Judge David S. Cunningham, Case Number: 23STCV00719, Date: 2024-06-18 Tentative Ruling

Judge: David S. Cunningham, Case: 23STCV00719, Date: 2024-06-18 Tentative Ruling

(1) This decision is the Court’s Tentative Ruling regarding the Manufacturer Defendants’ Demurrer to the Original Complaint.

(2) Plaintiff, the People of the State of California, by and through Rob Bonta, Attorney General of the State of California, filed a complaint (the “Complaint”) against three manufacturers (Eli Lilly, Novo Nordisk, and Sanofi) (the "Manufacturer Defendants") and three pharmacy companies (CVS Caremark, Express Scripts and OptumRX (the "PBM Defendants" or "PBMs") and a holding company (CVS Health Corporation) alleging a price gouging conspiracy to artificially inflate the price of insulin. The Complaint contains two causes of action: (1) violation of Business and Professions Code section 17200, the Unfair Competition Law (“UCL”); and (2) unjust enrichment.

(3) The California Attorney General alleges that Manufacturer Defendants have significantly increased the list prices of insulin over the last two decades. These increases allegedly have far outpaced inflation and are not justified by improvements to the drug or manufacturing costs. Plaintiff alleges that the insulin market is deceptive because insulin Manufacturer Defendants provide significant secret rebates to pharmacy benefit managers (PBMs). These rebates are reportedly as high as 70% of the list price of insulin.

(4) The Complaint alleges that while the public is aware of general insulin rebating practices, the actual terms of the rebates are unknown to the public. The Complaint alleges that PBMs create obstacles that prevent payers from knowing the amount of rebates PBMs are securing and from being able to audit the rebate information.

(5) The Complaint further alleges the Manufacturer Defendants made misleading statements that support their efforts to profit from their pricing conduct. For example, the manufacturers claim that the net price of insulin was decreasing, but these statements obscure the allegation that list price competition has been undercut, resulting in alleged larger out-of-pocket costs for many consumers.

(6) Plaintiff alleges that PBMs act as intermediaries in the pharmaceutical payment system. They negotiate with manufacturers on behalf of insurers to determine which drugs are included in formularies (lists of covered drugs) and at what cost. The Attorney General alleges that the PBM market is dominated by three entities – CVS Caremark, Express Scripts, and OptumRx – giving them significant negotiating power. Allegedly, PBMs leverage their market power to secure substantial rebates from manufacturers in exchange for favorable formulary placement for their drugs.

(7) The Attorney General contends the system creates an incentive for manufacturers to increase list prices to offset the rebates paid to PBMs. The Complaint alleges that insulin affordability is a significant concern, particularly for uninsured or underinsured individuals who are exposed to the full list price without the benefit of rebates. The California Attorney General's lawsuit alleges that the current pricing practices in the insulin market harm consumers by artificially inflating prices.

(8) The Manufacturer Defendants argue that a safe harbor protects the alleged conduct because federal and state law expressly permit or require the conduct in question. Specifically, the Manufacturer Defendants argue that federal law contemplates and sometimes requires rebates from manufacturers and the publication of list prices that do not include rebates. The Defendants argue that state law allows manufacturers to make voluntary pricing decisions, including price increases, and expresses an intent to permit PBMs to negotiate discounts and rebates.

(9) The Manufacturer Defendants argue the Attorney General’s claims are barred by the statute of limitations, as the complaint and judicially noticeable materials demonstrate the Attorney General’s awareness of the pricing system in question years before the statute of limitations cutoff.

(a) Whether the applicable statute of limitations bars the alleged causes of action?

(d) Whether price inflation as alleged in the Complaint constitutes an unfair business practice under the UCL?

(e) Whether allegations of "secret rebates" and inflated list prices as alleged in the Complaint constitute unfair conduct under the UCL?

(f) Whether the Complaint sufficiently alleges reliance on misleading statements from the Manufacturer Defendants to state a claim under the UCL?

“1. Millions of Californians suffer from diabetes. For many diagnosed with this condition, access to insulin to regulate their blood sugar levels is a matter of life and death. Yet, the excessive price of insulin undermines their access to this century-old, life-sustaining drug.

“2. Inexplicably, list prices for insulin have risen several hundred percent over the last two decades. Today, California diabetics who require insulin to survive and who are exposed to insulin’s full price, such as uninsured consumers and consumers with high deductible insurance plans, pay thousands of dollars per year for insulin.

“3. The excessive price of insulin disproportionately harms low-income communities who must choose between paying for insulin or everyday necessities, such as housing and food. To stretch dollars and insulin supplies, many Californians have turned to the dangerous practice of rationing insulin or skipping doses despite the severe risks of loss of sight, limbs, or death. These harms are further compounded for Black, Hispanic, and low-income communities in California as they are more likely to be diagnosed with diabetes and to be uninsured or underinsured.

“4. The United States insulin market is an oligopoly. The defendants include three insulin manufacturers (Manufacturer Defendants)—Eli Lilly, Novo Nordisk, and Sanofi—who make nearly all of the insulin sold in the United States.

“5. Also named as defendants are the three pharmacy benefit managers (PBM Defendants) that dominate the PBM market—CVS Caremark, Express Scripts, and OptumRx. PBMs are entities that administer prescription drug programs, which are a part of the essential benefits that health insurance plans must cover. One aspect of the PBM’s role is determining the prescription drugs a given health insurance plan covers (known as a formulary). Another aspect of the PBM’s role is negotiating confidential contracts that provide for post-sale discounts (rebates) that a drug manufacturer will provide to the PBM, not the consumer, if a consumer fills a prescription for the manufacturer’s drug.

“6. The conduct at issue in this Complaint has two main components. First, the Manufacturer Defendants aggressively raise the list price of insulin in lockstep with each other to artificial levels. The inflated and artificial insulin price increases have significantly exceeded inflation and are not justified by advances in the efficacy of the drugs or the cost of manufacturing. Insulin costs less than $10 a month to manufacture and its development costs have long been recouped.

