Opposition Brief — Glanton v. Advance PCS Health Health, LP (No. 06-1608)

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a® No. 06-1608 AUG 6 - 2007

IN THE

- Supreme Court of the Anited States

TOMMIE GLANTON, ON BEHALF OF THE ALCOA PRESCRIPTION

DRUG PLAN, AND ALL OTHER SIMILARLY-SITUATED PLANS,

AND TARA MACKNER, ON BEHALF OF THE KMART

COMPREHENSIVE HEALTH PLAN,

Petitioners,

Vv.

ADVANCEPCS HEALTH, L.P.

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF RESPONDENT

ADVANCEPCS HEALTH, L.P. IN OPPOSITION

PAUL J. ONDRASIK, JR. *

MARTIN D. SCHNEIDERMAN

ERIC G. SERRON

STEPTOE & JOHNSON LLP

1330 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 429-8088

* Counsel of Record Attorneys for Respondent

AdvancePCS Health, L.P.

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 - WASHINGTON. D. C. 20002

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QUESTION PRESENTED

Whether a participant in a plan covered by the Employee

Retirement Income Security Act (“ERISA”) has standing

under Article II] to litigate claims for breach of fiduciary duty

under ERISA’s civil enforcement scheme where he has not

suffered a judicially cognizable injury to himself, much less,

an injury likely to be redressed by a favorable outcome in the

case.

(i)

i]

RULE 29.6 STATEMENT

AdvancePCS Health, L.P., now known as CaremarkPCS

Health, L.P. (“Caremark”), is a wholly owned indirect sub-

sidiary of CaremarkPCS, which is a wholly owned subsidiary

of Caremark Rx, LLC (“Caremark Rx”). Caremark Rx is a

wholly owned subsidiary of CVS Caremark Corporation

(“CVS Caremark”), which does not have any parent corpora-

tions. No publicly held company owns 10 percent or more of

CVS Caremark’s stock.

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TABLE OF CONTENTS

Page

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TRA PAas Be RIA Be MME Use sciivcanincccsecosasonscasssscnssvecaonse il

DIR PE FAN BIS Gaines casacccdsecssenwasenanievaisecovers IV

OPINIONS BELOW AND JURISDICTION................. l

COUNTER STATEMENT OF THE CASE ................. 2

REASONS FOR DENYING THE PETITION .............

1. Petitioners Have Mischaracterized the Deci-

sion Below and Overstated Its Implications...... 9

II. The Decision Below Is Consistent With, and

Does Not Conflict With the Decisions of Other

Ie PUN i. seein cee ineaspersievn scenes 13

Ill. The Decision Below Does Not Conflict With

Any Prior Decision of This Court...................... 15

ec Ra INI I sos ciesoussanasnseteatcscsdaincccesabaeunasesencsins se 23

(iii)

IV

TABLE OF AUTHORITIES

CASES Page

Alfred L. Snapp & Son, Inc. v. Puerto Rico ex rel.

Barez, 458 U.S. 592 (1982)

Allen v. Wright, 468 U.S. 737 (1984)

ASARCO, Inc. v. Kadish, 490 U.S. 605

(1989) 7, 10, 16, 18

Bennett v. Spear, 520 U.S. 154 (1997)

Bittinger v. Tecumseh Prods. Co., 123 F.3d 877

(6th Cir. 1997)

Black & Decker Disability Plan v. Nord, 538

U.S. 822 (2003)

Blatchford v. Native Village, 501 U.S. 775

(1991)

Bryant v. Yellen, 447 U.S. 352 (1980)

Caranci v. Blue Cross & Blue Shield, 194 F.R.D.

27 (D.R.I. 2000)

Central States Southeast & Southwest Areas

Health & Welfare Fund v. Merck-Medco

Managed Care, 433 F.3d 181 (2d Cir. 2005)...

Chicago District Council of Carpenters Welfare

Fund v. Caremark, Inc., 474 F.3d 463 (7th Cir.

Clinton v. City of New York, 524 U.S. 417

(1998)

Curtiss-Wright Corp. v. Schoonejongen, 514 U.S.

73 (1995)

Doe v. Blue Cross Blue Shield, 173 F. Supp. 2d

398 (D. Md. 2001)

Ehimann v. Kaiser Found. Health Plan, 20 F.

Supp. 2d 1008 (N.D. Tex. 1998), aff'd, 198

F.3d 552 (Sth Cir. 2000)

Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

101 (1989)

Gladstone, Realtors v. Bellwood, 441 U.S. 91

(1979)

=

TABLE OF AUTHORITIES—Continued

Page

Graden v. Conexant Sys., Inc., No. 06-2337,

2007 U.S. App. LEXIS 18179 (3d Cir. July 31,

MME Ba sears cinis goiin lack unsce ce-asdlsantiasasieunniosidiooncionse 1]

_ Harley v. 3M, 284 F.3d 901 (8th Cir. 2002).......... 14, 15

Herman v. South Carolina Nat’l Bank, 140 F.3d

Re Fils BF ohn is coivercebsscpntcgasiecnscsice 22

Horvath v. Keystone Health Plan East, Inc., 333

FM (OW GE SSD sanavhripcssvsesensissccstestaienens 14,15

Inter-Modal Rail Employees Ass’n v. Atchison,

Topeka & Santa Fe Ry., 520 U.S. 510 (1997)... 3

Lockheed Corp. v. Spink, 517 U.S. 882 (1996)..... 2

Lujan v. Defenders of Wildlife, 504 U.S. 555

NN Sinisa ata cas tins canich tacanstcauere Soomieic eevee 7, 10, 16, 22

Massachusetts Mut. Life Ins. Co. v. Russell, 473

i scab haul oinkakelins 4

Massachusetts v. EPA, 127 S. Ct. 1438 (2007)..... 18

Pharmaceutical Care Mgmt. Ass'n v. Rowe, 429

F.3d 294 (Ist Cir. 2005), cert. denied 126 S.

