacy for the sale of drugs and
other pharmaceuticals dispensed by Defendants to BLUE
CROSS-BLUE SHIELD policyholders who have purchased
coverage under the BLUE CROSS-BLUE SHIELD pre-
paid prescription policies. Under such Agreement Blue
Cross-Blue Shield agrees to pay for each drug provided
an amount equal to the total of the acquisition cost of
such drug as defined therein plus a fixed dispensing fee
of $2.00 less the applicable policy deductibles.
2. Basically pharmacies which join in such Agreement
are reimbursed by BLUE CROSS-BLUE SHIELD for
100% of the acquisition cost, plus the $2.00 fee which is
paid by the customer. Pharmacies which have not signed
said Agreement are only reimbursed for 75% of the ac-
8a
Complaint
quisition cost thereof in addition to the $2.00 fee paid
by their customers. Such contract and performance under
it result in acquisitive, pernicious and blatant economic
coercion to foree BLUE CROSS-BLUE SHIELD policy[-]
holders to deal only with pharmacies which have entered
into such Agreement and become part of the unlawful
combination, agreement and conspiracy with BLUE
CROSS-BLUE SHIELD. Failure to deal with such phar-
macists results in such policyholder and pharmacy cus-
tomer not receiving full reimbursement for the cost of
the particular drugs and prescriptions covered by their
BLUE CROSS-BLUE SHIELD policy. Defendants and
all other pharmacies which have executed such Agreement
have entered into a combination[,] conspiracy and agree-
ment to fix prices for the sale of drugs and pharmaceu-
ticals, which is a per se violation of the Federal Anti-
Trust Laws, specifically Section 1 of the Sherman Act,
and are engaged in horizontal price fixing with respect
to dispensing of drugs and pharmaceuticals.
COUNT TWO
1. The foregoing allegations of this complaint are in-
corporated in this Count Two.
2. The foregoing activities of defendants constitute a
group boycott in violation of the Federal Anti-Trust Laws
in that the purpose and necessary effect of said combina-
tion, agreement and conspiracy is to cause persons holding
prepaid prescription coverage under the applicable BLUE
CROSS-BLUE SHIELD policies to not deal with plain-
tiffs and other pharmacies similarly situated, but to deal
only with pharmacies which are members of, have partici-
pated and joined in such unlawful agreement, combina-
tion and conspiracy in violation of the Sherman Act.
9a
Complaint
COUNT THREE
1. The allegations of Count One above are hereby in-
corporated by reference.
2. The effect of the combination, agreement and con-
spiracy is to allocate territories to pharmacists who have
signed the Agreement and impose territorial restrictions,
all of which are per se violations of the Sherman Act.
COUNT FOUR
1. The allegations of Count One are incorporated here-
in by reference.
2. The actions alleged constitute violations of the Fed-
eral Anti-Trust Law set out above and the Texas Busi-
ness and Commerce Code and defendants, and each of
them, should be enjoined on final hearing from:
A. From agreeing on and fixing prices which in-
dividual pharmacists may charge,
B. From engaging in group boycotts,
C. From continuing to utilize and observe the pro-
visions of the Participating Drug Pharmacy Agree-
ment,
D. From requiring pharmacists to enter into con-
tracts which violate the Federal and State Anti-
Trust Laws,
E. From entering into any contracts the effect of
which is to maintain or set retail prices between
such pharmacies and their customers, or
F. Issuing any contract which distinguishes inso-
far as reimbursement for the purchase price of drugs
and other pharmaceuticals between pharmacies which
10a
Complaint
are part of the illegal agreement, combination and
conspiracy, and those which are not part thereof.
G. From agreeing to allocate territories.
COUNT FIVE
1. The foregoing allegations in Count One of this Com-
plaint are incorporated herein by reference.
2. The court has jurisdiction under the causes of ac-
tion alleged in this Count under the doctrine of pendent
jurisdiction.
3. All of such acts and conduct alleged above violate
the Texas Business and Commerce Code, Sections 15.01
et seq., commonly known as the Texas Anti-Trust Laws.
COUNT SIX
Plaintiffs’ damages and damages to other pharmacies
similarly situated who have likewise been injured by de-
fendants’ unlawful acts are substantial and are in all
probability in millions of dollars, the exact extent of
which cannot be determined until Plaintiffs’ discovery
from defendants is completed and the full extent of such
agreement, combination and conspiracy is determined.
COUNT SEVEN
Plaintiffs are entitled to recover reasonable attorneys’
fees from defendants in the amount of not less than
$50,000.
WHEREFORE each of plaintiffs pray that they have
judgment jointly and severally against defendants for
treble their damages, for reasonable attorneys’ fees, for
costs of suit and for injunctive relief as above alleged,
lla
Complaint
and for such other and further relief to which Plaintiffs
are entitled. No immediate emergency action is sought
at this time.
/3/ Joel H. Pullen
JOEL H. PULLEN of
TINSMAN & Houser, INC.
1900 NBC Building
San Antonio, Texas 78205
Attorneys for Plaintiff
Now come Plaintiffs and demand a jury.
/s8/ Joel H. Pullen
JOEL H. PULLEN
12a
ANSWER OF DEFENDANT RIEGER/MEDI-SAVE
PHARMACIES, INC., JUNE 20, 1975
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
ORIGINAL ANSWER OF DEFENDANT,
RIEGER/MEDI-SAVE PHARMACIES, INC.
Rieger/Medi-Save Pharmacies, Inc., incorrectly desig-
nated as Rieger-Medi-Save, Inc., answers plaintiff’s Orig-
inal Complaint as follows:
FIRST DEFENSE
The Complaint fails to state a claim against Rieger/
Medi-Save Pharmacies, Inc. upon which relief may be
granted.
SECOND DEFENSE
This Court lacks jurisdiction over the matters alleged
in the Complaint because of the lack of any requisite
effect on commerce.
THIRD DEFENSE
The Complaint fails to state a cause of action against
this defendant because Group Life and Health Insurance
Company, with whom it is alleged to have conspired, com-
bined and agreed, is not a proper party nor capable of
such actions under the Anti-Trust Laws of the United
States, because of exemption under the McCarran-
Ferguson Act (15 USC § 1011, et seq.) .
13a
Answer of Defendant Rieger/Medi-Save Pharmacies, Inc.
FOURTH DEFENSE
The Complaint fails to state a proper cause of action
against defendant in its pendant allegations, based on
the Texas Anti-Trust Laws, because such an action is
not properly maintainable in absence of a proper cause
of action under federal law.
FIFTH DEFENSE
The Complaint should be dismissed as to this defend-
ant because the service of process upon it was improper
and insufficient.
SIXTH DEFENSE
To the extent the allegations of Plaintiffs’ Original
Complaint are directed to Rieger/Medi-Save Pharmacies,
Inc., it answers paragraph by paragraph, as follows:
I
The allegations of Paragraph I are denied, e i
tf , except it
is admitted that plaintiffs’ do purport to bring this pron
under the statutes indicated.
II
This defendant is without knowledge or information
sufficient to form a belief as to the truth of the allega-
tions of Paragraph II, suo-paragraphs 1.-25.
III
Defendant is without knowledge sufficient to form
a belief as to the truth of the allegations of Paragraph
III, sub-paragraphs 1.-3. The allegations of Paragraph
III, sub-paragraph 4. are denied.
14a
Answer of Defendant Rieger/Medi-Save Pharmacies, Inc.
IV
It is admitted that the defendant, Rieger/Medi-Save
Pharmacies, Inc., operates certain drug stores engaged in
the business of compounding and dispensing prescription
drugs for public sale in certain Gibson Discount stores.
The balance of the allegations of Paragraph IV, sub-
paragraph 2. are denied.
This defendant is without knowledge or information
sufficient to form a belief as to the truth of the allegations
of Paragraph IV, sub-paragraphs 1. and 3.
V
This defendant admits that it is engaged in competition
with plaintiffs in the compounding and dispensing of
prescription drugs for publie sale in certain areas of
San Antonio and Bexar County, Texas. This defendant
is without information sufficient to form a belief as to
the truth of the balance of the allegations of Paragraph
V, sub-paragraphs 1. and 2.
VI
COUNT ONE
This defendant admits that it entered into an agreement
by and between itself and Group Life and Health In-
surance Company, subject to terms provided therein.
The balance of the allegations of Paragraph VI, sub-
paragraphs 1. and 2. are denied.
COUNT TWO
This defendant adopts, in response to the allegations of
COUNT TWO, sub-paragraph 1., its respective answers
to Paragraphs I through Paragraph VI, COUNT ONE,
sub-paragraph 2.
ee —
15a
Answer of Defendant Rieger/Medi-Save Pharmacies, Inc.
The allegations of COUNT TWO, sub-paragraph 2.,
are denied.
COUNT THREE
This defendant adopts, in response to the allegations of
COUNT THREE, sub-paragraph 1., its answer to the al-
legations of COUNT ONE, sub-paragraphs 1. and 2. of
the Complaint.
The allegations of COUNT THREE, sub-paragraph
2. are denied.
COUNT FOUR
This defendant adopts, in response to the allegations
contained in COUNT FOUR, sub-paragraph 1., its an-
swer to COUNT ONE, sub-paragraphs 1. and 2.
The allegations of COUNT FOUR, sub-paragraph 2.,
are denied.
COUNT FIVE
This defendant adopts, in response to COUNT FIVE,
sub-paragraph 1., its answer to COUNT ONE, sub-
paragraphs 1. and 2.
The allegations of COUNT FIVE, sub-
and 8. are denied. ee
COUNT SIX
The allegations of COUNT SIX are denied.
COUNT SEVEN
The allegations of COUNT SEVEN are denied.
This defendant denies that plaintiffs are entitled to any
of the relief demanded or prayed for, and further denies
16a
Answer of Defendant Rieger/Medi-Save Pharmacies, Ine.
that it has violated any of the provisions of any acts
upon which this action is based.
OTHER PARTIES
To the extent that the allegations of the Complaint are
directed to persons or corporations other than Rieger/
Medi-Save Pharmacies, Inc., this defendant is without
knowledge or information sufficient to form a belief as
to the truth of such allegations.
Except as expressly admitted herein, all the allegations
of this Complaint relating to Rieger/Medi-Save Pharma-
cies, Inc. are denied.
WHEREFORE, Rieger/Medi-Save Pharmacies, Inc.
prays that plaintiffs take nothing by their suit, that it
recover its costs and for such other and further relief
to which it may be justly entitled.
Respectfully submitted,
CHARLES R. SHADDOX
By /s/ C. R. Shaddox
2000 Frost Bank Tower
San Antonio, Texas 78205
Attorneys for Defendant,
Of Counsel: Rieger/Medi-Save
Groce, LOCKE & HEBDON Pharmacies, Inc.
2000 Frost Bank Tower
San Antonio, Texas 78205
Defendant, RIEGER/MEDI-SSAVE PHARMACIES,
INC., hereby demands a jury.
/s/ C. R. Shaddox
CHARLES R. SHADDOX
[Certificate of Service Omitted in Printing]
17a
ANSWER OF DEFENDANT THE SOMMERS DRUG
STORES COMPANY, JUNE 23, 1975
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
ANSWER OF DEFENDANT
THE SOMMERS DRUG STORES COMPANY
THE SOMMERS DRUG STORES COMPANY (“Som-
mers”), one of the Defendants herein, files this, its An-
swer to Plaintiffs’ Original Complaint, and would show:
First Defense
The Original Complaint fails to state a claim against
Sommers upon which relief can be granted.
Second Defense
The Court lacks jurisdiction over the subject matter
because:
A. No cause of action has been shown to exist under
the acts of Congress regulating commerce or protecting
trade and commerce against restraints and monopolies ;
B. The lack of any requisite effect on interstate com-
merce;
C. All of the parties are residents of the State of
Texas and no diversity jurisdiction exists; and,
D. In the absence of jurisdiction under federal law
there is no pendent jurisdiction.
Third Defense
The Complaint fails to state a claim upon which relief
can be granted against Sommers under the antitrust laws
——s-
18a
Answer of Defendant The Sommers Drug Stores Co.
ited States because the Defendant GROUP
ape AND HEALTH INSURANCE COMPANY ( =
Cross”) is engaged in the “business of insurance } =
all matters alleged by Plaintiffs herein arise out : 4
“business of insurance”, which is regulated by the Insu
ance Commissioner of the State of Texas and gy =
from the provisions of the Sherman and oe “—
pursuant to the McCarran-Ferguson Act (1 S.C.
§ 1011, et seq.).
Fourth Defense
i intiffs’ Original
Sommers answers the allegations of Plain
Complaint in paragraphs numbered to correspond with
those of the Original Complaint, as follows:
I.
Sommers denies the allegations centained in Part I of
the Complaint.
Il.
i i in Part Il
As to each and every allegation contained in
of the Complaint, Sommers denies that it has knowledge
or information thereof sufficient to form a belief in con-
nection therewith.
III.
Sommers admits as alleged in Part It, Paragraph No.
3 of the Complaint that its agent for service is Walter N.
Corrigan, 3130 E. Houston Street, San Antonio, ——
As to each and every other allegation contained in sai
Part III of the Complaint, Sommers denies that it has
knowledge or information sufficient to form a belief in
connection therewith.
19a
Answer of Defendant The Sommers Drug Stores Co.
IV.
As to Part IV, Paragraph No. 3 of the Complaint,
Sommers admits that it is a corporation duly authorized
to do business in Texas and whose principal place of
business is Texas, but would show that it is organized
under the laws of the State of Maryland, operating nu-
merous drug stores (in Texas only) engaged in the busi-
ness of compounding and dispensing prescription drugs
for public sale under its own name. As to each and every
other allegation contained in said Part IV, Sommers does
not have knowledge or information sufficient to form a
belief in connection therewith.
V.
As to each and every allegation contained in Part V
of the Complaint, Sommers denies that it has knowledge
or information thereof sufficient to form a belief in con-
nection therewith, except that Sommers admits that it
is in competition with other drug stores in San Antonio
and Bexar County, Texas.
VI.
COUNT ONE
Sommers admits that it entered into a Participating
Drug Pharmacy Agreement on the terms provided there-
in, solely between itself and Blue Shield. As to each and
every other allegation contained in Part VI, Count One
of the Complaint, Sommers denies the allegations as to
itself, and denies that it has any knowledge or informa-
tion thereof sufficient to form a belief in connection with
allegations made as to other Defendants referred to there-
in,
20a
Answer of Defendant The Sommers Drug Stores Co.
COUNT TWO
As to the allegations contained in Count Two, Para-
graph No. 1, Sommers has previously responded to the
incorporated “foregoing allegations” of the Complaint,
which answers are here repeated.
As to the allegations contained in Count Two, Para-
graph No. 2, Sommers denies the allegations.
COUNT THREE
As to the allegations contained in Count Three, Para-
graph No. 1, Sommers has previously responded to the
incorporated Count One of the Complaint, which answers
’ are here repeated.
As to the allegations contained in Count Three, Para-
graph No. 2, Sommers denies the allegations.
COUNT FOUR
As to the allegations contained in Count Four, Para-
graph No. 1, Sommers has previously responded to the
incorporated Count One of the Complaint which answers
are here repeated.