“7. Second, PBM Defendants obtain significant secret rebates, which are a percentage of the inflated and artificial list price, from the Manufacturer Defendants in exchange for favorable placement on the PBM’s standard formularies. This rebating strategy incentivizes the Manufacturer Defendants to raise their list prices high and higher. The result is that the PBM Defendants’ standard formularies promote the Manufacturer Defendants’ high list-price insulin products over lower list-price insulins in California and nationwide.

“8. The Manufacturer Defendants participate in this conduct because being listed on a PBM Defendant’s standard national formulary is a financial boon. Like the insulin market in the United States, the PBM market in the United States is also oligopolistic. The PBM Defendants capture over 75% of the market. Being included on a PBM Defendant’s standard national formulary drives higher sales volume and revenue.

“9. The PBM Defendants participate in this conduct because their revenue is related to the size of the secret rebates they negotiate. Larger list prices support larger secret rebates because rebates are calculated as a percentage of the list price. Also, the PBM Defendants have a perverse incentive for ever-growing list prices. The PBM Defendants claim they can extract higher rebates due to their market power. If drug list prices grow, demand for their rebate negotiation services increases.

“10. In addition to participating in conduct raising list prices, Defendants made misrepresentations about insulin prices and their actions in relation to insulin prices.

“11. By increasing the list price of insulin, Defendants harm diabetic Californians who require insulin. They are exposed to insulin’s unaffordable list price and do not benefit from the secret rebates.

“12. Defendants are liable for the harms caused by their conduct under theories that protect consumers and competition. Defendants’ conduct harms diabetic Californians who require insulin without a sufficient counterweighing benefit to them. Additionally, Defendants’ conduct runs against several principles of honesty and fair dealing with competitors and consumers, including (a) prohibition on false discounts and prohibition on misleading statements made in furtherance of the false discounts, (b) prohibition on members of oligopolies abusing their market power in order to raise their product prices to unconscionable levels, (c) prohibition on middlemen in product distribution chains with large market share leveraging their market power to obtain secret rebates from manufacturers that are not granted to their smaller middlemen competitors, and (d) prohibition on members of oligopolies adopting practices that facilitate the coordination of price increases.

(12) Manufacturer Defendants are pharmaceutical companies that research, develop, manufacture, and sell prescription drugs, including analog insulin. Compl. ¶¶ 77, 83-86, 90, 191. Manufacturer Defendants do not sell insulin directly to patients. Id. ¶¶ 101, 103. Rather, they sell their medications to wholesalers at a publicly reported list price known as the Wholesale Acquisition Cost (“WAC”). Id. ¶¶ 101, 103, 104. Federal law sets forth how manufacturers must calculate the WAC price. According to Title 42 of the United States Code, which is excerpted in the complaint at paragraph 104, “[t]he term ‘wholesale acquisition cost’ means, with respect to a drug or biological, the manufacturer’s list price for the drug or biological to wholesalers or direct purchasers in the United States, not including prompt pay or other discounts, rebates or reductions in price . . . .” 42 U.S.C. § 1395w-3a(c)(6)(B) (emphasis added). Once set, these “undiscounted list price[s]” are published in publicly available “databases administered by third-party entities.” Compl. ¶ 104. After purchasing insulin from the Manufacturer Defendants at the WAC price, wholesalers resell the medications to pharmacies, which in turn sell them to consumers. Id. ¶¶ 101, 103, 105-06.

(13) The payment system for prescription medications is complex. The price a consumer ultimately pays for a given medication depends on a variety of factors, such as the terms of the consumer’s health plan, the consumer’s insurance status, and negotiations between PBMs and pharmacies. Id. ¶¶ 106, 109-10, 112. This price may also be impacted by different affordability programs that each Manufacturer Defendants offers. Id. ¶¶ 190, 193.

(14) Although PBMs are not involved in the physical distribution of pharmaceutical drugs, they are at the center of the pharmaceutical payment chain. Id. ¶¶ 101, 113, 118, 123-24. PBMs contract with insurers and other payors to provide prescription drug benefits. Id. ¶ 113. An important part of these services is the creation of nationwide lists known as formularies, which dictate the prescription drugs that insurance plans will cover and the terms of that coverage (including the cost-sharing terms governing what members pay). Id. ¶¶ 5, 119-22. Maintaining access to these formularies is essential for Manufacturer Defendants. Because insured consumers are far more likely to purchase a drug if it is covered by insurance, “exclusion from a [PBM’s] standard formulary can significantly impact” patients’ access to Manufacturers’ medicines. Id. ¶ 122. Accordingly, Manufacturer Defendants compete for formulary access to ensure that patients have affordable access to their insulins. Id. ¶¶ 151-55, 158.

(15) The importance of formularies gives PBMs enormous leverage over drug prices. Id. ¶¶ 8- 9, 114-27, 151-62, 165. Indeed, the complaint alleges that the three PBM defendants represent over 250 million covered lives in the U.S. (as of 2019), reflecting around 74% of the U.S. population. Id. ¶ 116. PBMs use that leverage to negotiate discounts and rebates from manufacturers. Id. ¶¶ 5, 8, 9, 122. Because Manufacturer Defendants face a “risk of backlash from PBMs” if they refuse the PBMs’ rebate demands, id. ¶¶ 148-50, 152-54, 165, 175, PBMs have been able to “extract higher rebates due to their market power.” Id. ¶¶ 5, 8, 9, 122; see also Ex. 1, Cal. Sen. Comm. on Bus., Prof. & Econ. Dev., Background Paper (2017), at 3, bit.ly/3LNEUTL (“PBMs generally develop a standard, national formulary” that “incentivizes drug manufacturers to negotiate with PBMs to attain preferred status”). The Complaint alleges that the Manufacturer Defendants were forced to increase the list prices of insulins in order to pay the “ever growing rebates” demanded by the PBMs “in exchange for formulary access.” Compl. ¶¶ 151, 165.

(16) The Complaint alleges Defendants engaged, and continue to engage, in unlawful, unfair, and fraudulent acts and practices in violation of the UCL, Business and Professions Code § 17200, by artificially raising the price of analog insulin (insulin). In addition to asserting a claim under the UCL, the Attorney General asserts a claim for unjust enrichment.