ge aes escanspaninas roared 4

Raines v. Byrd, 521 U.S. 811 (1997)... eeeeeeeee 9,10

Richards v. Jefferson County, 517 U.S. 793

ie BERS SORE RE CAEENCI Che Trea eee RE ale ee GE 20

Simon v. Eastern Kentucky Welfare Rights Org.,

Me ID as sokccvi sheaths edwcsticcniaenacrincsessons 17, 18

Singleton v. Wulff, 428 U.S. 106 (1976)...........00... 20

United Food & Commercial Workers Union

Local 751 v. Brown Group, Inc., 517 U.S. 544

RI ce; bead pens euch chevalcuagkorsslaasisceekievesalindapisaie 20

Varity Corp. v. Howe, 516 U.S. 489 (1996).......... 4,21

Vermont Agency of Natural Resources v. United

States ex rel. Stevens, 529 U.S. 765 (2000).....7, 13, 22

Warth v. Seldin, 422 U.S. 490 (1975)... 9,17, 18

vi

TABLE OF AUTHORITIES—Continued

CONSTITUTIONS Page

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STATUTES

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a a EIN iii adicca ensanenccacdceueasiicts 3

RAT IEE D pais caccin cansdissisucassivaastbnnstienies 16

BA aE TTD vinci ncinavsceveatuvninsoneyesvensgnas cons 12

BP ri. a SIRE cvenitohsnesinsvatnsestsinctiesb stabs 12

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BF SP ES IRUO OD Seissiintiieyse scons ccmiaion tp evabanens 12

REGULATIONS

29 C.F.R. § 2509.75-8, Q-FR-14 & Q-FR-17

I a sa dsc dcasasta\ cach ecawnchie akon taancnbecntnieecenh 12

29 CER. § 2509.9G-16e) C2003) oosninscecscesegeccssvcenes 12

RULES

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WN I sees ak Souidhskatandatiecisebcgudvabucken 8

I cl ach oar cde nxinapnvesaiininsccttiienedcnsdiowees 15

BOOKS AND ARTICLES

A. Scott & W. Fratcher, Law of Trusts § 214 (4th

WA eR Geiic ican anpes can deaiecbealtayddcsbantecabecectapacels 21

Restatement (Second) of Judgments § 41(1)

TABLE OF AUTHORITIES—Continued

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Restatement (Second) of Trusts § 214 cmt. b

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IN THE

Supreme Court of the Anited States

No. 06-1608

TOMMIE GLANTON, ON BEHALF OF THE ALCOA PRESCRIPTION

DRUG PLAN, AND ALL OTHER SIMILARLY-SITUATED

PLANS, AND TARA MACKNER, ON BEHALF OF THE KMART

COMPREHENSIVE HEALTH PLAN,

Petitioners,

V.

ADVANCEPCS HEALTH, L.P.

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF RESPONDENT

ADVANCEPCS HEALTH, L.P. IN OPPOSITION

—_— eee

OPINIONS BELOW AND JURISDICTION

The opinions below and the basis for this Court’s jurisdic-

tion are set forth in the petition. Pet. at 1. However, 28

U.S.C. § 2403(a) (2000) is inapplicable because the decision

below does not draw into question the constitutionality of an

Act of Congress. Service of the petition upon the United

States Solicitor General was therefore unnecessary.

2

COUNTER STATEMENT OF THE CASE

1. Respondent AdvancePCS is a pharmaceutical benefits

management company (“PBM”). PBMs administer prescrip-

tion drug benefit programs for their clients. In addition to

basic claims processing, they, among other things, seek to

reduce their customers’ drug costs by pooling claims and

negotiating volume rebates or discounts with pharmaceutical

companies. Pet., App. A at 2a. Their clients are nof consum-

ers but rather are insurance companies, Health Maintenance

Organizations, employer plan sponsors, and, in some cases,

employee benefit plans themselves.

In this case, AdvancePCS contracted with two employers,

Kmart and ALCOA, to provide pharmacy benefits manage-

ment services. Both sponsor employee welfare benefit plans

that provide medical and other benefits to eligible employees.

Petitioner Tara Mackner ceased to be a participant in the

Kmart health benefit plan shortly after this suit was filed.

Petitioner Tommie Glanton was a participant in the ALCOA

Prescription Drug Plan at the time of the decisions below.

Both plans are subject to ERISA, and, as permitted by

ERISA, are funded from the employer’s general assets rather

than a separate trust fund.

2. ERISA governs the administration of pension and

welfare benefit plans established by employers for their

employees. 29 U.S.C. § 1001(a) (2000). “Nothing in ERISA

requires employers to establish employee benefits plans. Nor

does ERISA mandate what kind of benefits employers must

provide if they choose to have such a plan.” Lockheed Corp.

v. Spink, 517 U.S. 882, 887 (1996); see also Black & Decker

Disability Plan v. Nord, 538 U.S. 822, 833 (2003) (ERISA

permits the voluntary establishment of plans on whatever

terms are chosen by plan sponsors).

This freedom is particularly expansive in the case of em-

ployee welfare benefit plans such as those involved in this

3

case. ERISA defines an “employee welfare benefit plan” as

“any plan, fund, or program . . . established or maintained by

an employer . . . for the purpose of providing for its

participants or their beneficiaries . . . medical, surgical, or

hospital care or benefits... .” 29 U.S.C. § 1002(1) (2000).

While ERISA requires welfare benefit plans to comply with

federal standards governing reporting, disclosure and fidu-

ciary responsibilities, 29 U.S.C. §§ 1021-1030, 1101-1114

(2000), it does not prescribe, or otherwise regulate, sub-

stantive plan terms.' Jnter-Modal Rail Employees Ass'n v.

Atchison, Topeka & Santa Fe Ry., 520 U.S. 510, 514 (1997).

Employers thus have “large leeway to design . . . welfare

plans as they see fit.” Black & Decker Disability Plan, 538

U.S. at 833. As a result, they have discretion to determine

those who will be eligible to participate in their plans, the

kinds of medical services that will be covered, and the amounts

that employees must contribute to the costs of their health

care through payroll contributions, co-payments and deducti-

bles.

A

3. The civil enforcement provisions of ERISA are set

forth in Section 502, 29 U.S.C. § 1132 (2000). Subsection (a)

of Section 502 (entitled “Persons empowered to bring a civil

action”) identifies nine causes of action that may be brought

by various specified persons. In this case, petitioners filed

their actions under Sections 502(a)(2) and (a)(3).