As to each and every allegation contained in Count
Four, Paragraph No. 2 of the complaint, Sommers de-
nies the allegations.
COUNT FIVE
As to the allegations contained in Count Five, Para-
graph No. 1, Sommers has previously responded to the
incorporated Count One of the Complaint which answers
are here repeated.
2la
Answer of Defendant The Sommers Drug Stores Co.
As to each and every allegation contained in Count Five,
Paragraphs ;
the allegations and 3 of the Complaint, Sommers denies
COUNT SIX
As to Count Six, Sommers denies the allegations.
COUNT SEVEN
As to Count Seven, Sommers denies the allegations,
WHEREFORE Defendant, THE §
. * OMMERS DRUG
STORES COMPANY, prays judgment that the Plaintiffs
’
and that Defendant recover its ¢
a osts ;
to which it may be justly entitled. aoe Sater eels
Respectfully submitted,
GRESHAM, Davis, GREGORY,
WortTuy & Moore
1800 Frost Bank Tower
San Antonio, Texas 78205
By /s/ Richard B. Moore
Attorneys for Defendant,
The Sommers Drug Stores
Company
22a
Answer of Defendant The Sommers Drug Stores Co.
DEFENDANT SOMMERS’ DEMAND FOR JURY
COMES NOW the Defendant, THE SOMMERS DRUG
STORES COMPANY, and as is provided by Rule 38 of
the Federal Rules of Civil Procedure in United States
District Courts (28 U.S.C.A.), requests trial by jury in
the above numbered and styled cause.
Dated June 23, 1975.
GRESHAM, DAVIS, GREGORY,
WortTHyY & MOORE
— 1800 Frost Bank Tower
San Antonio, Texas 78205
Attorneys for Defendant,
The Sommers Drug Stores
Company
By /s/ Richard B. Moore
RICHARD B. MOORE
[Certificate of Service Omitted in Printing]
ANSWER OF DEFENDANT GROUP LIFE AND HEALTH
INSURANCE COMPANY, JUNE 22, 1975
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
ANSWER OF DEFENDANT GROUP LIFE
AND HEALTH INSURANCE COMPANY
GROUP LIFE AND HEALTH INSURANCE COM-
PANY, also known as Blue Shield of Texas (“Blue
Shield”) (incorrectly designated as Blue Shield and/or
Blue Cross-Blue Shield of Texas), one of the Defendants
herein, answers Plaintiffs’ Original Complaint in this
action as follows:
FIRST DEFENSE
The Original Complaint should be dismissed pursuant to
Rules 12(b) (6) and 56, Federal Rules of Civil Proce-
dure, because it fails to state a claim against Blue Shield
for which relief can be granted.
SECOND DEFENSE
The Original Complaint should be dismissed pursuant to
Rules 12(b) (1) and 56, Federal Rules of Civil Procedure,
because the matters alleged therein do not have the
requisite effect on interstate commerce. Therefore, the
Court lacks subject matter jurisdiction of this action.
THIRD DEFENSE
The Original Complaint should be dismissed pursuant to
Rules 12(b) (1), 12(b) (6) and 56, Federal Rules of Civil
Procedure, because there is no diversity of citizenship
24a
Answer of Defendant Group Life and Health Ins. Co.
under 28 U.S.C. § 1332. Jurisdiction, if any, is under
the antitrust laws of the United States. As shown in
Blue Shield’s Second Defense above, no federal question
arises under the antitrust laws. Therefore, Plaintiffs
have failed to state a proper cause of action and the Court
does not have subject matter jurisdiction by reason of
diversity of citizenship.
FOURTH DEFENSE
The Original Complaint should be dismissed pursuant
to Rules 12(b) (1), 12(b) (6) and 56, Federal Rules of
Civil Procedure, because in the absence of any cause of
action based upon federal law, as shown in Blue Shield’s
Second Defense and Third Defense, above, this Court may
not entertain Plaintiffs’ pendent claims based upon al-
leged violations of the Texas antitrust laws.
FIFTH DEFENSE
. The Original Complaint should be dismissed pursuant to
Rules 12(b) (6) and 56, Federal Rules of Civil Procedure,
because the same fails to state a cause of action against
Blue Shield. Blue Shield is engaged in the “business of
insurance”, and all matters alleged by Plaintiffs herein
arise out of the “business of insurance”, which “business”
is regulated by state law. Therefore, Blue Shield is ex-
empted from application of the Sherman and Clayton
Acts by the provisions of the McCarran-Ferguson Act (15
U.S.C. § 1011, et seq.).
SIXTH DEFENSE
The claims set forth in the Original Complaint are
barred in whole or in part by laches.
25a
Answer of Defendant Group Life and Health Ins. Co.
SEVENTH DEFENSE
Blue Shield answers the allegations of the Original
Complaint in paragraphs numbered to correspond with
those of the Original Complaint, as follows:
I,
Denied ; however, Blue Shield admits that proper causes
of action may arise under the statutes alleged.
Il.
1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 18, 14, 15, 16, 17, 18,
19, 20, 21, 22, 23, 24 and 25. Blue Shield is without
knowledge or information sufficient to form a belief as
to the truth of the allegations.
Blue Shield is without knowledge or information suffi-
cient to form a belief as to the truth of the allegations
contained in the last (unnumbered) paragraph of para-
graph II of the Original Complaint.
Ill.
1. Blue Shield denies the first sentence. The second
sentence requires no admission or denial; however, this
Defendant states that it has been incorrectly designated as
“Blue Shield and/or Blue Cross-Blue Shield of Texas”.
2. Blue Shield is without knowledge or information suf-
ficient to form a belief as to the truth of the first sen-
tence. The second sentence requires no admission or denial.
3. Blue Shield is without knowledge or information
sufficient to form a belief as to the truth of the first
sentence. The second sentence requires no admission or
denial.
26a
Answer of Defendant Group Life and Health Ins. Co.
4. Blue Shield is without knowledge or information
sufficient to form a belief as to the truth of the first sen-
tence. The second sentence requires no admission or
denial.
IV.
1, 2 and 3. Blue Shield is without knowledge or infor-
mation sufficient to form a belief as to the truth of the
allegations.
V.
1. Blue Shield is without knowledge or information
sufficient to form a belief as to the truth of the allegations.
2. Blue Shield admits that it is one of the largest
companies engaged in the business of selling insurance
coverage in the State of Texas providing for payment
of part of the cost to its policyholders of prescription
drugs; however, denies the remainder of this paragraph.
VI.
COUNT ONE
1. Blue Shield denies the first, second, fourth and fifth
sentences. Blue Shield admits the third sentence and says
that the Agreement is a document which speaks for itself.
2. Blue Shield admits the first sentence and denies the
second, third, fourth and fifth sentences.
COUNT TWO
1. For each allegation incorporated by reference from
the Original Complaint, Blue Shield incorporates its an-
swering paragraph with the same force and effect as if
the answer were set forth here in full.
2. Denied.
27a
Answer of Defendant Group Life and Health Ins. Co.
COUNT THREE
1. For each allegation incorporated by reference from
Count One of the Criginal Complaint, Blue Shield incor-
porates its answering paragraph with the same force and
effect as if the answer were set forth here in full.
2. Denied.
COUNT FOUR
1. For each allegation incorporated by reference from
Count One of the Original Complaint, Blue Shield incor-
porates its answering paragraph with the same force and
effect as if the answer were set forth here in full.
2. Denied.
COUNT FIVE
1. For each allegation incorporated by reference from
Count One of the Original Complaint, Blue Shield in-
corporates its answering paragraph with the same force
and effect as if the answer were set forth here in full.
2. Denied.
3. Denied.
COUNT SIX
Denied.
COUNT SEVEN
Blue Shield denies the allegations of Count Seven and
says that Plaintiffs are not entitled, in law, or in fact, to
any recovery or relief from Blue Shield.
WHEREFORE, Blue Shield prays that Plaintiffs take
nothing by their suit herein, that it recover its costs and
28a
Answer of Defendant Group Life and Health Ins. Co.
have such other and further relief to which it may be
justly entitled.
Respectfully submitted,
Cox, SMITH, SMITH, HALE &
GUENTHER INCORPORATED
500 National Bank of
Commerce Building
San Antonio, Texas 78205
512/224-4281
/s/ J. Burleson Smith
J. BURLESON SMITH
[Certificate of Service Omitted in Printing]
ANSWER OF DEFENDANT WALGREEN TEXAS CO.,
JUNE 27, 1975
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
ANSWER OF DEFENDANT WALGREEN TEXAS CO.
WALGREEN TEXAS CO. (“WALGREEN”), one of
the Defendants herein, files this, its Original Answer to
Plaintiffs’ Complaint:
FIRST DEFENSE
Plaintiffs’ Original Complaint should be dismissed for
the reason that it fails to state a claim for which relief
can be granted under the Anti-Trust Laws of the United
States in that the matters alleged by Plaintiffs did not
occur in or substantially affect interstate commerce.
SECOND DEFENSE
Plaintiffs’ Complaint should be dismissed for the rea-
son that, since no federal question arises under the Anti-
Trust Laws and there is no diversity of citizenship be-
tween Plaintiffs and Defendants, this Court does not have
jurisdiction.
THIRD DEFENSE
Plaintiffs’ Original Complaint should be dismissed for
the reason that it fails to state a cause of action against
this Defendant because the Defendant GROUP LIFE
AND HEALTH INSURANCE COMPANY, with whom
it is alleged to have conspired, is engaged in the “busi-
ness of insurance” and which “business” is regulated by
30a
Answer of Defendant Walgreen Texas Co.
the Insurance Commissioner of the State of Texas, and,
therefore, under the Anti-Trust Laws of the United States,
any of such actions are exempt under the McCarran-
Ferguson Act (15 U.S.C., Sec. 1011, et seq.).
FOURTH DEFENSE
Plaintiffs’ Complaint should be dismissed because, in the
absence of any cause of action based upon federal law,
this Court has no pendent jurisdiction to entertain any
claim based upon an alleged violation of the Texas Anti-
Trust Laws.
FIFTH DEFENSE
WALGREEN answers the allegations of Plaintiffs’
Complaint as follows:
I
This Defendant denies the allegations contained in Para-
graph I of the Complaint that Plaintiffs have any cause
of action against it, but would admit that Plaintiffs pur-
port to bring such action under the Statutes as alleged.
II
This Defendant does not have sufficient information as
to the allegations with respect to the Plaintiffs as contained
in Paragraph II of the Complaint, therefore, can neither
admit nor dery such allegations.
Ill
This Defendant admits the allegations contained in
Paragraph III of the Complaint.
31a
Answer of Defendant Walgreen Texas Co.
IV
This Defendant admits the allegations contained in
Sub-Paragraph 1 of Paragraph IV of the Complaint, and,
as to Sub-Paragraphs 2 and 3, this Defendant does not
have sufficient information regarding the correct cor-
porate names or incorporation of the other Defendants,
therefore, can neither admit nor deny such allegations,
but admits such Defendants do operate drug stores en-
gaged in compounding and dispensing of prescription
drugs.
V
This Defendant admits the allegations contained in
Paragraph V of the Complaint.
VI
COUNT ONE
This Defendant admits it has entered into a Partici-
pating Drug Pharmacy Agreement with the Defendant
GROUP LIFE AND HEALTH INSURANCE COMPANY
as alleged in Paragraph VI, Count One of the Complaint,
however, denies that the operation under such Agreement,
as set out by its terms and conditions, is any conspiracy
or combination to fix retail prices of drugs and pharma-
ceuticals and further denies that this Defendant has com-
mitted any act which is in violation of the Federal Anti-
Trust Laws.
COUNT TWO
This Defendant hereby incorporates by reference its
answers to Plaintiffs’ Complaint, as incorporated in Sub-
Paragraph 1 of Count Two of the Complaini.
32a
Answer of Defendant Walgreen Texas Co.
This Defendant denies the allegations contained in Sub-
Paragraph 2 of Count Two of Plaintiffs’ Complaint.
COUNT THREE
This Defendant hereby incorporates by reference its
answers to the allegations of Count One, which are in-
corporated by reference in Sub-Paragraph 1 of Count
Three of the Complaint.
This Defendant denies the allegations contained in Sub-
Paragraph 2 of Count Three of the Complaint.
COUNT FOUR
This Defendant hereby incorporates by reference its
answers to the allegations of Count One, which are in-
corporated by reference in Sub-Paragraph 1 of Count Four
of the Complaint.
This Defendant denies the allegations contained in Sub-
Paragraph 2 of Count Four of the Complaint.
COUNT FIVE
This Defendant hereby incorporates by reference its
answers to the allegations of Count One, which are in-
corporated by reference in Sub-Paragraph 1 of Count Five
of the Complaint.
This Defendant denies the allegations contained in Sub-
Paragraphs 2 and 3 of Count Five of the Complaint.
COUNT SIX
This Defendant denies the allegations contained under
Count Six of the complaint.
83a
Answer of Defendant Walgreen Texas Co.
COUNT SEVEN
This Defendant denies the allegations contained in
Count Seven of the Complaint.
Defendant WALGREEN TEXAS CO. prays that Plain-
tiffs recover nothing of and from this Defendant, and
that this suit be dismissed at the cost of Plaintiffs.
Respectfully submitted,
/s/ Wm. C. Church, Jr.
Wo. C. CHURCH, JR.
8700 Tesoro Drive, Suite 120
Post Office Box 17409
San Antonio, Texas 78217
(512) 828-8261
Attorney jor Defendant
Walgreen Texas Co.
Of Counsel:
KAMPMANN, CHURCH & BURNS
8700 Tesoro Drive, Suite 120
San Antonio, Texas 78217
84a
JOINT MOTION TO SUSPEND DISCOVERY AND
TO MODIFY ORDER PRELIMINARY TO
PRE-TRIAL CONFERENCE, JANUARY 21, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
JOINT MOTION TO SUSPEND DISCOVERY AND TO
MODIFY ORDER PRELIMINARY TO PRE-TRIAL
CONFERENCE
Plaintiffs and Defendants, Group Life and Health In-
surance Company, also known as Blue Shield of Texas,
Walgreen Texas Co., The Sommers Drug Stores Company
and Rieger/Medi-Save Pharmacies, Inc., jointly move the
Court for an order suspending discovery in this action and
modifying the Court’s Order Preliminary to Pre-Trial
Conference entered herein on August 7, 1975.
In support of this Motion, Plaintiffs and Defendants
would show that:
1. Plaintiffs have filed this action against Defendants
alleging violations of the Federal antitrust laws and the
antitrust laws of the State of Texas.
2. In their respective answers fiied herein, Defendants
have each asserted numerous defenses to Plaintiffs’ allega-
tions, including among others, the defense of the antitrust
exemption provided under the McCarran-Ferguson Act
(15 U.S.C. § 1011, et seq.), which defenses, if determined
to be valid, will be dispositive of this action.
8. Plaintiffs and Defendants have completed substan-
tial discovery through production of documents and depo-
sitions.
—————
35a
Joint Motion to Suspend Discovery
4. Extensive additional discovery is planned (notices
for 20 proposed depositions have been filed) and will be
necessary to properly prepare for the trial of this case.