(17) The Attorney General alleges Manufacturer Defendants conspired to repeatedly raise the list price of insulin, in lockstep, to artificially high levels as facilitated by the rebate practices of the PBMs described below. (Compl., ¶¶ 6-9, 129-167.) For example, the Manufacturer Defendants raised their insulin prices by over 600% in the past twenty years. (Id. at ¶ 129.) The Manufacturer Defendants publish these inflated prices in databases administered by third-party entities. (Id. at ¶ 104.)

(18) The Complaint alleges the Manufacturer Defendants provided substantial secret rebates— eventually representing over 70% of the list price in some instances—to the PBMs. (Id. at ¶¶ 7, 147-158.) The Attorney General alleges the Manufacturer Defendants provide secret rebate payments to the PBMs because access to the PBMs’ market share from off-the-shelf, standard formularies they provide to, e.g., their commercial health insurance clients drive higher sales volume and revenue for the Manufacturer Defendants. (Id. at ¶¶ 8, 119-122.)

C. The Manufacturer Defendants’ Arguments Regarding the Statute of Limitations

(19) The Manufacturer Defendants argue that the lawsuit is barred by the statute of limitations. The manufacturers assert that the Attorney General’s claims are subject to either a three or four-year statute of limitations. This means that the Attorney General generally must file his lawsuit within three or four years of the date the alleged wrongdoing occurred.

(20) Both the UCL and unjust enrichment claims center on the idea that insulin prices were “inflated”—and consumers were thereby harmed—because the list prices that the Manufacturer Defendants charge wholesalers for diabetes medications did not reflect the rebates that Manufacturers later pay to the PBM Defendants after consumers fill prescriptions. Compl. ¶¶ 149-51, 155, 173, 207, 230. Manufacturer Defendants argue Plaintiff knew that the Manufacturer Defendants provide rebates to PBMs to obtain formulary access for their insulin products, and that federal law requires that the Manufacturers’ list prices exclude those rebates, for at least six years before filing their complaint.

(21) The four-year limit applies to claims made under the UCL, as stated in the California Business and Professions Code. (Cal. Bus. & Prof. Code. § 17208.) The statute of limitations for unjust enrichment claims depends on the underlying wrong. When the underlying wrong is fraud, a three-year statute of limitations applies. Because the complaint was filed on January 12, 2023, the People need to demonstrate that the UCL claim and the unjust enrichment claim accrued no earlier than January 12, 2019, and January 12, 2020, respectively.

(22) Manufacturer Defendants point to several events to support their claim that the statute of limitations bars the Attorney General’s action. The Manufacturer Defendants argue that the Attorney General’s claims are untimely because the Attorney General knew about the alleged misconduct at least six years before filing the Complaint. They base this argument on the fact that the California Attorney General initiated a civil investigation into insulin pricing nearly six years prior to filing the Complaint. Furthermore, the Minnesota Attorney General conducted a simultaneous investigation and filed a lawsuit in 2018 based on similar allegations. The Manufacturer Defendants also highlight that other lawsuits raising overlapping claims and making similar factual allegations were filed as early as February 2017.

D. The Manufacturer Defendants’ Arguments Regarding the UCL Claim

(23) The Manufacturer Defendants assert that the Plaintiff's UCL claim, even if not time-barred, is insufficiently substantiated. They argue that their conduct, including rebate payments and list price reporting, is explicitly authorized by both federal and state law, thereby falling under the UCL's safe harbor provisions of the UCL. The Manufacturer Defendants highlight that federal law mandates reporting requirements without factoring in rebates. They contend that California law explicitly allows manufacturers to determine drug prices, including increases, and permits the PBM's to negotiate discounts in rebates. They contend the Attorney General's argument regarding "artificially inflated" list prices due to not reflecting rebates cannot satisfy the unfair prong of the UCL considering the safe harbor provisions.

(24) The Manufacturer Defendants contend that the Attorney General fails to demonstrate any specific misrepresentations connected to insulin list prices or a rebate within the Complaint. They assert the Complaint lacks allegations of a duty to disclose that would support a fraudulent omission claim. The Complaint lacks any factual allegations of misrepresentations by the Manufacturer Defendants regarding the existence, amount, or purpose of rebates offered to PBMs. They contend there is no "secrecy" or collusion surrounding pharmaceutical rebates, as Manufacturer Defendants have openly disclosed the payment of rebates, acknowledging their increasing prevalence overtime. The Attorney General's reliance on the omissions theory is flawed, as there was no duty for Manufacturer Defendants to disclose the existence, amount, or purpose of rebates. Thus, they contend the fraudulent prong of the UCL is unsubstantiated.

(25) The Attorney General argues that the Manufacturer Defendants violated the UCL's unlawful prong by violating the California Consumer Legal Remedies Act (CLRA). They claim that the Manufacturer Defendants made false and misleading statements about price reductions for insulin, specifically citing CLRA § 1770(a)(13).

(26) The Manufacturer Defendants contend that the Attorney General's assertion of a CLRA violation is unfounded because the complaint lacks any factual basis for misleading statements about insulin prices and rebates. They emphasize that: (1) the Complaint itself confirms that Manufacturer Defendants have accurately disclosed their justifiable increases to insulin list prices; and (2) the Complaint reliance on CLRA subsection (a)(13), which prohibits false statements regarding price reductions, is misplaced because the complaint lacks such allegations.

(27) The Manufacturer Defendants argue against the Complaint's unjust enrichment claim, deeming it redundant alongside the UCL claim. They highlight that unjust enrichment does not constitute an independent cause of action under California law. They contend the claim is rooted in the same conduct as the UCL claim, rendering it unnecessary. They further allege the Attorney General cannot demonstrate a superior equitable right to any alleged benefits, a requirement for establishing an unjust enrichment claim. Thus, the Manufacturer Defendants argue that dispute falls under the purview of existing contracts, which supersedes a quasi-contract remedy.