Section 502(a)(2) authorizes an action by the Secretary, or

by a plan participant, beneficiary or fiduciary for appropriate

relief under Section 409 of the Act. 29 U.S.C. § 1132(a)(2).

Section 409 (entitled “Liability for breach of fiduciary duty”)

in turn provides relief to an employee benefit plan itself for

fiduciary breaches that occur in the management of plan

' Indeed, ERISA expressly exempts such plans from its vesting, par-

ticipation and funding provisions. See Curtiss-Wright Corp. v. Schoone-

jongen, 514 U.S. 73, 78 (1995)

4

assets. 29 U.S.C. § 1109(a). As this Court has made clear,

Section 502(a)(2) authorizes only “plan-related” relief and

does not authorize relief to an individual beneficiary.

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134,

140-42 (1985).

Section 502(a)(3) is a “catchall” relief provision that “act[s]

as a safety net” for “injured” plan participants. Varity Corp.

v. Howe, 516 U.S. 489, 512-13 (1996). Section 502(a)(3)

authorizes a suit by “a participant, beneficiary, or fiduciary”

to obtain “appropriate equitable relief” to redress “any act or

practice which violates any provision of this subchapter.” 29

U.S.C. § 1132(a)(3). The referenced “subchapter” is Sub-

chapter | of Chapter 18 of Title 29, which includes ERISA’s

fiduciary responsibility provisions, 29 U.S.C. §§ 1101-1112.

When a breach of that duty causes distinct harm to individual

participants or beneficiaries, the breach is “appropriate[ly]”

subject, under Section 502(a)(3), to suit by the injured indi-

viduals, but only for equitable relief. See Varity Corp.,-516

U.S. at 515.

4. Petitioners filed separate actions in federal district court

under Sections 502(a)(2) and (a)(3). Both sued “on behalf

of” their respective plans. The district court consolidated the

two cases. Pet., App. B at 10a-1 1a.

Petitioners alleged that respondent AdvancePCS is a fidu-

ciary under ERISA.’ Pet., App. A at 3a; App.’B at 10a.

According to the complaints, AdvancePCS allegedly engaged

in hidden profit-making transactions falling into two general

> The Seventh Circuit ruled to the contrary in Chicago District Council

of Carpenters Welfare Fund v. Caremark, Inc., 474 F.3d 463, 476-77 (7th

Cir. 2007), holding that AdvancePCS’s successor did not act as an ERISA

fiduciary in providing PBM services to an ERISA-covered health benefit

plan. See also Pharmaceutical Care Mgmt. Ass'n v. Rowe, 429 F.3d 294,

301 (ist Cir. 2005) (PBMs are not ERISA fiduciaries because they lack

discretionary authority or control over plan administration), cert. denied

126 S. Ct. 2360 (2006).

5

categories at the expense of the benefit programs it served:

(1) receiving rebates and other compensation from drug

manufacturers that AdvancePCS, to a large extent, keeps

without disclosing to the plans; and (2) pocketing “‘secret[] . . .

spread[s]” between actual drug costs and the prices charged

to plans and their members, in both retail and mail-order

operations. Pet., App. A at 2a; App. B at 10a. Maintaining

that these practices increased the cost of prescription drugs

for the benefit programs involved, petitioners sought recovery

of losses, disgorgement of profits, injunctive and other equit-

able relief.

Significantly, petitioners did not allege that they were de-

nied benefits or that they received inferior drugs. Pet., App.

A at 4a. Nor were they joined as plaintiffs by the “financial

victims” of AdvancePCS’s alleged wrongdoing who have a

direct and immediate interest in the outcome of this case—the

employer plan sponsors who financed the employee benefit

programs involved and bore the expense of the alleged

increased benefit costs. Rather, petitioners alleged that they

had standing under ERISA to sue “on behalf of” the plans

“irrespective” of whether they themselves “suffered a loss

or injury.” They later alleged in an amended complaint that,

if their suit was successful, the plans’ drug costs would

decrease, and participant contributions or co-payments might

be reduced. Pet., App. A at 4a.

AdvancePCS moved to dismiss the complaints pursuant

to Fed. R. Civ. P. 12(b)(1) for lack of Article III standing.

AdvancePCS argued that the complaints relied on an alleged

injury to the plans rather than to petitioners individually.

Moreover, petitioners had no assurance that they would bene-

fit personally from any relief awarded in the lawsuit because

the plan sponsor had no obligation to reduce petitioners’ con-

tributions or co-payments as a result of any recovery by

the plan. Instead, the plan sponsor could simply stop using

6

its general assets to pay benefits until any recovery was

exhausted.

At oral argument on the motion to dismiss, petitioners

effectively conceded that their claims of personal injury were

sheer speculation. Specifically, petitioners’ counsel admitted

that they did not know whether ALCOA or Kmart, who were

not parties to this litigation, would reduce employee contribu-

lions or co-payments if the requested relief were awarded:

“Your Honor, we don’t know what the fiduciaries are going

to do with the money.” Supplemental Excerpts of Record

(“SER”) 56.

The district court dismissed the complaints with prejudice

for failure to establish Article III standing. The court rejected

petitioners’ argument that Congress can create Article Ill

standing simply by granting a procedural right to a private

party. Pet., App. B at ]1la-15a. Moreover, even if an unin-

jured participant might have Article III standing in some

situations to sue on a plan’s behalf under ERISA, the court

concluded that petitioners Jacked such standing “under the

circumstances of this case.” Pet., App. B at 15a. The peti-

tioners here not only suffered no injury, but also did “not

allege wrongdoing or failure to act by the named plan fidu-

ciaries,” the parties with statutory responsibility for protecting

the plan’s interest. Pet., App. B at 1 Sa-16a.

The court also rejected petitioners’ suggestion that Article

III should be deemed satisfied under a “representational

standing” theory, emphasizing that petitioners “are not statu-

torily designated as fiduciaries and are not assigned the legal

responsibility to represent others.” Pet., App. B at 16a.

Rather, the legal duty to represent all of a plan’s participants

and beneficiaries is assigned by ERISA Section 402 to the

plan’s named fiduciaries. /d.

5. The court of appeals affirmed in an unanimous deci-

sion authored by Judge Kozinski. Pet., App. A at la-8a.