5. Plaintiffs and Defendants, by and through their
respective attorneys of record, have agreed that in order
to prevent the unnecessary expenditure of money, time
and effort of the parties and time and effort of the Court,
the validity of the McCarran-Ferguson defenses, as as-
serted by Defendants, should be presented to the Court
for a determination prior to continuing with costly and
time consuming discovery procedures.
WHEREFORE, Plaintiffs and Defendants jointly move
the Court to enter an Order as follows:
A. Suspending all discovery in this action in order that
Defendants may present their McCarran-Ferguson Act
defenses to the Court for determination.
B. On or before thirty (30) days after the entry of an
Order Suspending Discovery, Defendants shall file appro-
priate motions to dismiss based upon their defenses as-
serted under the McCarran-Ferguson Act, together with
a supporting materials and memorandum
riefs,
C. On or before twenty (20) days after the motions
and briefs of Defendants are filed, Plaintiffs shall file
their responses and briefs, together with any necessary
supporting materials.
D. On or before ten (10) days after the responses
and briefs of Plaintiffs are filed, Defendants shall file
any replies that they deem necessary, together with any
necessary supplemental supporting materials. All dis-
covery shall be suspended pending a final determination
of the validity of the McCarran-Ferguson Act defenses
asserted by Defendants. _
36a
Joint Motion to Suspend Discovery
E. If it is ultimately determined by the Court or by
an appellate court that the McCarran-Ferguson Act de-
fenses of Defendants are not valid, the parties shall com-
plete discovery on the merits within ninety (90) days
after the date of such final determination.
F. A conference of attorneys will be held on or before
thirty (30) days after the completion of discovery.
G. Counsel for the respective parties will submit their
proposed agreed pre-trial orders within sixty (60) days
after the completion of discovery.
H. In the event counsel are unable to agree on a form
of a proposed agreed pre-trial order, then counsel for each
party is directed to submit his version of an appropriate
pre-trial order within ten (10) days after the expiration
of the date set forth in Paragraph G hereof.
Respectfully submitted,
TINSMAN & HOUusER, INC.
1900 National Bank of
Commerce Bldg.
San Antonio, Texas 78205
By: /s/ Joel H. Pullen
JOEL H. PULLEN
Attorneys for Plaintiffs
Cox, SMITH, SMITH, HALE
& GUENTHER INCORPORATED
500 National Bank of
Commerce Bldg.
San Antonio, Texas 78205
37a
Joint Motion to Suspend Discovery
By: /s/ Keith E. Kaiser
By: /8/
By: /s/
By: /s/
KEITH E. KAISER
Attorneys for Defendant
Group Life and Health
Insurance Company
GROCE, LOCKE & HEBDON
2000 Frost Bank Tower
San Antonio, Texas 78205
Charles R. Shaddox
CHARLES R. SHADDOX
Attorneys for Defendant
Rieger/Medi-Save
Pharmacies, Inc.
KAMPMANN, CHURCH &
BURNS
120 Tesoro Building
8700 Tesoro Drive
San Antonio, Texas 78217
William C. Church, Jr.
WILLIAM C. CHURCH, JR.
Attorneys for Defendant
Walgreen Texas Co.
GRESHAM, Davis, GREGORY,
WortTHY & Moore
1800 Frost Bank Tower
San Antonio, Texas 78205
Richard B. Moore
RICHARD B. Moore
Attorneys for Defendant
The Sommers Drug Stores
Company
38a
ORDER OF UNITED STATES DISTRICT COURT FOR
THE WESTERN DISTRICT OF TEXAS APPROVING
JOINT MOTION TO SUSPEND DISCOVERY AND
TO MODIFY ORDER PRELIMINARY TO PRE-TRIAL
CONFERENCE, JANUARY 23, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
Civil Action No. SA-75-CA-131
RoYAL DruG COMPANY, INC. d/b/a/ ROYAL PHARMACY OF
CASTLE HILLS and DISCO PRESCRIPTION PHARMACY,
BLAUSER’S PHARMACY, INC., PARKERS PHARMACY, INC.,
CHARLES GRIFFIN d/b/a DELLVIEW DRUG STORE, JAMES
POLLOCK, d/b/a/ POLLOCK’S PHARMACY, THOMAS J.
PARMA, d/b/a PARMA’S PHARMACY, CRAIG BELL, d/b/a
BELL PHARMACY, GEORGE STONE, d/b/a OLMOS PHAR-
MACY, ALAMO HEIGHTS PHARMACY, INC., PATTS DRUG,
INC. d/b/a PaTT’s DruG STORE No. 1, BAYLOR PARSONS
d/b/a PARSONS PHARMACY, HIGHLAND HILLS PHAR-
MACY, INC., ECONODOSE SYSTEMS, INC. d/b/a MEDICAL
CENTER PHARMACY, GUSTAVE HNCIR, d/b/a TURNERS
PHARMACISTS, PHYSICIAN & SURGEONS PHARMACY, INC.,
CARLOS DiAZ d/b/a VALLEY VIEW PHARMACY, ALFRED
SANGALLI, d/b/a STAR DRUG STORE, BLANCO PHARMACY,
INC., BLANCO SOUTHSIDE PHARMACY, INC., DAN PARADA
d/b/a DAN’S PHARMACY, RODOLFO L. DAviLA, INC.
d/b/a DAVILA PHARMACY, DELLMAR PHARMACIES INC.
d/b/a DELLMAR PHARMACY #4, RONG, INC. d/b/a
ECONOMY PHARMACY #1, ZARZAMORA PHARMACY, INC.
and WHITE CROSS PROFESSIONAL PHARMACY, INC. d/b/a
WHITE Cross #1 and d/b/a WHITE Cross #4
Vv.
Group LIFE AND HEALTH INSURANCE COMPANY a/k/a
BLUE SHIELD and/or BLUE CROSS-BLUE SHIELD OF
39a
Order Approving Joint Motion to Suspend Discovery
TEXAS, WALGREEN TEXAS COMPANY, SOMMERS DRUG
STORE, RIEGER-MEDI-SAVE, INC. d/b/a GIBSONS PHAR-
MACY
ORDER APPROVING JOINT MOTION TO SUSPEND
DISCOVERY AND TO MODIFY ORDER
PRELIMINARY TO PRE-TRIAL CONFERENCE
On this 23rd day of January, 1976, came on to be con-
sidered the Joint Motion to Suspend Discovery and to
Modify Order Preliminary to Pre-Trial Conference filed
by the parties herein. Having reviewed the Motion and
the file in this cause, the Court finds that reasonable
grounds exist for the granting of such Motion.
Accordingly, it is hereby ORDERED that the Joint
Motion to Suspend Discovery and to Modify Order Pre-
liminary to Pre-Trial Conference should be and the same
is hereby and in all things GRANTED.
1. As of this date, all discovery in this action is
suspended in order that Defendants may present their
McCarran-Ferguson Act defenses to the Court for deter-
mination.
2. On or before thirty (30) days after date hereof,
Defendants shall file appropriate motions to dismiss
based upon their defenses asserted under the McCarran-
Ferguson Act, together with any appropriate supporting
materials and memorandum briefs.
3. On or before twenty (20) days after the motions
and briefs of Defendants are filed, Plaintiffs shall file
their responses and briefs, together with any necessary
supporting materials.
4. On or before ten (10) days after the responses and
briefs of Plaintiffs are filed, Defendants shall file any
replies that they deem necessary, together with any nec-
40a
Order Approving Joint Motion to Suspend Discovery
essary supplemental supporting materials. All discovery
shall be suspended pending a final determination of the
validity of the McCarran-Ferguson Act defenses asserted
by Defendants.
5. If it is ultimately determined by the Court or by an
appellate court that the McCarran-Ferguson Act defenses
of Defendants are not valid, the parties shall complete
discovery on the merits within ninety (90) days after
the date of such final determination.
6. A conference of attorneys will be held on or before
thirty (30) days after the completion of discovery.
7. Counsel for the respective parties will submit their
proposed agreed pre-trial orders within sixty (60) days
after the completion of discovery.
8. In the event counsel are unable to agree on a form
of a proposed agreed pre-trial order, then counsel for each
party is directed to submit his version of an appropriate
pre-trial order within ten (10) days after the expiration
of the date set forth in Paragraph 7 hereof.
ENTERED this 23rd day of January, 1976.
/s/ John H. Wood, Jr.
JOHN H. Woop, JR.
United States District Judge
APPROVED:
TINSMAN & HOUusER, INC.
1900 National Bank of Commerce Bldg.
San Antonio, Texas 78205
By: /s/ Joel H. Pullen
: JOEL H. PULLEN
Attorneys for Plaintiffs
Order Approving Joint Motion to Suspend Discovery
By: /s/
By: /s/
By: /s/
By: /s/
4la
Cox, SMITH, SMITH, HALE & GUENTHER
INCORPORATED
500 National Bank of Commerce Bldg.
San Antonio, Texas 78205
Keith E. Kaiser
KEITH E. KAISER
Attorneys for Defendant
Group Life and Health Insurance
Company
GROCE, LOCKE & HEBDON
2000 Frost Bank Tower
San Antonio, Texas 78205
Charles R. Shaddox
CHARLES R. SHADDOX
Attorneys for Defendant
Rieger/Medi-Save Pharmacies, Inc.
KAMPMANN, CHURCH & BURNS
120 Tesoro Building
8700 Tesoro Drive
San Antonio, Texas 78217
William C. Church, Jr.
WILLIAM C. CHURCH, JR.
Attorneys for Defendant
Walgreen Texas Co.
GRESHAM, DAVIS, GREGORY, WORTHY
& MOORE
1800 Frost Bank Tower
San Antonio, Texas 78205
Richard B. Moore
RICHARD B. MOORE
Attorneys for Defendant
The Sommers Drug Stores Company
42a
MOTION OF DEFENDANT GROUP LIFE AND HEALTH
INSURANCE COMPANY TO DISMISS,
FEBRUARY 23, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
(Caption Omitted in Printing]
MOTION OF DEF 2NDANT
GROUP LIFE AND HEALTH INSURANCE COMPANY
TO DISMISS
Defendant Group Life and Health Insurance Company,
also known as Blue Shield of Texas (“Blue Shield”) (in-
correctly designated by Plaintiffs as Blue Shield and/or
Blue Cross-Blue Shield of Texas), moves the Court to dis-
miss Plaintiffs’ Original Complaint pursuant to Rules
12(b) and 56, Federal Rules of Civil Procedure, and
bases this Motion on the following grounds:
1. This Court lacks jurisdiction over the subject mat-
ter of the Complaint because Blue Shield is engaged in the
“business of insurance’, and all matters alleged by Plain-
tiffs herein arise out of the “business of insurance’, which
“business” is regulated by state law. Therefore, Blue
Shield is exempted from the application of the Sherman
and Clayton Acts by the provisions of the McCarran-
Ferguson Act (15 U.S.C. § 1011, et segq.).
2. The Complaint fails to state a claim against Blue
Shield upon which relief can be granted because, as
shown in paragraph 1 above, the Court lacks jurisdiction
over the subject matter.
43a
Motion of Defendant Group Life and Health to Dismiss
3. In the absence of any action based upon federal iaw,
as shown above, this Court may net entertain Plaintiffs’
pendent claims based upon alleged violations of the Texas
antitrust laws.
4. Blue Shield further moves the Court to treat this
Motion as one for summary judgment pursuant to Rule
56, Federal Rules of Civil Procedure, and to consider the
following:
A. The Affidavit to Steve G. McDonald which is
attached hereto as Exhibit “A” and incorporated
herein by reference; and
B. The oral depositions of A. W. Pogue, Robert
C. McAnelly, Paul D. Connor and Donald H. Bunnell,
previously filed in the records of this proceeding, and
incorporated herein by reference.
5. This Motion is supported by a memorandum brief
filed contemporaneously herewith.
WHEREFORE, Blue Shield prays that this Court dis-
miss Plaintiffs’ Original Complaint and that this Motion
be treated as one for summary judgment.
Respectfully submitted,
Cox, SMITH, SMITH, HALE &
GUENTHER INCORPORATED
590 National Bank of
Commerce Bldg.
San Antonio, Texas 78205
44a
Motion of Defendant Group Life and Health to Dismiss
/s/ J. Burleson Smith
J. BURLESON SMITH
/s/ Keith E. Kaiser
KEITH E. KAISER
/s/ R. Laurence Macon
R. LAURENCE MACON
[Certificate of Service Omitted in Printing]
45a
AFFIDAVIT OF STEVE G. McDONALD IN SUPPORT OF
MOTION OF DEFENDANT GROUP LIFE AND HEALTH
INSURANCE COMPANY TO DISMISS,
FEBRUARY 23, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
AFFIDAVIT OF STEVE G. McDONALD IN SUPPORT
OF MOTION OF DEFENDANT GROUP LIFE AND
HEALTH INSURANCE COMPANY TO DISMISS
STATE OF TEXAS )
)
COUNTY OF DALLAS )
The witness, having been duly sworn, deposes and says:
1. My name is Steve G. McDonald. I reside at 6517
Turner Way, Dallas, Texas.
2. I make this Affidavit in support of the Motion of
Defendant Group Life and Health Insurance Company to
Dismiss and I have personal knowledge of the facts set
forth herein.
3. I am an attorney and I have been licensed to practice
in the State of Texas continuously since 1966. I am em-
ployed by Group Hospital Service, Inc. (“GHS”).
4. With the exception of a nine-month period, I have
been continuously employed by GHS since 1960. Since
January, 1966, I have been in the legal division of GHS
as one of its associate counsel.
5. GHS is a non-profit corporation duly organized and
existing under Chapter 20 of the Texas Insurance Code,
Tex. Ins. Code Ann. art. 20.01, et seg. GHS issues pre-
46a
Affidavit of Steve G. McDonald
paid coverage which provides hospital benefits to its sub-
scribers through contracts between the company and hos-
pitals. GHS also issues prepaid coverage which provides
benefits to its subscribers on an indemnity basis for medi-
cal and surgical care.
6. The Blue Cross service mark is owned by the Blue
Cross Association. GHS is authorized by the Blue Cross
Association to use the Blue Cross service mark and oper-
ates under the name of Blue Cross of Texas. Hereinafter,
GHS will be referred to as “Blue Cross”.
7. Group Life and Health Insurance Company
(“GL&H”) is a corporation duly organized and existing
under Chapter 3 of the Texas Insurance Code, Tex. Ins.
Code Ann. art. 3.01, et seq., and is authorized by the State
Board of Insurance of the State of Texas to transact the
business of life, health and accident insurance within the
State of Texas.
8. The Blue Shield service mark is owned by the Na-
tional Association of Blue Shield Plans. GL&H is au-
thorized by the National Association of Blue Shield Plans
to use the Blue Shield service mark and operates under
the trade name of Blue Shield of Texas. Hereinafter,
GL&H will be referred to as “Blue Shield”.
9. With the exception of a few qualifying shares issued
to directors of Blue Shield, all of the stock of Blue Shield
is owned by Blue Cross, a non-profit corporation.
10. The legal staff of Blue Cross, of which I am a
member, provides legal services to Blue Shield pursuant to
a management contract between the two companies.