II. DISCUSSION

(28) When considering demurrers, courts read the allegations liberally and in context, and “treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) It is error “to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

(29) Manufacturer Defendants seek judicial notice of legislative records (exhibits 1, 2, 9, 10, 11, 12, and 13), news articles (exhibits 3, 4, 5, 6, 7, 8, 19, 21, 22, 23, 24, 25, 26, and 29), reports filed with the Securities and Exchange Commission (“SEC”) (exhibits 14, 15, 16, 17, and 27), and court records (exhibits 18, 20, and 28).

(30) The Court finds that the RJN should be denied because the documents lack authentication and verification. (See Yaphe Decl., ¶¶ 1-30 [failing to establish personal knowledge and foundation].) Even if the Court were inclined to grant the RJN, the Court could only grant it in part. Judicial notice would be appropriate, at most, as to the existence of the legislative records, SEC reports, and court records, not the truth of their contents. The Court would still need to deny the RJN as to the news articles.

(32) Manufacturer Defendants contend the demurrer should be sustained because both causes of action accrued more than four years before the Attorney General filed his complaint. (See Demurrer, pp. 1-2, 9-11 [claiming Plaintiff knew about the alleged misconduct at least six years before the filing date].)

(33) The Attorney General claims the allegations satisfy equitable exceptions, namely, the last-overt-act rule, the continuing-violation doctrine, and the continuous-accrual doctrine. (See Opposition, pp. 28-33.) Manufacturer Defendants assert that the equitable exceptions do not apply. (See Demurrer, pp. 11-14; see also Reply, pp. 1-5.) The Court disagrees with Manufacturer Defendants’ first point. To show accrual and the People’s purported knowledge, Manufacturer Defendants cite the RJN exhibits. (See id. at pp. 4-9, 11.) As noted above, the RJN is denied. The exhibits cannot be used to meet the Manufacturer Defendants’ burden.

(34) The next issue is twofold. Do the allegations show untimeliness independent of the RJN exhibits? If so, do the equitable exceptions apply?

(35) The Court starts with the last-overt-act rule. The Rutter Guide describes it this way:

“A civil conspiracy is not a separate cause of action. Rather, it is a ground for holding persons liable for a tortious act committed by another: “The effect of charging . . . conspiratorial conduct is to implicate all . . . who agree to the plan to commit the wrong as well as those who actually carry it out.” [Citation.]

The statute of limitations on an action for conspiracy to defraud (or other intentional tort) does not begin to run until the “last overt act” pursuant to the conspiracy has been completed … even if this occurs more than 3 years after the fraud was discovered: “So long as a person continues to commit wrongful acts in furtherance of a conspiracy to harm another, he can neither claim unfair prejudice at the filing of a claim against him nor disturbance of any justifiable repose built upon the passage of time.” [Citations.]

(Banke & Segal, Cal. Practice Guide: Civ. Procedure Before Trial Statutes of Limitations (The Rutter Group February 2024 Update) ¶ 4:1230 [quoting Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773], emphasis in original.)

(36) The Attorney General claims the rule governs because the Complaint alleges an ongoing conspiracy and continuing overcharges. (See Opposition, p. 29.)

Manufacturer Defendants claim the Complaint fails to identify a specific overcharge within the last four years, the People failed to exercise reasonable diligence, and the Complaint does not allege a conspiracy. (See Reply, pp. 2-4.)

(37) On one hand, the demurrer arguably should be overruled. While “the date of the commission of the last overt act in pursuance of the conspiracy” typically must be alleged (Wyatt, supra, 24 Cal.3d at 789; see also Maheu v. CBS, Inc. (1988) 201 Cal.App.3d 662, 673-674), there is no last overt act when the purported overcharges are ongoing and/or new. (See People ex rel. Kennedy v. Beaumont Investment, Ltd. (2003) 111 Cal.App.4th 102, 137 [“Each month's collection of excess rent constitutes an overt act in furtherance of that conspiracy. [Citation.] Defendants were still collecting unlawful rent right up through the trial of the People ex rel. Kennedy case. Thus, when the trial court issued its statement of decision, defendants had not yet committed the last overt act of their conspiracy and the statute of limitations had not yet accrued.”]; see also, e.g., Complaint, ¶¶ 62 [alleging that the purported conspiracy “continues to the present”], 206 [alleging that “Defendants’ conduct has harmed, and is continuing to harm, the People through insulin’s inflated and artificial list price”], 208 [alleging that “uninsured patients have paid increasingly higher insulin prices for years on end and continue to do so”], 228 [alleging that Defendants “continue to engage in acts or practices that are unlawful, unfair, or fraudulent”].) Moreover, the conspiracy allegations suffice to meet the notice standard. (See, e.g, Complaint, ¶¶ 4-9, 62, 133-143, 147-176.) The efficient approach is to flesh out the facts of the alleged conspiracy via discovery rather than to hold multiple demurrer rounds. These reasons support the Plaintiff’s position.

(38) Conversely, the demurrer arguably should be sustained. In reviewing the Complaint, the Court did not see an explicit allegation that identifies an explicit overcharge that occurred on a date within the last four years. This reason supports Manufacturer Defendants’ position.

(39) On balance, the Court favors sustaining the demurrer because the Attorney General’s own chart undermines his position. The chart appears in paragraph 130 of the Complaint. The Attorney General cites it to demonstrate that prices rose through 2022 (see Opposition, p. 32), but, instead, it shows prices flatlining since 2018. (See Complaint, ¶ 130.) The Attorney General needs to provide amended allegations to address this discrepancy.

(40) As a matter of guidance, Manufacturer Defendants’ assertion regarding diligence is unavailing. The argument relies on the RJN exhibits, which cannot be considered, especially as to the truth of the contents.

(41) Manufacturer Defendants’ reliance on Gabelli v. SEC (2013) 586 U.S. 442 also fails. (See Reply, pp. 3-4.) Gabelli is distinguishable; it concerns the discovery rule, not the last-over-act rule.