7

First, the court ruled that petitioners had not shown the type

of redressable injury to themselves that would satisfy the

traditional] standing requirements outlined in Lujan v. Defend-

ers of Wildlife, 504 U.S. 555 (1992). Pet., App. A at 3a-

4a. The court rejected petitioners’ argument that their only

asserted injury—having to pay higher co-payments and

contributions—would be redressed by a favorable decision.

Pet., App. A at 4a. Nothing would require ALCOA or Kmart

to reduce participant co-payments or contributions. /d. Even

if monetary relief were awarded to the plans to reimburse _

them for past overpayments in covering prescription drug

costs, “ALCOA or K-Mart would be free to reduce their

contributions or cease funding the plans altogether until any

such funds were exhausted.” /d. Under these circumstances,

the court found that there was no redressability because “any

prospective benefits depend on an independent actor who

retains ‘broad and legitimate discretion the courts cannot pre-

sume either to control or to predict.”” /d. (quoting ASARCO,

Inc. v. Kadish, 490 U.S. 605, 615 (1989)).

The court then turned to petitioners’ alternative argument

that they have standing as “congressionally authorized repre-

sentatives of the injured plans.” Pet., App. A at 3a. The court

rejected petitioners’ attempt to draw an analogy to gui tam

actions under the False Claims Act (“FCA”), which this Court

upheld against an Article II] standing challenge in Vermont

Agency of Natural Resources v. United States ex rel. Stevens,

529 U.S. 765 (2000). Pet.. App. A at 4a-Sa. Unlike gui tam

actions, which have existed for centuries, “there is no similar

tradition of unharmed ERISA beneficiaries bringing suit on

behalf of their plans.” Pet., App. A at 5. Moreover, the FCA

“assigns relators a concrete stake in qui fam cases by giving

them a piece of the action,” whereas any recovery under

ERISA would be paid to the plans, not petitioners. /d.

The court also rejected petitioners’ contention that their

ERISA suit ts similar to other “representative damages litiga-

8

tion,” such as Rule 23(b)(3) class actions, suits by trustees

representing creditors in bankruptcy, parens patriae actions

by state governments, and suits by and against executors.

Pet., App. A at 6a. None of these examples was particularly

relevant, the court explained, “because in each the plaintiff

has a direct stake in the outcome of the litigation.” /d The

court also distinguished “associational standing” cases, noting

that the theory of those cases—that by joining the association,

an individual member authorizes the association to represent

the member’s interests—‘does not operate in reverse.” Pet.,

App. A at 8a. “Thus, a health plan might be able to sue on

behalf of its injured subscribers even if the plan suffered no

injury, but not vice versa.” /d.

Finally, the court indicated that it had “no quarrel” with the

proposition that ERISA plan beneficiaries may sue in a

representative capacity on their plan’s behalf, as long as the

beneficiary “otherwise meets the requirements for Article III

standing.” Pet., App. A at 8a. In this case, however, the

petitioners had no “concrete stake in the outcome of the.

proceedings,” and therefore lacked Article II] standing. /d.

REASONS FOR DENYING THE PETITION

Recognizing the absence of any circuit conflict, petitioners

attempt to depict the unanimous decision below as one that

“invalidates a federal statute” or “declar[es] a statute uncon-

sututional.” Pet. at 10-1]. But the decision below cannot be

so characterized—nowhere does it invalidate Section 502(a)

of ERISA or hold that any portion of the statute is uncon-

stitutional. Rather, consistent with every other court of appeals

that has addressed the issue, the court below held simply

that Section 502(a) does not abrogate traditional Article III

standing requirements. Pet., App. A at 3a (“Plaintiffs, never-

theless. cannot proceed unless they have Article Ill stand-

ing.”). The decision itself turns on petitioners’ inability to

demonstrate the type of redressable injury to themselves that

9

would satisfy Article Il]. Pet., App. A at 4a. It does not

conflict with the decisions of this Court, and otherwise raises

no issue warranting this Court’s review.

l. Petitioners ‘Have Mischaracterized the Decision

Below and Overstated Its Implications. :

1. Petitioners’ contention that the court of appeals has

“invalidat{ed]” or “struck down” Section 502(a) of ERISA

and “fmade] the substantive provisions of ERISA effectively

unenforceable” both mischaracterizes the decision below and

overstates its implications. Pet. at 13, 26; see also Pet. at 10,

13, 14, 15, 17, 21-22, 30. The court did not hold that any

portion of Section 502(a) “violates Article III of the United

States Constitution.” Pet. at i; see also id. at 9, 10, 12, 13, 30.

On the contrary, the Ninth Circuit held simply that petitioners

failed to demonstrate the type of redressable injury to

themselves that would satisfy Article II] standing require-

ments under the circumstances of this case.

As this Court’s prior decisions make clear, “Congress can-

not erase Article III]’s standing requirements by statutorily

granting the right to sue to a plaintiff who would not

otherwise have standing.” Raines v. Byrd, 521 U.S. 811, 820

n.3 (1997); id. at 830 n.1 (Souter. J., concurring); see also

Bennett v. Spear, 520 U.S. 154, 162 (1997); Gladstone,

Realtors v. Bellwood, 441 U.S. 91, 100 (1979) (“In no event,

however, may Congress abrogate the Art. II] minima: A

plaintiff must always have suffered a distinct and palpable

injury to himself. . . .”) (internal quotation marks and citation

omitted); Warth v. Seldin, 422 U.S. 490, 501 (1975). Courts

no more have the power to disregard the injury-in-fact

standard at Congress’ directive than they do on their own

initiative: “Whether the courts were to act on their own, or at

the invitation of Congress, in ignoring the concrete injury

requirement . . .. they would be discarding a principle fun-

aks

10

damental to the separate and distinct constitutional role of the

Third Branch... .” Lujan, 504 U.S. at 576.