11. Since 1968, I have been primarily responsible for
the filing of Blue Shield’s policy forms and related docu-
ments with the Commissioner of Insurance of the State
of Texas. Since 1966, I have participated in the prepara-
tion of Blue Shield’s policy forms and related documents.
47a
Affidavit of Steve G. McDonald
12. In 1969, Blue Shield determined to issue prescrip-
tion drug insurance coverage in the form of a supple-
mental policy to certain of its medical-surgical policies.
I assisted in the preparation of the supplemental policy.
A true and correct copy of the supplemental policy is at-
tached hereto as Exhibit “A” and incorporated herein by
reference.
13. Thereafter, I assisted in the preparation of the
Participating Drug Pharmacy Agreement, the purposes
of which were to comply with and effectuate the terms
and provisions of the prescription drug insurance policy,
to satisfy Blue Shield’s contractual obligations to its in-
sureds and to establish an efficient system of claims-
settlement procedures for the insureds under the policy.
A true and correct copy of the Participating Drug Phar-
macy Agreement is attached hereto as Exhibit “B” and
incorporated herein by reference.
14. On March 14, 1969, prior to issuance or use of the
prescription drug insurance policy or the Participating
Drug Pharmacy Agreement, I forwarded two copies of
each to the State Board of Insurance, pursuant to the
provisions of Tex. Ins. Code Ann. art. 3.42. A true and
correct copy of my letter of transmittal dated March 14,
1969, is attached hereto as Exhibit “C” and incorporated
herein by reference.
15. Thereafter, Blue Shield received from the Commis-
sioner of Insurance a copy of Official Order No. 29701,
dated June 18, 1969, which disapproved the prescription
drug insurance program. A true and correct copy of
Official Order No. 29701, dated June 18, 1969, is attached
hereto as Exhibit “D” and incorporated herein by ref-
erence.
16. As a result of the disapproval order, Blue Shield
did not issue or use the proposed prescription drug insur-
ance program.
48a
Affidavit of Steve G. McDonald
17. Subsequently, Blue Shield received from the Com-
missioner of Insurance a copy of Official Order No. 30413,
dated September 30, 1969, which Order exempted the pre-
scription drug insurance program from the approval re-
quirements of Tex. Ins. Code Ann. art. 3.42, and which
authorized Blue Shield to issue and use the program in
the State of Texas. A true and correct copy of Official
Order No. 30413, dated September 30, 1969, is attached
hereto as Exhibit “E” and incorporated herein by ref-
erence.
18. It is Blue Shield’s policy that the option of enter-
ing into a Participating Drug Pharmacy Agreement is
available to any licensed pharmacy in the State of Texas.
In 1969, Blue Shield made a statewide mailing to licensed
pharmacies advising them of this option.
19. Since September 30, 1969, Blue Shield has con-
ducted the prescription drug insurance program as au-
thorized by the exemption order (Exhibit “E”’).
20. The exemption order (Exhibit “E”) did not relieve
Blue Shield from any of the regulatory requirements set
out in the Texas Insurance Code, nor did it relieve Blue
Shield from any of the regulation or supervision estab-
lished by the State Board of Insurance. In conducting the
prescription drug insurance program, Blue Shield has
continued to be subject to all of the statutory and admin-
istrative regulations of the State of Texas and the State
Board of Insurance.
21. In 1974 Blue Shield agreed with Bexar County
Medical Foundation to provide certain group hospitaliza-
tion and medical-surgical insurance coverage to Bexar
County groups desiring such coverage. Included in the
proposed coverage was prescription drug insurance.
22. I assisted in preparing the prescription drug in-
surance policy form and other documents necessary for
49a
Affidavit of Steve G. McDonald
Blue Shield to be able to provide such coverage. The pre-
scription drug insurance program prepared for use in
connection with such coverage is virtually identical to the
program submitted to the State Board of Insurance in
1969. -
23. On September 23, 1974, prior to issuance or use
of any of the policies proposed under the agreement with
Bexar County Medical Foundation, I forwarded a copy of
each of them to the State Board of Insurance, pursuant to
Tex. Ins. Code Ann. art. 3.42. True and correct copies of
the prescription drug insurance policy and my letter of
transmittal dated September 23, 1974, are attached hereto
as Exhibits “F” and “G”, respectively, and incorporated
herein by reference.
24. Thereafter, Blue Shield received from the Commis-
sioner of Insurance a copy of Official Order No. 45511,
dated October 1, 1974, which approved, among other
things, the Bexar County prescription drug insurance
program. A true and correct copy of Official Order No.
45511, dated October 1, 1974, is attached hereto as Ex-
hibit “H” and incorporated herein by reference. Since
receipt of Official Order No. 45511, Blue Shield has been
issuing the prescription drug insurance to groups in
Bexar County, Texas.
25. After receipt of the approval order (Exhibit “H’”),
Blue Shield offered to virtually all licensed pharmacies in
San Antonio, Tc..as, the opportunity of entering into a
Participating Drug Pharmacy Agreement.
26. Blue Shield has not been notified by the Commis-
sioner of Insurance of Texas of any intention to amend,
modify or withdraw the approval order (Exhibit “H’’).
27. The Attorney Generai of Texas has initiated no
action against Blue Shield as a result of its issuance or
use of the prescription drug insurance program.
50a
Affidavit of Steve G. McDonald
28. In all operations under the prescription drug insur-
ance program, Blue Shield has transacted no business
other than the business of insurance pursuant to the au-
thority granted by the State Board of Insurance. Blue
Shield’s conduct under the program has always been with
a view toward strict compliance with the statutory and
regulatory requirements of the State of Texas and the
state agencies that regulate Blue Shield’s business.
29. Blue Shield is not engaged in the sale or dispens-
ing of prescription drugs as a manufacturer, wholesaler
or retailer. Blue Shield is engaged solely in transacting
the business of life, health and aecident insurance.
30. Nine of the eighteen Plaintiffs in this action are
Participating Pharmacies pursuant to a Participating
Drug Pharmacy Agreement with Blue Shield.
/s/ Steve G. McDonald
Steve G. MCDONALD
-
SUBSCRIBED AND SWORN TO BEFORE ME this
19 day of February, 1976.
/s/ Betty Jane McKinney
BETTY JANE MCKINNEY
Notary Public in and for
Dallas County, Texas
5la
GROUP LIFE AND HEALTH INSURANCE COMPANY
DRUG SUPPLEMENT POLICY, DATED APRIL 1, 1969
(ATTACHED AS “EXHIBIT A” TO AFFIDAVIT OF
STEVE G. McDONALD, FEBRUARY 23, 1976)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
GROUP LIFE & HEALTH
Insurance Company
{L0GO]
Dallas, Texas
has issued this
DRUG S""PPLEMENT
to the
EXPERIENCE RATED GROUP
MEDICAL-SURGICAL INSURANCE POLICY
NO. 123456
issued heretofore or simultaneously herewith, to
XYZ COMPANY, INC.
(therewith and herein called the Employer)
as of April 1, 1969
(herein called the supplemental policy date)
and thereby agrees to provide the
additional benefits detailed herein,
all in accordance with the conditions and provisions here-
of, including those set out on the following pages which
are a part of this supplement as fully as if recited over
the signatures hereto affixed.
This supplement becomes effective on the supplemental
policy date, and is issued in consideration of the applica-
tion herefor made by the Employer. It will be continued
52a
Group Life and Health Drug Supplement Policy
in force subject to the timely payment of premiums here-
for, until terminated in accordance with the provisions of
the Article captioned “Termination of Drug Coverage.
IN WITNESS WHEREOF, the Insurer has caused this
supplement to be executed at its Home Office in Dallas,
Texas.
President
Countersigned :
Registrar
(Disapproved By Order No. 29701, June 18, 1969,
Commissioner of Insurance, State of Texas]
58a
Group Life and Health Drug Supplement Policy
ARTICLE I—SUPPLEMENTAL DEFINITIONS
AS USED HEREIN:
A.
GROUP HOSPITALIZATION CONTRACT means an
instrument issued by Group Hospital Service, Inc. of
Dallas, Texas to the Employer, bearing the same num-
ber as that appearing on the “Experience Rated Group
Medical-Surgical Insurance Policy” described on the
face page hereof, including any supplements thereto.
GROUP MEDICAL-SURGICAL INSURANCE POL-
ICY means the “Experienced Rated Group Medical-
Surgical Insurance Policy” described on the face page
hereof.
BASIC COVERAGE means the total amount of pro-
tection afforded a participant by both the group hos-
pitalization contract and the group medical-surgical
insurance policy on account of expense incurred for
drugs and medicines.
COVERED DRUGS means any Prescription Legend
Drug or injectable insulin:
(1) which is ordered by a physician;
(2) for which a written prescription order is cus-
tomarily prepared;
(3) for which a separate charge is customarily made;
and
(4) which is not entirely consumed at the time and
place that the prescription order is written.
PRESCRIPTION LEGEND DRUG means any medici-
nal substance—the label of which, under the Federal
Food, Drug, and Cosmetic Act, as amended, is re-
quired to bear the legend: “Caution: Federal Law
prohibits dispensing without prescription.”
54a
Group Life and Health Drug Supplement Policy
. DRUG DEDUCTIBLE means the amount to be paid
by a participant toward the cost of the initial pur-
chase of each covered drug and toward the cost of each
refill purchase of each covered drug and for each such
purchase and is equal to the amount specified in Item
20 of the schedule.
. PRESCRIPTION ORDER means a request for medi-
cation by a physician.
. PHARMACY means a licensed establishment where
Preseription Legend Drugs are dispensed by a person
who is not a practitioner of the healing arts and who
is licensed to dispense such drugs under the laws of
the state in which he practices.
. PROVIDER means any pharmacy, physician, or any
other person or organization legally licensed to dis-
pense drugs.
. PARTICIPATING PROVIDER means a provider lo-
cated in the State of Texas with which the Insurer or
Group Hospital Service, Inc. of Dallas, Texas, has
entered into a written contract for the rendition of
covered drugs for which benefits are provided by this
supplement, or any provider located outside the State
of Texas with which any other Blue Cross or Blue
Shield Plan has entered into such a contract.
NON-PARTICIPATING PROVIDER means a pro-
vider who is not a participating provider.
ARTICLE II—TERMS AND PROVISIONS
All definitions, limitations, and provisions recited in the
group medical-surgical insurance policy are hereby
adopted and shall be construed to apply in like man-
ner and with equal force to this supplement, any pro-
visions insofar as they are in conflict with provisions
55a
Group Life and Health Drug Supplement Policy
herein contained, in which case the provisions of this
supplement shall govern in any interpretations of
rights or obligations aecruing hereunder.
B. It is hereby specially declared that the non-duplication
provisions set forth in Article IV, Section F, of the
group medical-surgica! insurance policy are applicable
to this supplement except insofar as they are modified
by the provisions of the following subsections:
1. Determination of drug benefits under this supple-
ment shall be made in relation to each “claim,”
consisting of any combination of charges for cov-
ered drugs which are incurred within a calendar
year and submitted at one time by or on behalf of
a participant to the Insurer at his request for pay-
ment of drug benefits applicable thereto.
2. When the non-duplication provisions are applica-
ble, the benefits of the other coverage and all bene-
fits provided under the basic coverage on the items
composing the claim shall be deducted from the
charges for all such items, and the Insurer will
pay the remainder; provided, however, that in no
event shall these provisions be construed to in-
crease the amount of total benefits which would be
payable under this supplement on account of such
claim in the absence of other coverage.
ARTICLE III—BENEFITS
A. Subject to the exclusions, limitations, and all other
terms and provisions set forth herein, any participant
shall be entitled to receive covered drugs from any
participating provider as a benefit hereunder and shall
be required to pay no more than the drug deductible
for each of such covered drugs.
56a
Group Life and Health Drug Supplement Policy
B. Any participant receiving covered drugs from a non-
participating provider shall be entitled to benefits equal
to 75% of the result of the usual and customary
charges for such covered drugs as determined by the
Insurer, reduced by the drug deductible for such cov-
ered drugs; except that for covered drugs received
from a non-participating provider located outside of
the State of Texas, such participant shall be entitled
to benefits equal to 100% of the usual and customary
charges for such covered drugs, reduced by the drug
deductible for each such covered drugs.
C. Payment of benefits by the Insurer to the provider or
to the Employer, as the Insurer may elect, shall con-
stitute full discharge of all responsibility of the In-
surer to the employee on account of care rendered to
any participant under his coverage.
ARTICLE IV—LIMITATIONS AND EXCLUSIONS
In addition to the limitations and exclusions stipulated in
Article VI of the group medical-surgical insurance policy,
it is provided that no drug benefit shall be available for
any of the following:
A. Any charge for a contraceptive medication, even if
such medication is a Prescription Legend Drug, and
any charge for therapeutic devices or appliances (in-
cluding but not by way of limitation, hypodermic
needles, syringes, support garments, and other non-
medicinal substances) regardless of their intended use.
B. Any charge for services other than Covered Drugs,
including administration of a Prescription Legend
Drug or injectable insulin.
C. The charge for more than a 34-day supply of a medi-
cation, except that Blue Cross-Shield will cover 100
57a
Group Life and Health Drug Supplement Policy
unit doses (e.g. tablet or capsule) of a natural thyroid
product and 100 unit doses of nitroglycerine.
. The charge for any prescription refill in excess of the
number specified by the physician, or any refill dis-
pensed after one year from the physician’s order.
. Covered Drugs for which no charge is customarily
made.
. Covered Drugs to the extent that a benefit is provided
therefor under the basic coverage.
ARTICLE V—TERMINATION OF DRUG COVERAGE
A. This supplement and coverage of all participants here-
under shall automatically terminate:
1. When the group medical-surgical insurance policy
is terminated for any reason;
2. Upon default in payment of supplemental pre-
miums, subject to the grace period and reinstate-
ment provided for in the group medical-surgical
insurance policy;
3. Upon cancellation of this supplement in any man-
ner as specified in the group medical-surgical in-
surance policy for cancellation thereof.
. The coverage of any participant under this supple-
ment shall automatically terminate when his coverage
under the group medical-surgical insurance policy is
terminated, subject, howeve>, to refund of supplemen-
tal premiums paid in advance, as therein provided.
C. Under no circumstances shall the Plan be obligated to
notify any participant of the termination of this sup-
plement or of his coverage hereunder.
58a
Group Life and Health Drug Supplement Policy
D. No conversion privilege afforded a participant under
the group medical-surgical insurance policy shall be
deemed to apply to this supplement.
ARTICLE VI—GENERAL PROVISIONS
DISCLOSURE AUTHORIZATION. In consideration
of the Insurer’s having waived physical examination
in connection with the application herefor, the em-
ployee on behalf of himself and his covered dependents
and sponsored dependents shail be deemed te have
authorized any provider to make available to the In-
surer information relating to ali prescription orders,
copies thereof and other records as needed by the
Insurer.
. The Insurer shall not be liable for any claim or de-
mand for injuries or damage arising out of or in
connection with the manufacturing, compounding, dis-
pensing or use of any Prescription Legend Drugs or
insulin, whether or not covered under this supplement.