(42) The Court turns to the continuing-violation doctrine. It “aggregates a series of wrongs or injuries for purposes of the statute of limitations, treating the limitations period as accruing for all of them upon commission or sufferance of the last of them.” (Willis v. City of Carlsbad (2020) 48 Cal.App.5th 1104, 1124; see also Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185, 1192.) It “allows liability for unlawful . . . conduct occurring outside the statute of limitations if it is sufficiently connected to unlawful conduct within the limitations period.” (Willis, supra, 48 Cal.App.5th at 1124.) “For the . . . doctrine to apply, a plaintiff must show the defendant engaged in ‘a pattern of reasonably frequent and similar acts [that] may, in a given case, justify treating the acts as an indivisible course of conduct actionable in its entirety, notwithstanding that the conduct occurred partially outside and partially inside the limitations period.’” (Ibid.)

(43) The Attorney General contends the Court should find the doctrine applicable since the complaint “allege[s] a continuing pattern and course of conduct as the Manufacturer Defendants consistently and incrementally raised prices just as the PBMs demanded increasingly greater rebate percentages.” (Opposition, p. 30.) The Attorney General also argues that the continuing violation doctrine applies because the Manufacturer Defendants’ frequent and similar acts of increasing prices in tandem with PBM demands for increased rebates constitute an ongoing pattern of conduct. The Attorney General maintains that the continuing-violation doctrine applies regardless of the Plaintiff’s knowledge of the wrongful conduct before the limitations period, citing Haddad v. Merck & Co., Inc, (C.D.Cal. Dec. 9, 2022) 2022 WL 18397392, at *5) a case concerning failure to warn, to demonstrate its application in similar contexts.

(44) [DC1] The Attorney General explained that in Haddad, the court determined that the doctrine applied to a pharmaceutical case where the manufacturer failed to adequately warn of risks associated with a drug. The Attorney Geneal also noted that the defendants in Haddad, unlike those in cases where the courts declined to apply the doctrine, engaged in recurring wrongful acts, such as ongoing sales and overcharges, within the statutory period.

(45) Manufacturer Defendants claim the doctrine is inapplicable because the Plaintiff fails to allege that the “price increases and price reporting are a series of otherwise nonactionable small harms that became actionable over time.” (Reply, p. 5; see also Demurrer, pp. 13-14.) They further claim the Plaintiff fails to allege that Manufacturer Defendants “raised prices” during or after 2019. (Reply, p. 5.)

(46) The analysis is the same as the last-overt-act-rule analysis. The Court sustains the demurrer with leave to amend to show price increases during the limitations period.

(47) Last up is the continuous-accrual doctrine. “Where the wrong complained of is continual or recurring, the cause of action is subject to continuous accrual for statute of limitations purposes, i.e., a cause of action accrues each time a wrongful act occurs, triggering a new limitations period.” (Banke & Segal, supra, at ¶ 3:70.5, emphasis in original.) “[E]ach new breach of such an obligation provides all the elements of a claim – wrongdoing, harm, and causation.” (Ibid., emphasis in original.)

(48) “[U]nder the theory of continuous accrual, a series of wrongs or injuries may be viewed as each triggering its own limitations period, such that a suit for relief may be partially time-barred as to older events but timely as to those within the applicable limitations period.” (Luke v. Sonoma County (2019) 43 Cal.App.5th 301, 306; see also Aryeh, supra, 55 Cal.4th at 1199 [“Generally speaking, continuous accrual applies whenever there is a continuing or recurring obligation: ‘When an obligation or liability arises on a recurring basis, a cause of action accrues each time a wrongful act occurs, triggering a new limitations period.’”].) The Plaintiff argues that the doctrine applies because Manufacturer Defendants’ alleged conduct “causes ongoing, recurring injury by imposing repeated overcharges.” (Opposition, p. 31.)

(49) In Aryeh, the California Supreme Court determined the application of the statute of limitations to claims filed under the UCL. (Supra, 55 Cal.4th 1185.) The Supreme Court found that each violation of the UCL triggers a new statute of limitations. The court determined this by considering the nature of the obligation breached, rather than how the claim is labeled. In this particular case, the defendant was obligated to not impose unfair charges in their monthly bills to the plaintiff. This duty, by its very nature, was continuous and prone to repeated breaches. As a result, the Court concluded that each alleged breach should be viewed as starting a new statute of limitations period. The Aryeh ruling enables the plaintiff to pursue recovery for charges that fall within the four years before the lawsuit was filed. The Court also determined that equitable exceptions are relevant when establishing if a claim was filed on time. (Supra, 55 Cal.4th at 1192-1195.) The Court found it contradictory to believe that while equity influences available remedies under the UCL, equitable exceptions are irrelevant when determining the timeliness of a claim. (Ibid.)

(50) Manufacturer Defendants assert that the Attorney General fails to allege a “continuing or recurring obligation[.]” (Reply, p. 4; see also Demurrer, pp. 12-13.) They contend the obligation to comply with federal or state law does not qualify as the required obligation. (See Reply, pp. 4-5; see also Demurrer, pp. 12-13.) The Manufacturer Defendants contend that the Attorney General’s reliance on Aryeh is misplaced. They argue that general compliance with the law, such as the UCL, does not constitute a "continuing obligation". The Manufacturer Defendants argue that courts have routinely rejected attempts to characterize compliance with the law as an ongoing obligation.

(51) The analysis is the same as the last-overt-act-rule analysis. The demurrer is sustained with leave amend.

(52) The concept of a “safe harbor” acts as a shield against liability under the UCL when a specific law permits the conduct in question. This means that if the California legislature has explicitly allowed certain actions, courts cannot deem those specific actions unfair under the UCL. “If the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination.” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1379 [quoting Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 182].) “When specific legislation provides a ‘safe harbor,’ plaintiffs may not use the general unfair competition law to assault that harbor.” (Ibid.)

(53) This rule “does not . . . prohibit an action under the unfair competition law merely because some other statute on the subject does not . . . prohibit the challenged conduct.” (Ibid.) “To forestall an action under the unfair competition law, another provision must . . . clearly permit the conduct. There is a difference between (1) not making an activity unlawful, and (2) making that activity lawful.” (Ibid. [instructing that “a statute that does not ‘affirmatively permit[ ] [a type of conduct] . . . does not preclude a court from deeming [such] conduct unfair under the unfair competition law’”].)