Consistent with this Court’s precedents, petitioners were

required to establish “a likelihood that the injury they have

suffered will be redressed by a favorable outcome to the

litigation.” Pet., App. A at 3a-4a (citing Lujan, 504 U.S. at

560-62); see also Raines, 521 U.S. at 818 (“‘plaintiff must

allege personal injury fairly traceable to the defendant’s .

allegedly unlawful conduct and likely to be redressed by the

requested relief”) (citation omitted). Petitioners’ on/y claimed

injury is that they had to pay higher co-payments and con-

tributions because “AdvancePCS charged the plans too much

for drugs.” Pet., App. A at 4a. The court below found that

this alleged injury is not “redressable” because any benefit

from a favorable decision depends on “an independent actor

who retains ‘broad and legitimate discretion the courts can-

not presume either to control or to predict.’” /d. (quoting

ASARCO, 490 U.S. at 615).

Although petitioners argued that a favorable decision might

reduce prescription drug costs, they failed to establish any

likelihood that such cost reduction would be passed through

to participants in the form of reduced co-payments or con-

tributions. Nor could they. As the Ninth Circuit pointed out,

“nothing would foree ALCOA or K-Mart to do this.” Pet.,

App. A at 4a. Rather “ALCOA and K-Mart would be free to

reduce their contributions or cease funding the plans alto-

gether until any such funds were exhausted.” Pet., App. A at

4a. Indeed, the Department of Labor conceded as much in

the amicus brief that features prominently throughout the

petition. Pet., App. E at 31a (“the Plans’ sponsors may take

any recovered rebates and discounts and use these funds

at their own disposal”). Not surprisingly then, Petitioners

nowhere argue that the “injuries” they allegedly suffered

1]

would be necessarily redressed by a favorable disposition of

this case.°

Thus, Judge Kozinski’s decision below simply does not

present the question concerning “the constitutional validity

of section 502(a)” that petitioners would have this Court

address. Pet. at 11. Indeed, the court of appeals had “no

quarrel” with the proposition that a participant may sue on the

plan’s behalf under Section 502(a), as long as the participant

meets Article IJ] standing requirements. Pet., App. A at 8a;

see also App. A at 3a-4a. The court’s fact-specific deter-

mination that the petitioners here failed to meet Article II]

standing requirements does not warrant this Court’s review.

2. Contrary to petitioners’ contention (Pet. at 13-17), the

decision below raises no enforcement concern in this or any

other case. Far from “invalidat[ing] participant and benefici-

ary standing under Section 502(a)” (Pet. at 14), the Ninth

Circuit simply determined that petitioners had no “concrete

stake in the outcome” under the circumstances of this case.

Pet., App. A at 8a. The fact-specific nature of that determina-

tion is reinforced by the court’s -recognition that “ERISA

plans are organized in a variety of ways, and no doubt séme

would give participants a stake in a lawsuit against fiduciar-

2

ies.” Jd. Moreover, as the court emphasized at the outset,

> Petitioner Mackner lacks Article III standing for the additional reason

that she is no longer a participant in the Kmart Plan and thus could not

possibly benefit from any recovery awarded to the Plan. As the district

judge stated at oral argument: “[Mackner] wouldn’t be the one that, if |

were a part of the K-Mart Comprehensive Healthcare Plan, that | would

want representing me as a participant in this lawsuit.” SER 58.

* See, e.g., Graden v. Conexant Sys., Inc., No. 06-2337, 2007 U.S. App.

LEXIS 18179, at *5-6 (3d Cir. July 31, 2007) (cashed-out former employee

had both Article Ill standing and statutory standing to bring an action

against the administrator of his former employer's 401(k) plan under

ERISA § 502(a)(2) seeking to recover losses on employer stock holdings

that reduced the value of his individual account).

12

petitioners here “don’t claim they were denied benefits or

received inferior drugs.” Pet., App. A at 4a.

Petitioners’ related contention (Pet. at 14 n.30) that plan

fiduciaries “are likely to lack incentive” to take any legal

action on the plan’s behalf turns the reality of this case on its

head. Unlike petitioners, the plan fiduciaries who retained

AdvancePCS to provide services to the plans, ALCOA and

Kmart, have a duty under Sections 404(a)(1) and 405(c)(2)

of ERISA to monitor AdvancePCS’s performance of those

services. To the extent AdvancePCS may have engaged in

any improper transactions, ALCOA and Kmart have a fiduci-

ary responsibility to call AdvancePCS to account in a breach

of contract or Section 502(a) action. Moreover, because of

their fiduciary duty to monitor AdvancePCS’s performance,

ALCOA and Kmart have a direct and palpable interest in the

outcome. See Pet., App. A at 6a-7a (“Trustees and executors

.. . have a stake in the litigation because they are acting on

behalf of the estate, which owns the claims being litigated.”).

Indeed, as the employer plan sponsors who finance the

benefit plans. in question, ALCOA and Kmart have a direct

financial interest in challenging any alleged wrongdoing

by AdvancePCS that increases benefit costs. That ALCOA

and Kmart have taken no such action against AdvancePCS

indicates that they have no substantial concern with its

performance.

In addition to the plan’s fiduciaries, the Secretary of Labor

has authority to bring suit under Sections 502(a)(2) and (a)(5)

of ERISA,° without the restrictions applied to private parties.

> 29 U.S.C. §§ 1104(a) & 1105(c)(2); see also 29 C.F.R. § 2509.75-8,

Q-FR-14 & Q-FR-17 (2003); 29 C.F.R. § 2509.96- 1(e) (2003).

© 29 U.S.C. §§ 1132(aY(2) & (a)(5): Petitioners’ argument (Pet. at 15)

that the Secretary is not permitted to bring actions under Section 502(a)(3)

ignores the Secretary’s separate authority under Section 502(a)(S) to bring

an action “(A) to enjoin any act or practice which violates any provision

of this title, or (B) to obtain other appropriate equitable relief (i) to redress.

13

Petitioners’ suggestion that the Secretary would lack Article

II] standing under the court of appeals’ analysis (Pet. at 15)

is misplaced. The government has a prima facie interest in —

enforcing its own laws. See Vermont Agency, 529 U.S. at 771

(“It is beyond doubt that the complaint asserts an injury to the

United States . . . the injury to its sovereignty arising from

violation of its laws... .”). As the court below observed,

States have standing in parens patriae actions because they

have a similar “concrete stake in the proper application of the

laws of their jurisdiction.” Pet., App. A at 7a (citing Alfred L.

Snapp & Son, Inc. v. Puerto Rico ex rel. Barez, 458 U.S. 592,

607 (1982)).