. The Insurer reserves the right to deny benefits for any
drug prescribed or dispensed in a manner contrary to
normal medical or pharmaceutical practice.
PARTICIPATING DRUG PHARMACY AGREEMENT
(ATTACHED AS “EXHIBIT B” TO AFFIDAVIT OF
STEVE G. McDONALD, FEBRUARY 23, 1976)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
PARTICIPATING DRUG PHARMACY AGREEMENT
between
GROUP LIFE & HEALTH INSURANCE COMPANY
(Herein ealled Blue Shield)
Dallas, Texas
and
(Herein called the Partictpating Pharmacy )
(Type ef Organization)
(Address )
Pharmacy Permit No.
1. The Participating Pharmacy agrees that all phar-
macists dispensing drugs in its behalf are to be con-
* sidered participating pharmacists. The pharmacists
currently employed by the Participating Pharmacy
are:
Name License No.
60a
Participating Drug Pharmacy Agreement
. The Participating Pharmacy shall dispense drugs for
which benefits are provided under Blue Shield’s Drug
Supplement CC-OHDS-2 or any other supplement or
contract upon written notice by Blue Shield, to per-
sons who are entitled to benefits under such supple-
ments, all in accordance with the terms of such in-
struments.
. The Participating Pharmacy agrees to accept as full
payment for each drug provided under Section 2,
above, of this agreement an amount equal to the total
of the acquisition cost for such drug and a profes-
sional dispensing fee of $ . Acquisition
cost, as used in this agreement, means the actual cost
of a drug to the Participating Pharmacy, as deter-
mined under rules and regulations published by Blue
Shield.
. Blue Shield agrees to pay to the Participating Phar-
macy for each drug dispensed under Section 2 of this
agreement an amount equal to the excess, if any, of
the amount stipulated in Section 3, above, of this
agreement over the drug deductible amount, if any,
stipulated in the instrument under which drug bene-
fits are available, and the Participating Pharmacy
agrees that its charge for such drug to any other
person shall not exceed such drug deductible.
. Blue Shield agrees to provide the Participating Phar-
macy with a manual which will stipulate the drugs for
which benefits are available and drug deductible ap-
plicable to each person to whom drugs are to be dis-
pensed under Section 2 of this agreement, and in
which identification codes for certain of the drugs for
which benefits are provided will be stipulated. The
Participating Pharmacy agrees to include on those
claims for benefits the code for the drug for which
6la
Participating Drug Pharmacy Agreement
claim is made if such code is shown in the Participat-
ing Pharmacy’s current manual.
. All contracts or transactions in which the Participating
Pharmacy engages involving dispensing of drugs shall
be between the Participating Pharmacy and the patient
and Blue Shield shall not be a party thereto.
. The Participating Pharmacy agrees that Blue Shield
shall have the right to inspect all records pertaining
to persons eligible for benefits under its drug supple-
ments at any time during regular business hours.
. The Participating Pharmacy agrees not to engage in
any advertising relative to Blue Shield drug supple-
ments without prior approval of Blue Shield.
. This agreement may be terminated at any time by
either party by giving at least 15 days prior written
notice to the other party.
GROUP LIFE & HEALTH INSURANCE COMPANY
Dated at Dallas, Texas this
—day of. ,19—. By
President
Dated at , Texas this
—day of. —-, 19—. By.
Title:
LETTER OF TRANSMITTAL OF POLICY
AND AGREEMENT TO STATE BOARD OF INSURANCE,
DATED MARCH 4, 1969 (ATTACHED AS “EXHIBIT C”
TO AFFIDAVIT OF STEVE G. McDONALD,
FEBRUARY 23, 1976)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
GROUP LIFE & HEALTH
Insurance Company
[LOGO]
March 14, 1969
Mr. Robert C. McAnelly
Supervisor, AHGL Policy Unit
State Board of Insurance
1110 San Jacinto
Austin, Texas 78701
Re: Form No. CC-OHDS-2
Form No. PDPA-1
Dear Mr. McAnelly:
We submit herewith for your approval Form No. CC-
OHDS-2 which is a Drug Supplement to our Custom Cov-
erage Group Medical-Surgical Insurance Policy, Form No.
MSCC-1, which was approved by your department under
Order No. 19427 on 9-27-65. We will use application
Form No. MSCC-App. 1, which was approved under the
same order number.
IT am also enclosing Form PDPA-1 which is the Partici-
pating Drug Pharmacy Agreement that Group Life &
Health Insurance Company will enter into with pharma-
cies for the provision of benefits under this supplement.
68a
Letter of Transmittal of Policy and Agreement
I am enclosing a duplicate copy of the supplement and
agreement together with this letter in order that you may
stamp them and return to us.
If we can furnish additional information concerning these
filings, please advise.
Sincerely yours,
Group LIFE & HEALTH
INSURANCE COMPANY
/s/ Steve G. McDonald
STEVE G. MCDONALD
[Disapproved By Order No. 29701, Jun. 18, 1969,
Commissioner of Insurance, State of Texas]
64a
OFFICIAL ORDER NO. 29701 OF TEXAS COMMISSIONER
OF INSURANCE, JUNE 18, 1969 (ATTACHED AS
“EXHIBIT D” TO AFFIDAVIT OF STEVE G. McDONALD,
FEBRUARY 23, 1976)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
No. 29701
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date June 18, 1969
Subject Considered :
APPROVAL OF FORMS
General remarks and official action taken:
On this date came on for consideration by the Commis-
sioner of Insurance application for approval of Form No.
CC-OHDS-2 filed by Group Life & Health insurance
Company and the Commissioner, having found that said
form does not comply with the requirements of Article
3.42, Texas Insurance Code, as amended, hereby disap-
proves said form under authority of the cited statute, and
herenow states his grounds for such disapproval as fol-
lows:
Under provision of said form the differentiation of bene-
fits as between “participating provider” dispensed drugs
and “non-participating provider” dispensed drugs consti-
tutes unfair discrimination within the meaning of Article
21.21, Texas Insurance Code.
65a
Official Order No. 29701 of Texas Commissioner of Ins.
The provisions of said .orm are violative of the anti-trust
and monopoly statutes of this state.
Prepared, recommended and approved by:
/8/ R. C. McAnelly
R. C. MCANELLY, Supervisor
Health and Group Life Policy Unit
Life Division
COMMISSIONER OF INSURANCE
By /s/ Don B. Odum
Don B. ODUM
Section Manager
Life Division
66a
OFFICIAL ORDEE NO. 30413 OF TEXAS COMMISSIONER
OF INSURANCE, DATED SEPTEMBER 30, 1969
(ATTACHED AS “EXHIBIT E” TO AFFIDAVIT
OF STEVE G. McDONALD, FEBRUARY 23, 1976)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
No. 30413
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date Sep. 30, 1969
Subject Considered:
POLICY FORM APPROVAL—
EXEMPTION FROM THE REQUIREMENTS OF
ARTICLE 3.42, TEXAS INSURANCE CODE
General remarks and official action taken:
Pursuant to the authority granted by Article 3.42, Para-
graph (e) of the Texas Insurance Code, the Commissioner
of Insurance hereby exempts from the requirements of
said Article Policy Form CC-OHDS-2 submitted by Group
Life and Health Insurance Company, Dallas, Texas; and
this exemption shall remain effective pending further or-
ders from the Commissioner of Insurance. To the extent
that this exemption order conflicts with Comm:ssioner’s
Order No. 29701, dated June 18, 1969, Order No. 29701
is superseded.
67a
Official Order No. 30413 of Texas Commissioner of Ins.
This exemption order shall also apply to any form, iden-
tical in content to Form CC-OHDS-2, delivered, issued or
used in this state by any licensed insurer.
This exemption order is issued and published for the rea-
son that, in the opinion of the Commissioner, Article 3.42
of the Texas Insurance Code may not practicably be ap-
plied at this time to the forms covered by the exemption.
The exempt forms are described as drug service contracts,
which confer upon the policyholder the right to obtain
certain prescribed drugs at a cost fixed in the contract,
the insurer having entered into participating agreements
with dispensing pharmacies to supply the prescribed drugs
to its policyholders.
The policy forms herein exempt, used in connection with
the participating agreements with pharmacies as described
above, have raised questions under the Texas anti-trust
and anti-monopoly laws, and such questions have been re-
ferred to the Attorney General of the State of Texas.
Pending such time as these questions are resolved, the
exemptions authorized by this Order are granted for the
purpose of preventing any competitive advantages which
foreign insurance companies, issuing policies outside of
Texas but including Texas residents under their coverage,
might have over domestic companies seeking to issue equiv-
alent policy contracts.
/8/ Clay Cotten
CLAY COTTEN
Commissioner of Insurance
Prepared by:
/s/ Paul D. Connor
PAUL D. CONNOR
Assistant to the Commissioner
68a
GROUP LIFE AND HEALTH INSURANCE COMPANY
DRUG SUPPLEMENT POLICY, DATED OCTOBER 1, 1974
(ATTACHED AS “EXHIBIT F” TO AFFIDAVIT OF
STEVE G. McDONALD, FEBRUARY 23, 1976)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
[LoGo]
GROUP LIFE & HEALTH INSURANCE CO.
(Herein called Blue Shield of Texas)
Dallas, Texas
has issued this
DRUG SUPPLEMENT
to the
EXPERIENCE RATED GROUP HOSPITALIZATION
AND MEDICAL-SURGICAL CONTRACT
NO. 34567
issued heretofore or simultaneously herewith, to
ABC COMPANY
(therewith and herein called the Employer)
as of October 1, 1974 (herein called the supplemental
contract date) and thereby agrees to provide the
additional benefits detailed herein,
all in accordance with the conditions and provisions here-
of, including those set out on the following pages which
are a part of this supplement as fully as if recited over
the signatures hereto affixed.
This supplement becomes effective on the supplemental
contract date, and is issued in consideration of the appli-
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texas]
69a
Group Life and Health Ins. Co. Drug Supplement Policy
cation herefor made by the Employer. It will be continued
in force subject to the timely payment of premiums here-
for, until terminated in accordance with the provisions of
the Article captioned “Termination of Drug Coverage.”
IN WITNESS WHEREOF, Blue Shield of Texas has
caused this supplement to be executed at its Home Office
in Dallas, Texas.
/s/ Tom L. Beauchamp, Jr.
President
/s/ (Illegible]
Secretary
Countersigned :
Registrar
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texas]
70a
Group Life and Health Ins. Co. Drug Supplement Policy
ARTICLE I—SUPPLEMENTAL DEFINITIONS
AS USED HEREIN:
A. BASIC CONTRACT means the “Experience Rated
Group Hospitalization and Medical-Surgical Con-
tract” described on the face page hereof.
B. BASIC COVERAGE means the total amount of pro-
tection afforded a participant by the basic contract
on account of expense incurred for drugs and medi-
cines.
C. COVERED DRUGS means any Prescription Legend
Drug or injectable insulin:
(1) which is ordered by a physician;
(2) for which a written prescription order is cus-
tomarily prepared ;
(3) for which a separate charge is customarily
made;
(4) which is not entirely consumed at the time and
place that the prescription order is written; and
(5) which is received by the participant while cov-
ered hereunder.
D. PRESCRIPTION LEGEND DRUG means any me-
dicinal substance—the label of which, under the Fed-
eral Food, Drug, and Cosmetic Act, as amended, is
required to bear the legend: “Caution: Federal Law
prohibits dispensing without prescription.”
E. DRUG DEDUCTIBLE means the amount to be paid
by a participant toward the cost of the initial pur-
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texas]
Tla
Group Life and Health Ins. Co. Drug Supplement Policy
chase of each covered drug and toward the cost of
each refill purchase of each covered drug and for each
such purchase and is equal to two dollars ($2.00).
F. PRESCRIPTION ORDER means a request for medi-
cation by a physician.
G. PHARMACY means a licensed establishment where
Prescription Legend Drugs are dispensed by a person
who is not a practitioner of the healing arts and
who is licensed to dispense such drugs under the laws
of the state in which he practices.
H. PROVIDER means any pharmacy, physician, or any
other person or organization legally licensed to dis-
pense drugs.
I. PARTICIPATING PROVIDER means a provider
located in the State of Texas with which Blue Shield
of Texas or Group Hospital Service, Inc. of Dallas,
Texas, has entered into a written contract for the
rendition of covered drugs for which benefits are pro-
vided by this supplement, or any provider located
outside the State of Texas with which any other Blue
Cross or Blue Shield Plan has entered into such a
contract.
J. NON-PARTICIPATING PROVIDER means a pro-
vider who is not a participating provider.
ARTICLE II—TERMS AND PROVISIONS
A. All definitions, limitations, and provisions recited in
the basic contract are hereby adopted and shall be
construed to apply in like manner and with equal
force to this supplement and any other provisions
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texas]
— ae Wwar'er Tr
72a
Group Life and Health Ins. Co. Drug Supplement Policy
B.
insofar as they are in conflict with provisions herein
contained, in which case the provisions of this supple-
ment shall govern in any interpretation of rights or
obligations accruing hereunder.
It is hereby specially declared that the non-duplication
provisions set forth in Article V, Section E, of the
basic contract are applicable to this supplement ex-
cept insofar as they are modified by the provisions
of the following subsections:
1. Determination of drug benefits under this supple-
ment shall be made in relation to each “claim,”
consisting of any combination of charges for cov-
ered drugs which are incurred within a calendar
year and submitted at one time by or on behalf
of a participant to Blue Shield of Texas at his
request for payment of drug benefits applicable
thereto.
2. When the non-duplication provisions are applica-
ble, the benefits of the other coverage and all bene-
fits provided under the basic coverage on the
items composing the claim shall be deducted from
the charges for all such items, and Blue Shield of
Texas will pay the remainder; provided, however,
that in no event shall these provisions be con-
strued to increase the amount of total benefits
which would be payable under this supplement on
account of such claim in the absence of other
coverage.
ARTICLE III—BENEFITS
A. Subject to the exclusions, limitations, and all other
terms and provisions set forth herein, any participant
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texas]
73a
Group Life and Health Ins. Co. Drug Supplement Policy
shall be entitled to receive covered drugs from any
participating provider as a benefit hereunder and
shall be required to pay no more than the drug de-
ductible for each of such covered drugs.
B. Any participant receiving covered drugs from a non-
participating provider shall be entitled to benefits
equal to 75% of the result of the reasonable charge
for such covered drugs as determined by Blue Shield
of Texas, reduced by the drug deductible for such
covered drugs; except that for covered drugs received
from a non-participating provider located outside of
the State of Texas, such participant shall be entitled
to benefits equal to 100% of the reasonable charge
for such covered drugs, reduced by the drug deducti-
ble for each such covered drugs.
C. Payment of benefits by Blue Shield of Texas to the
provider or to the employee, as Blue Shield of Texas
may elect, shall constitute full discharge of all re-
sponsibility of Blue Shield of Texas to the employee
on account of care rendered to any participant under
his coverage.
ARTICLE IV—LIMITATIONS AND EXCLUSIONS
In addition to the limitations and exclusions stipulated in
Article VIII of the basic contract, it is provided that no
drug benefit shall be available for any of the following:
A. Any charge for a contraceptive medication, even if
such medication is a Prescription Legend Drug, and
any charge for therapeutic devices or appliances (in-
cluding but not by way of limitation, hypodermic
needles, syringes, support garments, and other non-
medicinal substances) regardless of their intended
use;
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texas]
T4a
Group Life and Health Ins. Co. Drug Supplement Policy
B.