(54) Stated another way, “the Legislature's mere failure to prohibit an activity does not prevent a court from finding it unfair.” (BBBB Bonding Corp. v. Caldwell (2021) 73 Cal.App.5th 349, 377.) “[T]o ‘qualify for the “safe harbor” rule, the defendant must show that a statute “explicitly prohibit[s] liability for the defendant's acts or omissions” [citation] or “expressly precludes an action based on the conduct.”’” (Ibid.) “If a statute does not ‘explicitly prohibit liability’ for a defendant's specific acts or omissions, the court may not create an ‘implied safe harbor.’” (Ibid.)

(55) Manufacturer Defendants raise the safe harbor defense in relation to the Attorney General’s unfair-prong UCL claim; however, several courts have assumed that it also applies to UCL claims brought pursuant to the unlawful and fraud prongs. (See, e.g., The People v. Johnson & Johnson (2022) 77 Cal.App.5th 295, 345 [“We also assume, without deciding, that the safe harbor concept applies to UCL claims based on FAL violations and fraudulent or unlawful business practices, not merely claims based on unfair business practices.”]; see also Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 827-828 [“In Cel-Tech, we considered a UCL claim for unfair – but not unlawful – business practices and recognized a safe harbor from such claims for acts expressly allowed by the Legislature.” [¶] “We[DC2] , however, need not determine whether the safe harbor applies to unlawful business practices, because plaintiff cannot establish that defendant violated federal law.”]; De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966, 986-987 [assuming the safe harbor can apply in an unlawful-prong case].)

(56) The Manufacturer Defendants argue that their actions, including offering rebates and setting list prices, are protected by the safe harbor provisions because both federal and state laws allow for those activities. (Demurrer, p. 14.) In support, Manufacturer Defendants cite 42 U.S.C. sections 1320b-23(b), 1395w-3a(c)(6)(B), and 1396r-8(a)(1) and Health and Safety Code section 127676(b)(2). (See id. at p. 15; see also Reply, pp. 6-7.)

The information described in this subsection is the following with respect to services provided by a health benefits plan or PBM for a contract year:

(1) The percentage of all prescriptions that were provided through retail pharmacies compared to mail order pharmacies, and the percentage of prescriptions for which a generic drug was available and dispensed (generic dispensing rate), by pharmacy type (which includes an independent pharmacy, chain pharmacy, supermarket pharmacy, or mass merchandiser pharmacy that is licensed as a pharmacy by the State and that dispenses medication to the general public), that is paid by the health benefits plan or PBM under the contract.

(2) The aggregate amount, and the type of rebates, discounts, or price concessions (excluding bona fide service fees, which include but are not limited to distribution service fees, inventory management fees, product stocking allowances, and fees associated with administrative services agreements and patient care programs (such as medication compliance programs and patient education programs)) that the PBM negotiates that are attributable to patient utilization under the plan, and the aggregate amount of the rebates, discounts, or price concessions that are passed through to the plan sponsor, and the total number of prescriptions that were dispensed.

(3) The aggregate amount of the difference between the amount the health benefits plan pays the PBM and the amount that the PBM pays retail pharmacies, and mail order pharmacies, and the total number of prescriptions that were dispensed.”

(58) Section 1395w-3a(c)(6)(B) provides a definition for “wholesale acquisition cost”:

The term “wholesale acquisition cost” means, with respect to a drug or biological, the manufacturer's list price for the drug or biological to wholesalers or direct purchasers in the United States, not including prompt pay or other discounts, rebates or reductions in price, for the most recent month for which the information is available, as reported in wholesale price guides or other publications of drug or biological pricing data.”

(59) Section 1396r-8(a)(1) requires manufacturers to enter into rebate agreements with states:

In order for payment to be available under section 1396b(a) of this title or under part B of subchapter XVIII for covered outpatient drugs of a manufacturer, the manufacturer must have entered into and have in effect a rebate agreement described in subsection (b) with the Secretary, on behalf of States (except that, the Secretary may authorize a State to enter directly into agreements with a manufacturer), and must meet the requirements of paragraph (5) (with respect to drugs purchased by a covered entity on or after the first day of the first month that begins after November 4, 1992) and paragraph (6). Any agreement between a State and a manufacturer prior to April 1, 1991, shall be deemed to have been entered into on January 1, 1991, and payment to such manufacturer shall be retroactively calculated as if the agreement between the manufacturer and the State had been entered into on January 1, 1991. If a manufacturer has not entered into such an agreement before March 1, 1991, such an agreement, subsequently entered into, shall become effective as of the date on which the agreement is entered into or, at State option, on any date thereafter on or before the first day of the calendar quarter that begins more than 60 days after the date the agreement is entered into.”

(60) Section 127676(b)(2) gives manufacturers discretion to make pricing decisions:

“(2) It is further the intent of the Legislature to permit a manufacturer of a prescription drug to voluntarily make pricing decisions regarding a prescription drug, including any price increases. It is further the intent of the Legislature to permit purchasers, both public and private, as well as pharmacy benefit managers, to negotiate discounts and rebates consistent with existing state and federal law.”

(61) However, the Attorney General argues that the Manufacturer Defendants’ interpretation of the safe harbor is too narrow. The Attorney General contends that although the statutes mentioned might acknowledge the existence of rebates and pricing practices, they do not shield the Manufacturer Defendants from liability for the alleged artificial inflation of insulin prices through a conspiracy involving both price increases and concealed rebates.

(62) In Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, the California Supreme Court ruled that L.A. Cellular's practice of selling cellular phones below cost did not violate the Unfair Practices Act (UPA), as the plaintiffs did not prove the company acted with the intent of injuring competitors or destroying competition. The Supreme Court determined that a business must act with the desire, not just the knowledge, of harming competition to violate the UPA. (Cel-Tech Communications, Inc., 20 Cal.4th at 169.)