Hence, if a rare situation were to arise where plaintiffs

suffered no personal injury, but the Department of Labor

believed the conduct of a fiduciary sufficiently serious or

troubling, the Secretary could elect to bring suit. While the

Secretary’s enforcement resources are limited, so are the -

resources of the federal courts. How the Secretary’s re-

sources are allocated for various enforcement ends is a matter

decided by Congress and the Executive Branch officials

assigned to make those policy decisions. There is no evi-

dence that Congress in ERISA prescribed a proliferation of

suits by uninjured participants for alleged fiduciary violations

that federal regulators—like the plan’s fiduciaries—deemed

unworthy of their own action.

Il. The Decision Below Is Consistent With, and Does

Not Conflict With the Decisions of Other Courts of

Appeals.

The Ninth Circuit’s holding that petitioners could not pro-

ceed without Article III standing is consistent with the

decisions of every other court of appeals that has addressed

the issue. In addition to the Ninth Circuit, three other circuit

such violation or (ii) to enforce any provision of this title.” 29 U.S.C.

§ 1132(a){5).

14

courts have ruled squarely that Section 502(a) does not permit

plan participants to seek relief only for others (or based on the

injuries of others) when they themselves have not suffered a

concrete injury that is capable of redress. Central States

Southeast & Southwest Areas Health & Welfare Fund v.

Merck-Medco Managed Care, 433 F.3d 181 (2d Cir. 2005);

Horvath v. Keystone Health Plan East, Inc., 333 F.3d 450 (3d

Cir. 2003); Harley v. 3M, 284 F.3d 901 (8th Cir. 2002).

In Central States, participants brought a class action against

Medco Health Solutions, a PBM, for allegedly violating

fiduciary duties to ERISA plans by promoting drugs made by

its parent company and diverting rebates from other manu-

facturers to itself. 433 F.3d at 187. One issue on appeal was

whether the participants had Article III standing to litigate the

claims on behalf of the plans. /d. at 185. The participants

“premised their assertion on statutory standing under ERISA,”

but the Second Circuit found this was not sufficient to confer

jurisdiction. /d. at 201. “{S]tatutory standing will not suffice

to substitute for Article II] standing.” /d. The Second Circuit

found that the record was unclear as to “whether the Plaintiffs

have demonstrated the requisite injury-in-fact for supporting

a finding of constitutional standing,” and therefore remanded

the case for the district court to rule in the first instance. Jd.

at 200.

In Horvath, a welfare plan participant sought restitution

and disgorgement of alleged excessive premiums paid by her

employer for plan coverage as a result of the fiduciary’s

failure to disclose information about physician incentives

adversely impacting quality of care. 333 F.3d at 452. The

Third Circuit found that while the participant had statutory

standing, she lacked Article II] standing because she did not

allege that she was personally affected by the alleged breach.

Id. at 455-57. The court rejected the participant’s argument

that, if rciief were granted, her employer would pass the

savings to its employees in the form of a higher salary or

15

additional benefits. “We find this reasoning far too specula-

tive to serve as the basis for a claim of individual loss and

thus conclude that Horvath lacks standing to seek restitution

or disgorgement.” Jd. at 457.

In Harley, participants in a “richly funded” defined-benefit

pension plan that had a substantial surplus sued to recover

investment losses sustained by the plan as a result of an

allegedly imprudent investment. Rejecting arguments ad-

vanced by the plaintiffs and their amicus, the Department of

Labor, the Eighth Circuit held that plaintiffs lacked Article II]

standing because the “Plan’s surplus was sufficiently large

that the Granite investment loss did not cause actual injury

to plaintiffs’ interests in the plan.” 284 F.3d at 907. “(T]he

limits on judicial power imposed by Article II] counsel

against permitting participants or beneficiaries who have

suffered no injury in fact from suing to enforce ERISA fiduci-

ary duties on behalf of the Plan.” /d. at 906.’ Petitioners

have not cited a single case that reached a contrary result.

Ill. The Decision Below Does Not Conflict With Any

Prior Decision of This Court

1. Petitioners argue (Pet. at 17-26) that the Ninth Circuit

misapplied this Court’s “injury-in-fact” precedents in holding

that they failed to establish a redressable injury to themselves.

An alleged misapplication of a correctly stated legal princi-

ple, however, does not ordinarily merit review by this Court.

See Sup. Ct. R. 10 (“A petition for a writ of certiorari is rarely

granted when the asserted error consists of . . . the misap-

plication of a properly stated rule of law.”).

” Other courts have also ruled that plan participants cannot proceed on

claims under Section 502(a) without satisfying Article Ill standing re-

quirements. See Doe v. Blue Cross Blue Shield, \73 F. Supp. 2d 398, 404,

407 (D. Md. 2001); Caranci v. Blue Cross & Blue Shield, 194 F.R.D. 27,

32 (D.R.1. 2000); Ehimann v. Kaiser Found. Health Plan, 20 F. Supp. 2d

1008, 1010 (N.D. Tex. 1998), aff'd, 198 F.3d 552 (Sth Cir. 2000).

16

In any event, the court below correctly determined that

petitioners suffered no redressable injury to themselves that

would satisfy Article II] standing requirements. Pet., App. A

at 4a. Petitioners’ contention (Pet. at 18-20) that the plans

would benefit from an “infusion” of “millions of dollars” in

additional funds if petitioners were to prevail on their claims

falls far short of establishing a redressable injury to them-

selves individually. As the court below recognized, infusing

the Plans with additiona) funds would not require ALCOA

and Kmart to reduce petitioners’ co-payments and contribu-

tions, which is the only way to redress their sole claimed in-

jury. Pet., App. A at 4a. Indeed, rather than reduce petition-

ers’ co-payments and contributions, “ALCOA and K-Mart

would be free to reduce their contributions or cease funding

the plans altogether until any such funds were exhausted.” /d.

Moreover, as the Department of Labor has conceded, the

Plans would not violate ERISA’s anti-inurement rule® by

using any such additional funds to pay prescription drug

benefits without reducing participant co-payments and contri-

butions. See Pet., App. E at 31a (“the Plans’ sponsors may

take any recovered rebates and discounts and use these funds

at their own disposal”).