F.
G.
Any charge for services other than Covered Drugs,
including administration of a Prescription Legend
Drug or injectable insulin;
The charge for more than a 34-day supply of a medi-
cation, except that Blue Shield of Texas will cover
100 unit doses (e.g. tablet or capsule) of a natural
thyroid product and 100 unit doses of nitroglycerine;
The charge for any prescription refill in excess of
the number specified by the physician, or any refill
dispensed after one year from the physician’s order;
Covered Drugs for which no charge is customarily
made;
Covered Drugs to the extent that a benefit is provided
therefor under the basic coverage ;
Covered Drugs which are not medically necessary.
ARTICLE V—TERMINATION OF DRUG COVERAGE
A.
This supplement and coverage of all participants
hereunder shall automatically terminate:
1. When the basic contract is terminated for any
reason ;
2. Upon default in payment of supplemental premi-
ums, subject to the grace period and reinstate-
ment provided for in the basic contract;
3. Upon cancellation of this supplement in any man-
ner as specified in the basic contract for cancella-
tion thereof.
The coverage of any participant under this supple-
ment shall automatically terminate when his cover-
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texar!
Tba
Group Life and Health Ins. Co. Drug Supplement Policy
age under the basic contract is terminated, subject,
however, to refund of supplemental premiums paid
in advance, as therein provided.
Under no circumstances shall Blue Shield of Texas
be obligated to notify any participant of the termi-
nation of this supplement or of his coverage here-
under.
No conversion privilege afforded a participant under
the basic contract shall be deemed to apply to this
supplement.
ARTICLE VI—GENERAL PROVISIONS
DISCLOSURE AUTHORIZATION. In consideration
of Blue Shield of Texas having waived a physical
examination in connection with the application here-
for, the employee on behalf of himself and his cov-
ered dependents shall be deemed to have authorized
any provider to make available to Blue Shield of
Texas information relating to all prescription orders,
copies thereof and other records as needed by Blue
Shield of Texas.
Blue Shield of Texas shall not be liable for any claim
or demand for injuries or damage arising out of or
in connection with the manufacturing, compounding,
dispensing or use of any Prescription Legend Drug
or insulin, whether or not covered under this supple-
ment.
Blue Shield of Texas reserves the right to deny bene-
fits for any drug prescribed or dispensed in a manner
contrary to normal medical or pharmaceutical prac-
tice.
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texas]
76a
LETTER OF TRANSMITTAL OF POLICY TO STATE
BOARD OF INSURANCE, DATED SEPTEMBER 23, 1974
(ATTACHED AS “EXHIBIT G” TO AFFIDAVIT OF
STEVE G. McDONALD, FEBRUARY 23, 1976)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
GROUP LIFE & HEALTH
Insurance Company
[Loco]
Main at North Central Expressway
P. 0. Box 5403
Dallas, Texas 75222
September 23, 1974
Mr. A. W. Pogue, Manager
Headquarters Section, Life Division
State Board of Insurance
1110 San Jacinto
Austin, Texas 78786
Re: MF-1, Experience Rated Group Hospitalization
and Medical-Surgical Contract
MF-1-DS-1, Drug Supplement
MF-1-APP-1, Group Application Blank
MF-1-OA-1, Operating Agreement
MF-1-IA-1, Insurance Agreement
Dear Mr. Pogue:
We submit herewith for your approval the above de-
scribed new contract forms.
We anticipate entering into a health care program agree-
ment with the Bexar County Medical Foundation wherein
[Approved By Order No. 45511, Oct. 1, 1974,
Commissioner of Insurance, State of Texas]
77a
Letter of Transmittal of Policy
Blue Shield of Texas will provide benefits as set forth
in Form Nos. MF-1, Article VII, and MF-1-DS-1 to
groups desiring this coverage. The Bexar County Medi-
cal Foundation will provide medical-surgical benefits as
set forth in a separate contract, a copy of which will be
sent to you in a few days for information purposes only.
We are also submitting for your approval the operating
and reinsurance agreements between Blue Cross and
Blue Shield of Texas and the Bexar County Medical
Foundation. The attached list indicates our internal
stock control numbers used for these various forms.
Within the next few weeks we will submit the certificate-
booklet and enrollment application card for your ap-
proval.
We are submitting two copies of each form described
above, together with an extra copy of this letter. Will
you please stamp the extra copy of each “approved” and
return to us for our files. These same forms are being
concurrently filed by Group Hospital Service, Inc.
If additional information is needed regarding this filing,
please call me in order that we may discuss the matter
more in detail by telephone.
Yours very truly,
Group LIFE & HEALTH
INSURANCE Co.
/s/ Steve G. McDonald
STEVE G. MCDONALD
SGMcD:je
Encs.
ec: Mr. Joe Hawkins, Mr. John Holden
78a
Letter of Transmittal of Policy
1600-974
1601-974
1602-974
1603-974
1604-974
1605-974
1606-974
1607-974
1608-974
1609-974
1610-974
1611-974
1612-974
1613-974
1618-974
1619-974
1620-974
1621-974
1622-974
1623-974
1624-974
1625-974
1626-974
1627-974
1628-974
1629-974
1630-974
1631-974
1632-974
1633-974
1634-974
1635-974
Face Page
Article I
Article I
Article I
Article I
Article II
Article IT
Article II
Article III
Article IV
Article IV
Article V
Article V
Article V
Article VII
Article VII
Article VII
Article VIII
Article VIII
Article IX
Article IX
Article X
Article XI
Article XI
Article XI
Face Page
Article I
Article II
Article ITI
Article IV
Article V
Article VI
MF-1, Experience Rated Group Hospitalization and Medical-Surgical
Contract (between Blue Cross and Blue Shield and the Group)
(Page 2)
(Page 3)
(Page 4)
(Page 2)
(Page 3)
(Page 2)
(Page 2)
(Page 3)
(Page 2)
(Page 3)
(Page 2)
(Page 2)
(Page 2)
(Page 3)
MF-1-DS-1, Drug Supplement
MF-1-APP-1, Group Application Blank
1636-974
1637-974
Page 1
Page 2
79a
OFFICIAL ORDER NO. 45511 OF TEXAS
COMMISSIONER OF INSURANCE, DATED OCTOBER 1,
1974 (ATTACHED AS “EXHIBIT H” TO AFFIDAVIT OF
STEVE G. McDONALD, FEBRUARY 23, 1976)
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
No. 45511
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date Oct. 1, 1974
Subject Considered:
General remarks and official action taken:
On this date came on for consideration by the Commis-
sioner of Insurance applications for approval of the
forms described herein; and the Commissioner, having
found that each of said forms complies with the require-
ments of Article 3.42, Texas Insurance Code, as amend-
ed, hereby approves each of said forms under authority
of the cited statute:
Submitted By: Identifying Form Nos :
Group Hospital Service, Inc. MF-1 with;
Group Life & Health Insurance Company MF-1-APP-1 attached;
MF-1-DS-1.
This approval is extended for use as the
insurer portion of a Group Comprehensive
Medical Care Plan and such approval is
limited and does not constitute approval
of the said form for any other use under
the Texas Insurance Code.
80a
Official Order No. 45511 of Texas Commissioner of Ins.
/3/ Don B. Odum
Don B. ODUM
COMMISSIONER OF INSURANCE
Prepared, recommended and approved by:
/s/ Mildred R. Kurt
(Mrs.) MiLprRep R. Kurt, Supervisor
Health and Group Life Policy Unit
Life Division
8la
MOTION OF DEFENDANT WALGREEN TEXAS CO.
TO DISMISS, FEBRUARY 23, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
MOTION OF DEFENDANT, WALGREEN TEXAS
CO., TO DISMISS
Defendant, WALGREEN TEXAS CO., respectfully
moves the Court to dismiss Plaintiffs’ Original Complaint
pursuant to Rules 12(b) and 56, Federal Rules of Civil
Procedure.
1.
This Motion is based on the specific grounds that this
Court lacks jurisdiction over the subject matter of the
Complaint, all as set out and detailed in the Motion To
Dismiss of the principal Defendant, GROUP LIFE AND
HEALTH INSURANCE COMPANY, and which grounds
are hereby adopted in full by Defendant, WALGREEN
TEXAS CO.
2.
Defendant, WALGREEN TEXAS CO., in support of
this Motion to Dismiss, would adopt in full the argument
and authorities as contained in the Memorandum Brief
filed herein by the principal Defendant, GROUP LIFE
AND HEALTH INSURANCE COMPANY.
WHEREFORE, WALGREEN TEXAS CO., prays that
this Court dismiss Plaintiffs’ Original Complaint or that
this Motion be treated as one for Summary Judgment.
82a
Motion of Defendant Walgreen Texas Co. to Dismiss
Respectfully submitted,
/s/ Wm. C. Church, Jr.
Wo. C. CHURCH, JR.
8700 Tesoro Drive
Suite #120
Post Office Box 17409
San Antonio, Texas 78217
(512) 828-8261
Attorney for Defendant,
Walgreen Texas Co.
Of Counsel:
KAMPMANN, CHURCH & BURNS
8700 Tesoro Drive
Suite #120
Post Office Box 17409
San Antonio, Texas 78217
83a
Motion of Defendant Walgreen Texas Co. to Dismiss
CERTIFICATE OF SERVICE
I certify a true and correct copy of the above and
foregoing Motion of Defendant, WALGREEN TEXAS
CO., To Dismiss, was mailed, postage prepaid, to the
following counsel of record, this 23rd day of February,
1976:
Mr. Joel H. Pullen
TINSMAN & Houser, INC.
1900 National Bank of Commerce Building
San Antonio, Texas 78205
Attorneys for Plaintiffs
Mr. Keith E. Kaiser
Cox, SMITH, SMITH, HALE & GUENTHER, INC.
500 National Bank of Commerce Building
San Antonio, Texas 78205
Attorneys for Defendant,
Group Life and Health Insurance Company
Mr. Charles R. Shaddox
GROCE, LOCKE & HEBDON
200 Frost Bank Tower
San Antonio, Texas 78205
Attorneys for Defendant,
Rieger/Medi-Save Pharmacies, Inc.
84a
MOTION OF DEFENDANT THE SOMMERS DRUG
STORES COMPANY TO DISMISS,
FEBRUARY 23, 1976
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
MOTION OF DEFENDANT, THE SOMMERS DRUG
STORES COMPANY, TO DISMISS
Comes now Defendant, THE SOMMERS DRUG
STORES COMPANY (“Sommers”), and files this its
Motion to Dismiss and says:
1. The grounds for dismissal set forth in the MOTION
OF DEFENDANT, GROUP LIFE AND HEALTH IN-
SURANCE COMPANY (“Blue Shield”) and the argu-
ments contained in the accompanying Blue Shield Brief
clearly show that the case should be dismissed against
Sommers.
2. Sommers reiterates its defenses set forth as Som-
mers’ THIRD DEFENSE in Sommers’ Answer, here-
tofore filed in this cause, and moves the Court to dis-
miss this cause based upon such allegations, which are
as follows:
Third Defense
The Complaint fails to state a claim upon which re-
lief can be granted against Sommers under the antitrust
laws of the United States because the Defendant GROUP
LIFE AND HEALTH INSURANCE COMPANY (“Blue
Cross”) is engaged in the “business of insurance”, and
all matters alleged by Plaintiffs herein arise out of the
“business of insurance”, which is regulated by the In-
surance Commissioner of the State of Texas and exempt
85a
Motion of Defendant Sommers Drug Stores to Dismiss
from the provisions of the Sherman and Clayton Acts
pursuant to the McCarran-Ferguson Act (15 U.S.C.
§ 1011, et seq.).
3. Sommers joins Blue Shield in its Motion Number 4
to Treat Blue Shield Motion as one for summary judg-
a and adopts said Motion and supporting documenta-
on.
4. This Motion is supported by the Sommers Brief
filed contemporaneously herewith.
WHEREFORE, Sommers prays that this honorable
court dismiss Plaintiff’s Original Complaint and that
this Motion be treated as one for summary judgment.
Respectfully submitted,
GRESHAM, DAvIs, GREGORY,
WorTHY & Moore
1800 Frost Bank Tower
San Antonio, Texas 78205
By /s/ Richard B. Moore
RICHARD B. Moore
[Certificate of Service Omitted in Printing]
86a
MOTION OF DEFENDANT RIEGER/MEDI-SAVE
PHARMACIES, INC. TO DISMISS,
FEBRUARY 25, 1976
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
DEFENDANT, RIEGER-MEDI-SAVE PHARMACIES,
INC.’S MOTION TO DISMISS
TO THE HONORABLE UNITED STATES DISTRICT COURT:
NOW COMES Defendant, RIEGER-MEDI-SAVE
PHARMACIES, INC., and files its Motion to Dismiss,
and for alternative relief, and would show the Court as
follows:
I,
In support of this Motion, Defendant relies upon the
pleadings on file and such depositions and affidavits which
shall be timely filed in connection with the Motion.
II.
Defendant, RIEGER-MEDI-SAVE PHARMACIES,
INC., hereby incorporates by reference, the Motion to
Dismiss of Defendant Group Life and Health Insurance
Company, together with the Brief filed in support of that
Motion. Defendant RIEGER-MEDI-SAVE PHARMA-
CIES, INC., asks the Court to consider all matters raised
in that Motion and Brief in connection with this Motion.
87a
Motion of Defendant Rieger/Medi-Save to Dismiss
ITI.
This Defendant moves the Court pursuant to Rule
12(b), to dismiss Plaintiff's Complaint for lack of ju-
risdiction over the subject matter and failure to state a
claim upon which relief may be granted. Defendant al-
ternatively asks the Court to treat this Motion as one
for Partial Summary Judgment, pursuant to Rule 56 of
the Federal Rules of Civil Procedure, and grant it Judg-
ment on all Federal Anti-Trust Claims asserted by Plain-
tiffs.
As grounds for such relief this Defendant would show
the Court that all matters raised by Plaintiff’s Complaint
(except the purely pendent count) have been exempted
from the application of the Sherman and Clayton Acts
(15 U.S.C. Sections 1 to 7; 15 U.S.C. Section 12, et seq.)
by the application of the McCarran-Ferguson Act (15
U.S.C. Section 1011, et seq.). Since the McCarran-
Ferguson Act removes the complained of activities from
the Sherman and Clayton Acts, there is no statutory
basis to support this action. The Original Complaint on
its face [indicates] that there is no total diversity of
citizenship between the parties.
As there is no original jurisdiction for this action,
the remaining pendant counts should likewise be dis-
missed.
Defendant, RIEGER-MEDI-SAVE PHARMACIES,
INC., moves the Court to Dismiss the Complaint or,
alternatively, grant it a Summary Judgment on all Fed-
eral Anti-Trust Claims, and to dismiss the remaining
pendant count.
