PhRMA’s Complaint Against Enforcement of California Drug Pricing Transparency Bill SB 17 Dismissed

September 6, 2018By David C. Gibbons & Alan M. Kirschenbaum

On August 30, 2018, the United States District Court for the Eastern District of California granted the State of California’s Motion to Dismiss a Complaint filed on December 8, 2017 by the Pharmaceutical Research and Manufacturers of America (PhRMA) seeking declaratory and injunctive relief against implementation and enforcement of California Senate Bill 17 (SB 17). We previously blogged on SB 17 here and PhRMA’s lawsuit here. PhRMA’s original Complaint can be accessed here. SB 17, which went into effect on January 1, 2018, imposes notification and reporting requirements on pharmaceutical manufacturers for certain price increases on their products sold to state purchasers, insurers, and PBMs in California. Further information on the implementation of SB 17 can be found on the California Office of Statewide Health Planning and Development (OSHPD) website here.

Briefly, PhRMA’s lawsuit challenged SB 17 on three distinct constitutional grounds. First, PhRMA alleged that SB 17 violates the Commerce Clause by regulating interstate commerce. Compl. at 3. Second, PhRMA alleged that SB 17 violates the First Amendment by compelling manufacturers to speak and in a manner that expresses viewpoints that are neither speaker- nor content-neutral. Id. at 4, 26. Third, PhRMA argued that SB 17 is unconstitutionally vague, in violation of the Fourteenth Amendment Due Process Clause. Id. at 5, 18, 31.

The district court dismissed PhRMA’s Complaint on procedural grounds without reaching the merits of the constitutional arguments. California argued that the court lacked subject matter jurisdiction under Federal Rules of Civil Procedure (FRCP) Rule 12(b)(1), asserting that Gov. Brown must be dismissed as a party because he was immune from suit pursuant to the Eleventh Amendment. California asserted that states are generally immune from civil suits, but that such suits may be brought against a state’s officers acting in their official capacities seeking to enjoin the enforcement of a state law when a state officer has a “direct connection” with the enforcement of the particular law. Defs.’ Memorandum of Points and Authorities in Support of Motion to Dismiss at 9, PhRMA v. Brown, No. 2:17-cv-02573 (E.D. Cal. Jan. 26, 2018) [hereinafter Memorandum]; see also Ex Parte Young, 209 U.S. 123, 157 (1908). In the present matter, California argued that Gov. Brown did not have a direct connection with the enforcement of SB 17, but rather only had “general oversight” over the state’s executive branch. Memorandum at 9.

The district court agreed with California and dismissed Gov. Brown as a party. PhRMA’s Complaint argued that Gov. Brown has a direct connection with the enforcement of SB 17 because he signed SB 17 into law and bears responsibility for its enforcement. Memorandum and Order at 6, PhRMA v. Brown, No. 2:17-cv-02573 (E.D. Cal. Aug. 30, 2018) [hereinafter Order]. However, the court disagreed, concluding that this amounted to no more than general oversight. Id. at 7.

California also argued that PhRMA lacked standing to bring the lawsuit against the Defendants and, therefore, failed to state a claim upon which relief can be granted pursuant to FRCP Rule 12(b)(6). In order to meet the jurisdictional requirements of Article III of the U.S. Constitution, a plaintiff must demonstrate that it has standing to bring the lawsuit. An association, like PhRMA, has standing to bring a lawsuit on behalf of its members “when its members would otherwise have standing to sue in their own right, the interests at stake are germane to the association’s purpose, and neither the claim asserted nor the relief requested requires the participation of individual members [in the lawsuit].” Memorandum at 10 (quoting Friends of Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 181 (2000)). Here, California asserted that PhRMA merely alleged the operation of SB 17 would injure its members if the reporting requirement was triggered by a price increase or that its members may refrain from increasing product prices to avoid the reporting requirement. Order at 9. California also stated that PhRMA’s factual allegations of harm to its members were not actual but predicated on how OSHPD applies certain provisions of SB 17. Id.

Again, the court agreed with California and dismissed the lawsuit for lack of standing. Id. at 10. The court held that PhRMA’s assertions regarding the potential harm that may be incurred by its members were speculative, citing “a long-settled principle that standing cannot be inferred argumentatively from averments in the pleadings,” but must be based on allegations of facts essential to demonstrate jurisdiction. Id.

PhRMA’s Complaint was dismissed without prejudice and the court granted leave to PhRMA to amend its Complaint within 30 days to plead additional facts to address these procedural defects. We will continue to track developments in this litigation.