The Ninth Circuit’s determination that petitioners failed to

establish “redressability” is consistent with this Court’s

precedents. Where, as here, a plaintiff's claimed injury arises

from decisions made by an independent actor not before the

court, “it becomes the burden of the plaintiff to adduce facts

showing that” the third party can be expected to behave “in

such a manner as to produce causation and permit redressabil-

ity of injury.” Lujan, 504 U.S. at 562 (citations omitted). No

standing exists when the independent actor retains “broad and

legitimate discretion the courts cannot presume either to con-

trol or to predict.” ASARCO, 490 U.S. at 615; Lujan, 504

* ERISA § 403(c(1), 29 U.S.C. § 1103(c)(1).

17

U.S. at 562; Simon v. Eastern Kentucky Welfare Rights Org.,

426 US. 26, 41-44 (1976).

Petitioners confirm the speculative nature of their theory

of redressability by quoting the following passage from the

Department of Labor’s amicus brief in the court below: “If

the rebates and discounts are returned to the Plans, it is

possible that the resulting cost reductions or monetary relief

to the Plans will benefit the participants and beneficiaries in

the form of lower co-payments and less restrictive formular-

ies, and possibly a more comprehensive benefit structure.”

(Pet. at 8-9 n.18, 24 (citation and internal quotations omitted;

emphasis added)). Plan sponsors, of course, have complete

discretion to adjust employee co-payments and contributions

or leave them unchanged as they see fit. See Black & Decker

Disability Plan, 538 U.S. at 833. That there is no redressabil-

ity under these circumstances is underscored by petitioners’

admission that “[w]e don’t know what the fiduciaries are

going to do with the money.” SER 56.

This Court has affirmed the dismissal of cases based upon

similarly speculative theories of injury. In Warth v. Seldin,

422 U.S. 490 (1975), for example, the plaintiffs challenged

the legality of exclusionary zoning practices by Penfield, a

suburban community near Rochester, New York. - The plain-

tiffs included Rochester taxpayers who claimed to be injured

financially by Penfield’s exclusionary regulations. /d. at 508.

The Rochester taxpayers asserted that “Penfield’s persistent

refusal to allow or facilitate construction of low-and moderate-

cost housing force[d] the city of Rochester to provide more

such housing than it otherwise would do,” ibid., and that

Rochester taxpayers would be required to bear higher local

property taxes to pay for such housing. /d. at 508-09. The

Court held that these allegations failed to establish the

requisite causal nexus between Penfield’s zoning regulations

and the taxpayers’ alleged injury:

18

Apart from the conjectural nature of the asserted injury,

the line of causation between [the suburb’s] actions and

such injury is not apparent from the complaint. What-

ever may occur in Penfield, the injury complained of—

_ increases in taxation—results only from decisions made

by the appropriate Rochester authorities, who are not

parties to this case.

Id. at 509; see also ASARCO, 490 U.S. at 614-15; Simon, 426

USS. at 28-33; Allen v. Wright, 468 U.S. 737, 752-53 (1984).

The cases cited by petitioners (Pet. at 20-22) did not pre-

sent such speculative theories of redressability. In Massachu-

setts v. EPA, 127 S. Ct. 1438 (2007), the Court held that

Massachusetts had standing to challenge the EPA’s refusal to

regulate greenhouse gases under the Clean Air Act. In par-

ticular, the Court determined that EPA’s conduct created an

actual’” and “‘imminent’” risk of harm to Massachusetts

from global warming, and that there was a “‘substantial likeli-

hood that the judicial relief requested’ will prompt EPA to

take steps to reduce that risk.” /d. at 1455 (citation omitted).

The EPA did not dispute the existence of a causal connection

between greenhouse gas emissions and global warming. /d.

at 1457. Although China and India are likely to increase

greenhouse emissions over the next decade, the Court deter-

mined that the redressability requirement was satisfied be-

cause “[a] reduction in domestic emissions would slow the

pace of global emissions increases, no matier what happens

elsewhere.” Id. at 1458 (emphasis added). In this case, by

contrast, petitioners’ only purported injury is that their co-

payments and contributions have been increased, and there is

simply no evidence that ALCOA or Kmart are likely to do

anything different with respect to petitioners’ co-payments

and contributions if they prevail.

eee

The other cases cited by petitioners—Bryant v. Yellen, 447

U.S. 352 (1980) and Clinton v. City of New York, 524 U.S.

417 (1998}—also presented injuries that were likely to be

19

redressed by a favorable decision. In Bryant, the district

court held that a rule’ generally limiting water deliveries from

reclamation projects to 160 acres under single ownership did

not apply to much larger tracts of the Imperial Irrigation

District in southeastern California. Application of that 160-

acre limit would have given owners of these larger tracts an

incentive to sell excess lands at prices below the prevailing

market price for irrigated land. The Court held that farmers

who hoped to purchase the excess lands had standing to

appeal because it was “likely that excess lands would become

available at less than market prices” if the judgment were

reversed. 447 U.S. at 368. Again, petitioners in this case

failed to establish any such likelihood that their co-payments

or contributions would be reduced if they were to prevail.

In Clinton, the Court held that a farmers’ cooperative had

standing to challenge the President’s exercise of authority

under the Line Item Veto Act to cancel a tax provision that

Congress enacted to permit sellers of food. processing

facilities to defer recognition of gain if they sell their stock to

a cooperative. 524 U.S. at 432. Under existing law, sellers of

such processing facilities could obtain the benefits of tax

deferral only by selling to a business corporation, not by

selling to a farmers’ cooperative. /d. at 423-24. The Court

held that, by depriving the farmers’ cooperative of a statutory

“bargaining chip” in its negotiations, the cancellation inflicted

an “immediate” and “concrete” injury sufficient to satisfy

Article If] standing requirements. /d. at 432-34; see also id.

at 435 n.23 (“The injury in the present case is comparable to

the repeal of a law granting a subsidy to sellers of processing

plants if, and only if, they sell to farmers’ cooperatives.”).

Unlike the farmers’ cooperative in Clinton, petitioners in this

case were never deprived of a “bargaining chip”—instead,

they argue that the recovery they seek for the plans would

create some type of “bargaining chip” that would enable

them to put “pressure” on their employers. Pet. at 22-25.