88a
Motion of Defendant Rieger/Medi-Save to Dismiss
Respectfully submitted,
GROCE, LOCKE & HEBDON
By: /s/ Charles R. Shaddox
CHARLES K, SHADDOX
2000 Frost Bank Tower
San Antonio, Texas 78205
Attorneys for Defendant,
Rieger-Medi-Save
Pharmacies, Inc.
[Certificate of Service Omitted in Printing]
89a
STIPULATION OF PLAINTIFFS AND DEFENDANT
RIEGER/MEDI-SAVE PHARMACIES, INC.,
MARCH II, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
STIPULATION
It is agreed by and between Plaintiffs and Defendant,
RIEGER-MEDI-SAVE PHARMACIES, INC., that the
following facts are stipulated for the purpose of the
Motions to Dismiss filed by Defendants, February 20,
1976.
I.
RIEGER-MEDI-SAVE PHARMACIES, INC., operates
three (3) retail pharmacies located in Gibson’s Discount
Centers, in Bexar County, Texas.
Il.
RIEGER-MEDI-SAVE PHARMACIES, INC., has not
been licensed by the State of Texas to issue policies of
insurance.
ITI.
RIEGER-MEDI-SAVE PHARMACIES, INC., does not
operate an insurance agency licensed pursuant to
V.A.T.S., Insurance Code, Art. 21.07, et seq., or 21.14,
et seq., in Bexar County, Texas.
90a
Stipulation of Rieger/Medi-Save Pharmacies, Inc.
STIPULATED this 9th day of March, 1976.
/s/ C. R. Shaddox
CHARLES R. SHADDOX
2000 Frost Bank Tower
San Antonio, Texas 78205
Attorney for Defendant,
Rieger-Medi-Save
Pharmacies, Inc.
By: /s/ Joel H. Pullen
JOEL H. PULLEN
1900 National Bank of
Commerce Building
San Antonio, Texas 78205
Attorney for Plaintiffs
9la
STIPULATION OF PLAINTIFFS AND DEFENDANT
THE SOMMERS DRUG STORES COMPANY,
MARCH II, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
STIPULATION
It is agreed by and between Plaintiffs and Defendant,
THE SOMMERS DRUG STORES COMPANY, that the
following facts are stipulated for the purpose of the
Motions to Dismiss filed by Defendants, February 20,
1976.
I.
THE SOMMERS DRUG STORES COMPANY op-
erates twenty-five (25) retail pharmacies in Bexar Coun-
ty, Texas.
II.
THE SOMMERS DRUG STORES COMPANY has
not been licensed by the State of Texas to issue policies
of insurance.
ITI.
THE SOMMERS DRUG STORES COMPANY does
not operate an insurance agency licensed pursuant to
V.A.T.S., Insurance Code, Art. 21.07, et seq., or 21.14, et
seq., in Bexar County, Texas.
92a
Stipulation of The Sommers Drug Stores Co.
STIPULATED this 10th day of March, 1976.
/s/ Richard B. Moore
RICHARD B. MOORE
1800 Frost Bank Tower
San Antonio, Texas 78205
Attorney for Defendant,
The Sommers Drug Stores
Company
By /s/ Joel H. Pullen
JOEL H. PULLEN
1900 National Bank of
Commerce Building
San Antonio, Texas 78205
Attorney for Plaintiffs
93a
STIPULATION OF PLAINTIFFS AND DEFENDANT
WALGREEN TEXAS CO., MARCH Il, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
STIPULATION
It is agreed by and between Plaintiffs and Defendant,
WALGREEN TEXAS CO., that the following facts are
stipulated for the purpose of the Motions to Dismiss filed
by Defendants.
1.
Defendant, WALGREEN TEXAS CO., operates two
(2) retail pharmacies located in San Antonio, Bexar
County, Texas.
2.
Defendant, WALGREEN TEXAS CO., has not been
licensed by the State of Texas to issue policies of insur-
ance.
3.
Defendant, WALGREEN TEXAS CO., does not op-
erate an insurance agency licensed pursuant to V.A.TS.,
Insurance Code, Art. 21.07, et. seq., or 21.14, et. seq., in
San Antonio, Bexar County, Texas.
94a
Stipulation of Walgreen Texas Co.
STIPULATED this 11th day of March, 1976.
/s/ Wm. C. Church, Jr.
/s/
Wm. C. CHURCH, JR.
8700 Tesoro Drive,
Suite #120
San Antonio, Texas 78217
Attorney for Defendant,
Walgreen Texas Co.
Joel H. Pullen
JOEL H. PULLEN
1900 National Bank of
Commerce Building
San Antonio, Texas 78205
Attorney for Plaintiffs
95a
AFFIDAVIT OF BRUCE L. BUSBY IN SUPPORT OF
DEFENDANT RIEGER/MEDI-SAVE PHARMACIES,
INC.’S MOTION TO DISMISS, APRIL 19, 1976
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
AFFIDAVIT IN SUPPORT OF DEFENDANT
RIEGER/MEDI-SAVE PHARMACIES, INC.’s
MOTION TO DISMISS
BRUCE L. BUSBY, herein states and deposes as fol-
lows:
1. I am Bruce L. Busby, an adult resident of East
Baton Rouge Parish, Louisiana, possessed of sound mind
and I have never been convicted of a felony. I am com-
petent to testify about the matters contained herein and
this statement is based on my personal knowledge.
2. I hold the position of treasurer at Rieger/Medi-Save
Pharmacies, Inc. (now Medi-Save Pharmacies, Inc.),
which position I have held for more than six (6) years;
I have also been vice-president for approximately one
year. My responsibilities include supervision of all fi-
nance functions and accounting and control functions.
3. The only contracts known to me between any repre-
sentative of Rieger/Medi-Save Pharmacies, Inc. and any
representative of Group Life and Health Insurance Com-
pany are as follows: Rieger/Medi-Save Pharmacies, Inc.
received copies of Group Life and Health Insurance Com-
pany’s participating drug pharmacy agreement in the
mail. Rieger/Medi-Save Pharmacies, Inc. then informed
Group Life and Health Insurance Company that it wished
to participate in the program and requested further in-
96a
Affidavit of Bruce L. Busby
formaticn concerning the administrative details and
processing claims. Each of the Rieger/Medi-Save Phar-
macies, Inc. stores which were to participate executed a
contract, as did Rieger/Medi-Save Pharmacies, Inc. Since
the execution of the initial contracts, the only further con-
tacts between Rieger/Medi-Save Pharmacies, Inc. and
Group Life and Health Insurance Company have con-
sisted solely of correspondence regarding claims between
the individual stores and Group Life and Health Insur-
ance Co. I do not know of any correspondence directly
between Rieger/Medi-Save Pharmacies, Inc. and Group
Life and Health Insurance Co. since execution of the
initial contracts, other than correspondence attached as
Exhibit A.
4. Rieger/Medi-Save Pharmacies, Inc. has never con-
tacted any Walgreen’s Texas stores or any Sommers
Drug Stores with regard to Group Life and Health In-
surance Company’s participating drug pharmacy agree-
ment, the setting or fixing of the retail price of prescrip-
tion pharmaceuticals, or the foreclosure of any of the
plaintiffs from any portion of the market for prescrip-
tion pharmaceuticals.
5. At no time has Rieger/Medi-Save Pharmacies, Inc.
or any of its directors, officers, employees, or agents taken
any action designed to foreclose any of the plaintiffs in
this cause from any portion of the market for prescrip-
tion pharmaceuticals.
6. Rieger/Medi-Save Pharmacies, Inc., its officers, di-
rectors, employees and agents have never conspired with,
consulted with, or even considered the actions of any of
the defendants in this case in determining the retail
price of prescription pharmaceuticals.
/s/ Bruce L. Busby
BRucE L. BusBy
97a
Affidavit of Bruce L. Busby
STATE OF LOUISIANA
PARISH OF EAST BATON ROUGE
SWORN TO AND SUBSCRIBED BEFORE ME, a
notary public, on this the 15th day of April, 1976.
/s/ William D. Morgan
WILLIAM D. MORGAN,
Notary Public
My Commission expires at
death.
[Certificate of Service Omitted in Printing]
98a
AFFIDAVIT OF JOHN HANNAH, APRIL 19, 1976
IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
[Caption Omitted in Printing]
AFFIDAVIT
JOHN HANNAH, by me being first duly sworn, de-
poses and says:
1. That he is a duly elected, qualified and acting Vice
President of THE SOMMERS DRUG STORES COM-
PANY, (Sommers) a corporation duly organized under
the laws of Maryland, and existing, and authorized to do
business under and by virtue of the laws of the State of
Texas, with its principal place of business in the City of
San Antonio, Bexar County, Texas, and one of the De-
fendants in this cause.
2. That the relationship between Blue Shield and Som-
mers originated with a submission from Blue Shield in
November, 1974, of a proposed form of Participating
Pharmacy Agreement, which was considered by Sommers
without discussion with any other person, firm, or en-
tity, and the Sommers’ decision to accept the Participat-
ing Pharmacy Agreement was made unilaterally by Som-
mers.
3. That at no time in making this decision whether to
accept the offered Blue Shield contract was Sommers
contacted by any representative of any other drug store
defendant in this case.
4. That Sommers has never combined and conspired
with any of the other Defendants in this cause, or with
99a
Affidavit of John Hannah
any other person, firm or entity, to fix the retail sales
price for pharmaceuticals or any othe> goods.
/s/ John Hannah
JOHN HANNAH
SWORN TO and SUBSCRIBED before me this 16th
day of April, 1976.
/s/ Katharine Nellis
KATHARINE NELLIS
Notary Public in and for
Bexar County, Texas
100a
OPINION OF UNITED STATES DISTRICT COURT FOR
THE WESTERN DISTRICT OF TEXAS, MAY 18, 1976
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
Civil Action No. SA-75-CA-131
RoyaL DruG CoMPANY d/b/a Royal Pharmacy of Castle
Hills and Disco Prescription Pharmacy, et al.
Vv.
Group LIFE AND HEALTH INSURANCE COMPANY a/k/a
Blue Shield and/or Blue Cross-Blue Shield
of Texas, et al.
June 23, 1976
Joel H. Pullen, Tinsman & Houser, Inc., San Antonio,
Tex., for plaintiffs.
Keith E. Kaiser, Cox, Smith, Smith, Hale & Guenther,
Inc., San Antonio, Tex., for Group Life and Health Ins.
Co.
Charles R. Shaddox, Groce, Locke & Hebdon, San An-
tonio, Tex., for Rieger/Medi-Save Pharmacies, Inc.
William C. Church, Jr.,. Kampmann, Church & Burns,
San Antonio, Tex., for Walgreen Texas Co.
Richard B. Moore, Gresham, Davis, Gregory, Worthy &
Moore, San Antonio, Tex., for The Sommers Drug Stores
Co.
MEMORANDUM OPINION
JOHN H. Woon, JR., District Judge.
I.
Plaintiffs in this private civil antitrust action are eigh-
teen independent pharmacy owners doing business in San
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Opinion of District Court
Antonio, Texas. Defendant Group Life and Health Insur-
ance Company, also known as Blue Shield of Texas (“Blue
Shield”), is an insurance company duly authorized by the
Texas State Board of Insurance to transact the business
of life, health and accident insurance within the State of
Texas. The remaining three Defendants, Walgreen Texas
Co. (“Walgreen”), The Sommers Drug Stores Company
(“Sommers”), and Rieger/Medi-Save Pharmacies, Inc.
(“Rieger”) operate pharmacies in San Antonio, Texas.
Plaintiffs’ suit is an attack upon Blue Shield’s plan of
operation under certain prescription drug insurance poli-
cies (the “Policy”) which it issues. It is alleged that De-
fendants have violated Section 1 of the Sherman Act, 15
U.S.C. § 1, by agreeing, combining and conspiring to fix
the retail price of drugs and pharmaceuticals, and that
the activities of Defendants have caused Blue Shield’s in-
sureds not to deal with certain of the Plaintiffs, thereby
constituting a group boycott. Plaintiffs further allege
that Defendants have violated the Texas antitrust laws,
Tex. Bus. & Comm. Code Ann. § 15.01, et seqg., and that
this Court should exercise pendent jurisdiction over those
claims.
Each of the Defendants has separately moved to dismiss
the Complaint for lack of jurisdiction over the subject
matter and for failure to state a claim upon which relief
can be granted. Defendants’ motions are based upon the
provisions of the McCarran-Ferguson Act, 15 U.S.C.
§ 1011, et seg. The motions also urge that in the absence
of any valid cause of action based upon federal law, this
Court should dismiss Plaintiffs’ pendent claims.
Extensive discovery has been completed on the issue
presently before the Court. The record includes numerous
depositions, affidavits and documents, and all parties have
had full opportunity to present all materials pertinent to
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Opinion of District Court
Defendants’ motions. The Court has carefully reviewed
and considered all of those materials, together with the
briefs submitted by the parties and the oral argument of
counsel.
The facts relevant to Defendants’ motions are undis-
puted. The Policies provide prescription drug insurance
coverage. The benefits provided under the Folicies entitle
Blue Shield’s insureds to receive prescription drugs from
any pharmacy (a “Participating Pharmacy”) that has
entered into a written contract (the “Pharmacy Agree-
ment”) with Blue Shield. The Policies further provide
that the insured is required to pay no more for each pre-
scription filled by a Participating Pharmacy than the
amount of the drug deductible set forth in the Policy. The
drug deductible is $2.00. Pursuant to the terms of the
Pharmacy Agreement, a Participating Pharmacy agrees
to dispense drugs to Blue Shield’s insureds and to accept
$2.00 as full payment from the insured for each dispensed
drug. Further, Blue Shield agrees to reimburse the Par-
ticipating Pharmacy for the acquisition cost of each drug
dispensed to its insureds. Under the terms of the Policy,
if the insured has his prescriptions filled by a pharmacy
other than a Participating Pharmacy, he must pay the
full price charged by the pharmacy and then apply to
Blue Shield for reimbursement. Blue Shield will then
reimburse the insured for 75% of the usual and custom-
ary charge for the drug, less the $2.00 deductible.
Walgreen, Sommers and Rieger each own Participating
Pharmacies. Blue Shield is not engaged in selling or dis-
pensing prescription drugs as a manufacturer, wholesaler
or retailer, but is engaged solely in transacting the busi-
ness of life, health and accident insurance.
In 1969, Blue Shield sought authority from the Texas
State Board of Insurance to begin issuing prescription
drug insurance coverage in the form described above. Ar-
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Opinion of District Court
ticle 3.42 of the Texas Insurance Code provides that all
new policy forms proposed to be issued by life, health and
accident insurance companies must be filed with the State
Board of Insurance and approved prior to issuance or use
by the company. In March, 1969, Blue Shield filed with
the State Board of Insurance a proposed form of the
Policy and the Pharmacy Agreement for approval prior
to their issuance or use. The terms of the policy provided
that Blue Shield’s insureds were entitled to receive pre-
scription drugs from Participating Pharmacies (called
“participating providers” in the Policy). The Policy de-
fined the term “participating provider” as a pharmacy
who “has entered into a written contract [with Blue
Shield] for the rendition of covered drugs for which bene-
fits are provided by this [policy].” The Pharmacy Agree-
ment was in the form described above.