(63) The Supreme Court also addressed whether L.A. Cellular's conduct violated the unfair competition law, which prohibits “any unlawful, unfair or fraudulent” business act or practice. (Cel-Tech Communications, Inc., 20 Cal.4th 163.) While acknowledging that the unfair competition law can apply to practices not explicitly prohibited by other laws, the Court established a test for determining "unfairness" in this context. To be considered "unfair" under Section 17200, the conduct must meet one of the following criteria: (1) threaten an incipient violation of an antitrust law; (2) violate the policy or spirit of an antitrust law because its effects are comparable to or the same as a violation of the law; or, (3)otherwise significantly threaten or harm competition. (Ibid.)

(64) The Court noted that low prices generally benefit consumers and are a fundamental aspect of competition. (Cel-Tech Communications, Inc., 20 Cal.4th at 188-190.) However, in the Cel-Tech case, the Supreme Court found that L.A. Cellular's actions, while not violating the UPA, could be considered unfair under the unfair competition law because L.A. Cellular, as a duopolist, held a privileged position in the market due to its government-issued duopoly license. (Ibid. at 188-192.) The privileged position allowed the company to subsidize losses from below-cost phone sales with profits from its cellular service, a strategy not legally available to its competitors. (Ibid.)

(65) The Attorney General cites additional federal court rulings that support his stance, rejecting the argument that those specific federal laws provide blanket immunity to the Manufacturer Defendants. The Attorney General further emphasizes that the California law cited, while permitting manufacturers to set different prices for a hospital’s uninsured patients, the law does not condone artificially inflated or excessively high prices for such financially vulnerable individuals. He cites a relevant California case, Moran v. Prime Healthcare Management, Inc. (2016) 3 Cal.App.5th 1131, 208 Cal. Rptr. 3d 303, which held that a statute allowing a hospital to establish its own billing rates for emergency services for the uninsured did not protect the hospital from accusations of setting "artificial" and "grossly excessive" prices. (Ibid.) In Moran, the hospital billed the self-pay patient $10,000 for emergency room visits. (Id.)

(66) In the Moran v. Prime Healthcare Management, Inc. case, the court determined that a statute permitting “a hospital to bill for treatment and services based on its own schedule of fees” for emergency services did not establish a safe harbor against claims of “exorbitant” prices because the statute lacked explicit language barring an action under the UCL or granting hospitals the authority to charge “artificial and grossly excessive rates." (Supra., 3 Cal. App.5th 1141.)

(67) In contrast, in Schnall v. Hertz Corp., the contested surcharge was deemed avoidable and thus not unconscionable. (Schnall v. Hertz Corp. (2000) 78 Cal. App.4th 1144.) Because the surcharge in Schnall was not unconscionable, the court found that a statute authorizing the surcharge established a safe harbor against claims that the surcharge was unreasonable. Unlike in Schnall, the defendants in Moran did not dispute the issue of unconscionable fee setting based on financial vulnerability. Moreover, the plaintiffs in Moran successfully argued that the emergency room charges were artificially inflated, unavoidable, and resulted in significant harm to individuals particularly vulnerable because of the immediate need for medical services. (Moran v. Prime Healthcare Management, Inc., 3 Cal. App.5th at 1147-1149.)

(68) The Court is inclined to overrule this portion of the demurrer. Manufacturer Defendants’ argument appears to be based on a limited reading of the Complaint. They characterize the Attorney General’s liability theory as being about deceptive list prices. Namely, the list prices are inflated and unlawful because they do not account for/disclose the rebate payments that Manufacturer Defendants pay to PBM Defendants. (See Demurrer, p. 1.) However, the Complaint alleges “two main components” to the alleged scheme. (Complaint, ¶ 6.) The first component concerns a price-inflation conspiracy among Manufacturer Defendants – they purportedly agree to “raise the list price . . . in lockstep with each other to artificial levels.” (Ibid.) The second component concerns a rebate conspiracy between Manufacturer Defendants and PBM Defendants – “PBM Defendants obtain significant secret rebates, which are a percentage of the inflated and artificial list price, from the Manufacturer Defendants in exchange for favorable placement on the PBM’s standard formularies.” (Id. at ¶ 7.)

(69) As alleged, neither component indicates that the list prices would be reasonable and lawful if they simply reflected or disclosed the rebate payments. In fact, given the alleged price collusion, a reasonable reading of the components – whether considered separately or conjoined – is that the list prices would remain inflated and unlawful even if the rebate payments were reflected or disclosed. The Court agrees with the Attorney General that the statutes do not bar liability under these allegations at this stage. (See, e.g., Opposition, pp. 18-21 [noting, in part, that section 127676(b)(2) is a general statement of legislative intent as opposed to an express grant of immunity against pricing claims].)

(70) To the extent Manufacturer Defendants assert that the allegations are conclusive and lack detail, the Court disagrees. As already noted, the conspiracy/price-collusion allegations show enough to put Manufacturer Defendants on notice. (See, e.g., Complaint, ¶¶ 4-9, 62, 133-143, 147-176.) The efficient way to obtain further details is through discovery.

(71) Manufacturer Defendants’ citation to In re Insulin Pricing Litigation (D.N.J. Feb. 5, 2024, No. 2:17-cv-00699 (BRM) (RLS)) 2024 WL 416500 is unavailing for now. The district judge ruled at the certification stage on a factual record. He did not rule as a matter of law that the plaintiffs could never prove a basis for injunctive relief, only that they had not explained a basis at that point. (See In re Insulin Pricing Litig., supra, 2024 WL 416500, at *28.) Additionally, the two separate components alleged here, especially the alleged price collusion, make this case distinguishable at the pleading stage.