Apart-from the lack of evidence that the ALCOA and Kmart

20

plans have ever been the subject of any such “bargaining,”

this argument just ignores the Article II] “injury” requirement

altogether. :

2. Contrary to petitioners’ argument (Pet. at 26-30), the

decision below is entirely consistent with this Court’s “repre-

sentational standing” precedents. As the Court explained

in United Food & Commercial Workers Union Local 75] v.

Brown Group, Inc., 517 U.S. 544 (1996), representational

standing is confined to relationships “recognized either by

common-law tradition or by statute” that “rebut the back-

ground presumption .. . that litigants may not assert the rights

of absent third parties.” /d. at 557 (footnotes omitted). Peti-

tioners cannot satisfy that requirement.

This,Court has been reluctant to allow persons to claim

standing to vindicate the rights of a third party on the grounds

that third parties are generally the most effective advocates of

their own rights and that such litigation will result in an

unnecessary adjudication of rights which the holder does not

wish to assert. Singleton v. Wulff, 428 U.S. 106, 114 (1976).

As uninjured plan participants, petitioners are not the best

proponents of the plan’s rights. Unlike the plan’s fiduciaries,

participants have no duty to represent the interest of the plan

or its participants and beneficiaries. Nor do participants have

any authority to bind the plan to a judgment or settlement

of claims they purport to assert on the plan’s behalf. See

Richards v. Jefferson County, 517 U.S. 793, 798 (1996)

(citing Restatement (Second) of Judgments § 41(1) (1980));

see also Bittinger v. Tecumseh Prods. Co., 123 F.3d 877, 880-

883 (6th Cir. 1997). “The courts depend on effective advo-

cacy, and therefore should prefer to construe legal nghts only

when the most effective advocates of those rights are before

them.” Singleton, 428 U.S. at 114.

That the Secretary of Labor, plan fiduciaries, and partici-

pants and beneficiaries all have statutory standing to bring an

action for relief to the plan does not establish Article II]

21]

standing. Petitioners’ argument to the contrary (Pet. at 26-27)

is nothing more than a variant of the “statutory abrogation of

Article III” approach to standing that this Court has repeat-

edly rejected. See Gladstone, Realtors, 441 U.S. at 100;

Blatchford v. Native Village, 501 U.S. 775, 785 (1991). Fol-

lowing petitioners’ argument, Congress could simply elimi-

nate the constitutional requirement of injury in fact and

authorize any private person to bring actions for violations of

federal employment laws. The bedrock standing principles

recognized by this Court cannot be evaded so easily.

Petitioners’ analogy of ERISA plan participants to “execu-

tors, trustees and guardians ad litem” is likewise misplaced.

Pet. at 26. Petitioners not only fail to provide any law sup-

porting this analogy, but they ignore the fact that it is only the

plan fiduciary who, like an executor, trustee or guardian, has

an obligation to act on behalf of the plan and the authority to

bind the plan to a judgment or settlement. See Bittinger, 123

F.3d at 880. As the court below observed, “[t]rustees and

executors . . . have a stake in the litigation because they are

acting on behalf of the estate, which owns the claims being

litigated.” Pet., App. A at 6a-7a.

Nor do petitioners identify any common-law tradition that

permits a plan participant to sue or be sued on behalf of the _

entire plan. ERISA’s provisions “are guided by principles of

trust law.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

101, 111 (1989); see also Varity Corp., 516 U.S. at 497.

Under the common law of trusts, beneficiaries whose inter-

ests in a trust are not injured do not have standing to bring

an action for fiduciary breach on behalf of the plan. Restate-

ment (Second) of Trusts § 214 cmt. b (1959) (“A particular

beneficiary cannot maintain a suit for breach of trust which

does not involve any violation of duty to him.”’); A. Scott &

W. Fratcher, Law of Trusts § 214 (4th ed. 1988) (“In order to

maintain a suit . . . the beneficiary must show that his interest

is involved”).

~

22

Furthermore, there is no basis for petitioners’ contention

(Pet. at 27-28) that they have “representational standing” to

sue on behalf of the Secretary of Labor. On the contrary,

“private plaintiffs do not adequately represent, and are not

charged with representing, the broader national public inter-

ests represented by the Secretary.” Herman v. South Caro-

lina Nat’l Bank, 140 F.3d 1413, 1424 (11th Cir. 1998).

Recognizing that the Secretary’s interests are “wholly distinct

and separate” from those of plan participants, courts have

uniformly held that ERISA actions brought by plan partici-

pants do not bind the Secretary under principles of res

judicata or claim preclusion. /d. (citing cases).

Petitioners’ invocation of Vermont Agency (Pet. at 28) is

likewise unavailing. There, the Court upheld the standing of

a private relator to bring a qui tam civil action “for the person

and for the United States Government . . . in the name of

the Government.” 529 U.S. at 769 (citation omitted). If

the government declines to intervene, the relator stands to

recover 25-30% of the total award as a “bounty”; if the

government takes over the case, the relator still gets 15-25%

for his whistleblowing. Jd. at 769-70. Hence, the Court had

little trouble concluding that as to his portion of the recovery,

“a qui tam relator has a ‘concrete private interest in the out-

come of [the] suit.°” /d. at 772 (quoting Lujan, 504 U.S. at

573) (alteration in original).

In seeking to identify the origin and nature of a relator’s

rights, the Vermont Agency Court expressly rejected the idea

that the relator acts merely as agent of the United States and

that the “bounty” is simply a fee received “out of the United

States’ recovery ....” 529 U.S. at 772. The Court pointed

out that the statute itself gives the relator “an interest in the

lawsuit, and not merely the right to retain a fee out of the

recovery.” /d. Vermont Agency thus involved a markedly

different statute that actually assigned part of the govern-

ment’s claim to the plaintiffs. Petitioners have no statutory

23

basis to assert such a claim here, and cannot show that they

would receive a portion of any monies that would be

recovered by the plan in this lawsuit.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted,

PAUL J. ONDRASIK, JR. *

MARTIN D. SCHNEIDERMAN

ERIC G. SERRON

STEPTOE & JOHNSON LLP

1330 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 429-8088

* Counsel of Record Attorneys for Respondent

AdvancePCS Health, L.P.

August 6, 2007