In June, 1969, the Commissioner of Insurance issued a
written order disapproving the issuance or use of the
Policy. The Commissioner also notified the Texas Attor-
ney General in writing of the action taken by the State
Board and provided the Attorney General with copies of
all pertinent documents. As a result of the disapproval
order, Blue Shield did not issue or use the Policy or the
Pharmacy Agreement.
Subsequent to the issuance of the disapproval order, the
Policy and the Pharmacy Agreement remained under con-
sideration by the State Board of Insurance. In September,
1969, pursuant to Article 3.42(e) of the Texas Insurance
Code,* the Commissioner of Insurance issued another writ-
*“The Board of Insurance Commissioners may, by written order,
exempt from the requirements of this Article for so long as it
deems proper, any insurance document or form specified in such
order to which in its opinion this Article may not practicably be
applied, or the filing and approval of which are, in its opinion,
not desirable or necessary for the protection of the public.” Tex.
Ins. Code Ann. art. 3.42(e).
_— —— a
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Opinion of District Court
ten order exempting the Policy from the approval require-
ments of Tex.Ins.Code Ann. art. 3.42.
The exemption order issued by the Commissioner of
Insurance provided, in pertinent part:
“Pursuant to the authority granted by Article 3.42,
Paragraph (e) of the Texas Insurance Code, the Com-
missioner of Insurance hereby exempts from the re-
quirements of said Article Policy Form CC-OHDS-2
submitted by Group Life and Health Insurance Com-
pany, Dallas, Texas; and this exemption shall remain
effective pending further orders from the Commis-
sioner of Insurance.
“The exempt forms are described as drug service
contracts, which confer upon the policy holder the
right to obtain certain prescribed drugs at a cost fixed
in the contract, the insurer having entered into par-
ticipating agreements with dispensing pharmacies to
supply the prescribed drugs to its policy holders.”
It is clear that the exemption order exempted the Policy
from nothing more than the requirement of approval by
the State Board of Insurance. The former Deputy Com-
missioner of Insurance, who reviewed the Policy and the
Pharmacy Agreement and then prepared the exemption
order for the Commissioner’s signature, testified on oral
deposition that exempted policies are subject to all statu-
tory requirements of the Texas Insurance Code and all
regulatory requirements of the State Board of Insurance.
He further testified that exempted policies and approved
policies are subject to the same continuing regulation, con-
trol and supervision by the State Board. Other officials of
the State Board of Insurance testified on oral deposition
that exempted policies and approved policies are treated
alike within the regulatory framework of the State Board
of Insurance.
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Opinion of District Court
Further, the exemption order clearly shows that the
Commissioner of Insurance considered the Pharmacy
Agreement together with the Policy prior to issuing the
exemption order. The exemption order authorized Blue
Shield to issue and use the Policy in the State of Texas in
the same manner as if it had been approved. Subsequent
to the issuance of the exemption order, the Commissioner
again advised the Texas Attorney General in writing of
his action and forwarded a copy of the exemption order
to the Attorney General. The exemption order has not
been modified or rescinded.
Thereafter, Blue Shield made a statewide mailing to
licensed pharmacies offering them the option of entering
into the Pharmacy Agreement. Subsequent to the issu-
ance of the exemption order, Blue Shield has issued the
policy to various groups and entered into the Pharmacy
Agreement with pharmacies throughout the State of
Texas.
In 1974, Blue Shield entered into a health care agree-
ment to provide insurance benefits to groups in Bexar
County, Texas. Included in the proposed coverage was
prescription drug insurance. In September, 1974, pursu-
ant to Tex.Ins.Code Ann. art. 3.42, a Policy form vir-
tually identical to the one submitted in 1969 was filed
with the State Board of Insurance for approval prior to
issuance or use in connection with the Bexar County pro-
gram. Thereafter, in October, 1974, the Commissioner of
Insurance issued a written order approving the Policy for
issuance. Since receipt of the approval order, Blue Shield
has issued the Policy to various groups in Bexar County,
Texas. Blue Shield offered to virtually all licensed phar-
macies in San Antonio, Texas, the opportunity of enter-
ing into a Pharmacy Agreement. Nine of the Plaintiffs
accepted Blue Shield’s offer and now operate Participating
Pharmacies.
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Opinion of District Court
Plaintiffs agree that Blue Shield is engaged in the busi-
ness of issuing prescription drug insurance coverage; how-
ever, they contend that the McCarran-Ferguson exemp-
tion is inapplicable in that Blue Shield has exceeded the
business of insurance by entering into the Pharmacy
Agreements, and that such agreements have nothing to do
with the business of insurance. Plaintiffs further contend
that regardless of whether or not Blue Shield is engaged
in the business of insurance, Walgreen’s, Sommers’ and
Rieger’s participation in the Pharmacy Agreement is not
the business of insurance.
For the reasons set forth herein, this Court does not
agree with Plaintiffs’ contentions. It is clear that the
terms of the Policies which were reviewed by the State
Board of Insurance and which it authorized Blue Shield
to issue, expressly contemplate the execution of Pharmacy
Agreements between Blue Shield and Participating Phar-
macies. Moreover, the Pharmacy Agreement is so integ-
rally related to the Policies that it would be impossible
for Blue Shield to fulfill its contractual obligations to its
insureds in the absence of such agreements.
The McCarran-Ferguson Act provides that “. . . the
Sherman Act, ... the Clayton Act, and the. . . Federal
Trade Commission Act .. . shall be applicable to the
business of insurance to the extent that such business is
not regulated by State law.” 15 U.S.C. § 1012(b). To the
extent a state regulates such business by state law, the
Sherman Act and the other federal antitrust laws are not
applicable. The exemption is effective provided that two
criteria are met: (1) that the “business of insurance” is
involved, and (2) that there is state regulation of the
business of insurance. The McCarran-Ferguson Act does
not apply to acts of “boycott, coercion or intimidation.”
15 U.S.C. § 1013 (b).
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Opinion of District Court
II.
THE BUSINESS OF INSURANCE
In SEC v. National Securities, Inc., 393 U.S. 453, 89
S.Ct. 564, 21 L.Ed.2d 668 (1969), the Supreme Court
held that the “business of insurance” includes the rela-
tionship between the insurer and insured; the type of
policy which could be issued, its reliability, interpretation
and enforcement; and other activities of insurance com-
panies which closely relate to their status as reliable in-
surers. Id. at 460, 89 S.Ct. 564. The Pharmacy Agree-
ment directly pertains to the relationship between Blue
Shield and its insureds. Moreover, the Pharmacy Agree-
ment is a direct contractual relationship between the in-
surer and a provider of benefits, the result of which is
simply the performance of the insurer’s obligations owed
to its insureds under the insurance contract and nothing
more. A similar direct contractual relationship was exam-
ined in Travelers Ins. Co. v. Blue Cross of West. Penn-
sylvania, 481 F.2d 80 (8rd Cir. 1973) cert. denied, 414
U.S. 1093, 94 S.Ct. 724, 38 L.Ed.2d 550 (1973). In that
case, the Third Circuit held that such contractual arrange-
ments constituted the business of insurance, and thus, the
relationship fell within the McCarran-Ferguson exemp-
tion. Direct contractual relationships between the in-
surer and a provider of benefits, as in this case, plainly
relate to the “relationship between insurer and insured.”
The Pharmacy Agreement is based upon the provisions
contained in the Policies relating to coverage and bene-
fits, and directly concerns matters of interpretation and
enforcement of the Policies. Clearly, the method adopted
by Blue Shield of providing benefits under the Policies is
closely connected to the relationship between Blue Shield
and its insureds. The activities challenged by Plaintiffs
in this action, including Blue Shield’s contractual arrange-
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Opinion of District Court
ments with Participating Pharmacies, constitute the busi-
ness of insurance within the meaning of SEC v. National
Securities, Inc., supra.
A program substantially similar in concept and opera-
tion to the one at issue was previcusly determined by the
Texas Attorney General to constitute the business of in-
surance in the State of Texas. In response to a request
for an opinion from the Texas Commissioner of Insurance,
the Attorney General analyzed a prescription drug pro-
gram which contemplated the filling of subscriber’s pre-
scriptions by participating pharmacies. The plan of oper-
ation was based upon a contract between the company
and participating pharmacies, whereby the pharmacy
agreed to charge the subscriber no more than a certain
percentage of the retail price of the prescription, and the
company agreed to reimburse the pharmacy for the re-
mainder. After thoroughly discussing the program the
Attorney General concluded that “. . . the plan of opera-
tion intended to be followed by Prepaid Prescription Plan,
Ine. would involve the doing of an insurance business in
this state”. Texas Attorney General’s Opinion No. WW-
1475 (Dec. 11, 1962).
This Court concludes that Blue Shield’s plan of opera-
tion under the prescription drug insurance Policies, in-
cluding the Pharmacy Agreements, constitutes the “busi-
ness of insurance” within the meaning of the McCarran-
Ferguson Act.
ITT.
STATE REGULATION
A. General Regulation.
The McCarran-Ferguson Act renders the federal anti-
trust laws inapplicable when state legislation generally
proscribes, permits, or otherwise regulates the conduct in
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Opinion of District Court
question and authorizes enforcement through a scheme of
administrative supervision. Crawford v. American Title
Ins. Co., 518 F.2d 217 (5th Cir. 1975) ; FTC v. National
Cas. Co., 357 U.S. 560, 78 S.Ct. 1260, 2 L.Ed.2d 1540
(1958) ; Commander Leasing Co. v. Transamerica Title
Ins. Co., 477 F.2d 77 (10th Cir. 1973).
The State of Texas has actively regulated the activities
challenged in Plaintiffs’ Complaint since the inception of
Blue Shield’s prescription drug insurance program. The
requirement of Article 3.42 of the Texas Insurance Code
that all policy forms must be filed for review and ap-
proval by the State Board of Insurance prior to issuance
or use by the insurer was fully satisfied. Active regula-
tion of the prescription drug insurance program is furth-
er shown by the written orders issued by the Commis-
sioner of Insurance and by the fact that the Texas At-
torney General was also kept fully advised of Blue
Shield’s prescription drug insurance program.
B. Regulation Of Unfair Methods Of Competition In
The Business Of Insurance.
Not only is there a scheme of general state regulation
of the business of insurance involved in this action, but
the Texas Insurance Code contains specific provisions ap-
plicable to the conduct alleged in Plaintiffs’ Complaint.
In 1951, the Texas Legislature enacted Tex.Ins.Code Ann.
art. 21.21, which expressly regulates unfair competition
and unfair practices in the business of insurance. The
declaration of purpose of the Act states:
“The purpose of this Act is to regulate trade prac-
tices in the business of insurance in accordance with
the intent of Congress as expressed in the Act of
Congress of March 9, 1945 (Public Law 15, 79th
Congress [the McCarran-Ferguson Act], by defining,
ee a ae ny eae
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Opinion of District Court
or providing for the determination of, all such prac-
tices in this state which constitute unfair methods of
competition or unfair or deceptive acts or practices
and by prohibiting the trade practices so defined or
determined.” Tex.Ins.Code Ann. art. 21.21 § 1.
Article 21.21 specifically prohibits “any trade practice
which is defined in [the] Act as, or determined pursuant
to [the] Act to be, an unfair method of competition or un-
fair or deceptive act or practice in the business of insur-
ance.” Tex.Ins.Code Ann. art. 21.21 §3. (Emphasis
added) That statute grants specific administrative and
supervisory powers to the State Board of Insurance, in-
cluding the power to issue cease and desist orders. Pen-
alties are provided for violation of such orders. With-
out doubt, the phrase “any” unfair method of competition
encompasses the conduct challenged in this action. Furth-
ermore, the oral deposition testimony establishes that
the State Board of Insurance reviews all policy forms
submitted to it with a view toward insuring compliance
with Article 21.21, and that approved, as well as exempt-
ed policies, are subject to its provisions. Article 21.21
was specifically intended by its drafters to respond to
the invitation of the McCarran-Ferguson Act and to
withdraw from federal control the very conduct charged
by Plaintiffs in this action, and to place such conduct
under state control. Article 21.21 constitutes sufficient
state regulation to activate the exemption provided in the
McCarran-Ferguson Act. Crawford v. American Title
Ins. Co., 518 F.2d 217 (5th Cir. 1975) ; Dexter v. Equit-
able Life Assurance Soc’y of the U. S., 527 F.2d 233
(2nd Cir. 1975).
C. The Texas Antitrust Laws.
In addition to the comprehensive regulation of Blue
Shield’s activities provided by the Texas Insurance Code,
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Opinion of District Court
anticompetitive practices in the business of insurance are
also regulated by the Texas antitrust laws. The Texas
antitrust laws declare categorically that “[e]very monop-
oly, trust, and conspiracy in restraint of trade. . . ‘s il-
legal and prohibited.” Tex.Bus. & Comm. Code Ann.
§ 15.04(a). Further, the Texas antitrust laws specific-
ally prohibit conspiracies of the type alleged in Plaintiff’s
Complaint. Tex.Bus. & Comm.Code Ann. § 15.02. It
should be noted that Plaintiffs have included in their
Complaint a pendent claim under the Texas antitrust
laws based upon the same facts that Plaintiffs allege
give rise to a violation of the federal antitrust laws.
The existence of a state antitrust law proscribing the
conduct complained of constitutes “regulation” within the
meaning of the McCarran-Ferguson Act sufficient to dis-
place the federal antitrust laws. Meicler v. Aetna Cas.
and Sur. Co., 506 F.2d 732 (5th Cir. 1975); Sanborn v.
Palm, 336 F.Supp. 222 (S.D.Tex.1971); Transnational
Ins. Co. Vv. Rosenlund, 261 F.Supp. 12 (D.Ore.1966) ;
California League of Ind. Ins. Producers v. Aetna Cas.
& Sur. Co., 175 F.Supp. 857 (N.D.Cal.1959).
Therefore, in addition to active regulation under the
Texas Insurance Code, the existence of state antitrust
statutes forbidding the conduct alleged by Plaintiffs con-
stitutes state regulation of the business of insurance suf-
ficient to bar application of the federal antitrust laws.
IV.
THE BoyYcoTT EXCEPTION TO THE MCCARRAN-FERGUSON
Act Is INAPPLICABLE
As in Meicler v. Aetna Cas. and Sur. Co., supra, Plain-
tiffs attempt to avoid the effect of the McCarran-Fergu-
son exemption by relying on the Section 1013(b) boycott
exception. Plaintiffs’ reliance on this exception is mis-
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Opinion of District Court
placed. The courts have narrowly construed Section 1013
(b), which provides:
“Nothing contained in this chapter shall render said
Sherman Act inapplicable to any agreement to boy-
cott, coerce, or intimidaie, or act of boycott, coercion
or intimidation.” 15 U.S.C. § 1013(b).
The sole purpose of this exception is to protect against
the issuance of black-lists naming insurance companies or
agents, rather than the conduct alleged by Plaintiffs in
this action.
In Meicler, the Court stated:
“As the district court noted, the legislative history
indicates that the boycott exception was designed to
reach insurance company ‘black-lists’ rather than re-
fusal to sell to a particular segment of the public at
other than a specified price. (Citations omitted) Ap-
pellants’ broad construction of Se
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