(72) The Court also finds it noteworthy that other federal courts have rejected Manufacturer Defendants’ argument. (See City of Miami v. Eli Lilly and Co. (S.D. Fla. Jan. 21, 2022, No. 21-22636-Civ-Scola) 2022 WL 198028, at * 8 n.8 [“The Defendants argue that federal law prohibits including rebates in a list price for pharmaceutical products. [Citation omitted.] However, the City’s claim is that the Manufacturer Defendants’ inflated the price of insulin and other medications using fraudulent rebates that served as kickbacks to the PBM Defendants. The Manufacturer Defendants cannot use Section 1395w-3a(c)(6)(B) to avoid the City’s allegations of wrongdoing.”]; see also Minnesota v. Sanofi-Aventis U.S. LLC (D.N.J. Mar. 31, 2020, No. 3:18-cv-14999 (BRM) (LHG) 2020 WL 2394155, at * 14 [similar].)

a. Price inflation, alleged collusion, the harm to diabetics and the balancing test

(73) The UCL’s unfair prong prohibits unfair business practices. Because the UCL is written in the disjunctive, “a business practice can be ‘unfair’ . . . even if it is not ‘deceptive’ and even if it is ‘lawful.’” (See Stern, Business and Professions Code Section 17200 Practice (The Rutter Group March 2023 Update) at ¶ 3:112.) “The ‘unfair’ standard is intentionally broad, allowing courts maximum discretion to prohibit new schemes to defraud.” (Id. at ¶ 3:113.)

(74) In contrast to its limited remedies, the unfair competition law's scope is broad. As the Supreme Court noted in Cel-Tech, it does not proscribe specific practices. “Rather, . . . it defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice.” (§ 17200.)(Cel-Tech, supra, 20 Cal.4th at p. 180-181.) Its coverage is “sweeping, embracing ‘ “anything that can properly be called a business practice and that at the same time is forbidden by law.” ’ ” (Rubin v. Green (1993) 4 Cal.4th 1187, 1200, 17 Cal.Rptr.2d 828, 847 P.2d 1044, quoting Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 113, 101 Cal.Rptr. 745, 496 P.2d 817.) It governs “anti-competitive business practices” as well as injuries to consumers and has as a major purpose “the preservation of fair business competition.” (Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at p. 110, 101 Cal.Rptr. 745, 496 P.2d 817; see also People v. McKale (1979) 25 Cal.3d 626, 631–632, 159 Cal.Rptr. 811, 602 P.2d 731; People ex rel. Mosk v. National Research Co. of Cal. (1962) 201 Cal.App.2d 765, 771, 20 Cal.Rptr. 516.) The Cel-Tech court also held that “to guide courts and the business community adequately and to promote consumer protection, we must require that any finding of unfairness to competitors under section 17200 be tethered to some legislatively declared policy or proof of some actual or threatened impact on competition.” (Cel-Tech. supra, 20 Cal.4th at pp. 186–187, 83 Cal. Rptr.2d 548, 973 P.2d 527.)

(75) According to Manufacturer Defendants, “[t]he People’s unfairness claim boils down to the notion that the amount the Manufacturers charge for insulin is too high, and thus unfair.” (Demurrer, p. 16.) Manufacturer Defendants contend the claim is “misguided because the UCL is not a vehicle for judicial price controls.” (Ibid.) They argue that simply raising prices, without more, does not constitute an unfair business practice under the UCL. The Manufacturer Defendants further assert that the People's reliance on cases like Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 33 Cal. Rptr. 2d 438 and Moran v. Prime Healthcare Management, Inc. is misplaced, as those cases involved additional factors beyond simple price increases.

(76) The Court disagrees that reliance on Saunders v. Superior Court, and Moran v. Prime Healthcare Management, Inc. is misplaced. “[A]n ‘unfair’ business practice occurs when that practice ‘offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.’” (Bardin v. DaimlerChrysler Corp. (2006) 136 Cal. App.4th 1255, 1268.) The Attorney General argues the Manufacturer Defendants' conduct is unfair under the UCL because the Manufacturers and PBMs operate in an oligopoly that has allowed them to inflate insulin prices, with the manufacturers engaging in price collusion and paying secret rebates to PBMs. The Attorney General’s argument goes beyond a request to order Manufacturer Defendants to sell at cost, sell at the same price, or receive a meager profit. (Cf. Kunert v. Mission Financial Services Corp. (2003) 110 Cal. App.4th 242, 265; cf. also Boris v. Wal-Mart Stores, Inc. (C.D. Cal. 2014) 35 F.Supp.3d 1163, 1171-1172.) The UCL can be used to challenge price collusion and similar types of anticompetitive behavior.

(77) The Attorney General contends that the balancing test used to assess the unfair prong of the UCL, weighs the gravity of harm to the consumer against the utility of the business practice, and favors the State’s argument in the instant case. The balancing test “involves an examination of [that practice’s] impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer.” (Bardin, supra, 136 Cal.App.4^th at 1268-1269.) The Complaint alleges that access to insulin to regulate their blood sugar levels is a matter of life and death for diabetics relying on insulin. (See Complaint, ¶ 1.) Plaintiff cites Saunders v. Superior Court, and Moran v. Prime Healthcare Management, Inc to demonstrate that similar allegations have satisfied this test in previous cases. “In brief, the court must weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.” (Bardin, supra, 136 Cal.App.4^th at 1269.) Oligopolies and price collusion burden competition. There is little to no utility to anyone but the colluders, so the alleged harm to consumers outweighs the minimal utility at this stage and passes the balancing test. (See Complaint, ¶¶ 206-224; see also Opposition, pp. 13-14.)

(78) The second test is the Federal Trade Commission (“FTC”) post-1980 test. The FTC test comes from section 5 of the FTC Act. It has three factors: “(1) the consumer injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided.” (Nationwide Biweekly Administration, Inc. v. Superior Court (2020) 9 Cal.5th 279, 303 n.10 (“Nationwide”).) The Court agrees with Plaintiff that the FTC test is satisfied for the same reasons that the balancing test is satisfied. (See Opposition, p. 14.)

(79) The third test is the tethering test. It requires that “the public policy which is a predicate to” an unfair-prong claim “‘must be “tethered” to specific constitutional, statutory or regulatory provisions’ in a manner similar to which [Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163] requires a competitor’s cause of action to be tethered to the antitrust laws.” (Nationwide, supra, 9 Cal.5th at 303 n.10.) Of course, the parties disagree about whether Plaintiff states a claim under the tethering test. (See Opposition, pp. 14-16; see also Reply, pp. 9-10.)

(80) The Court tends to agree with the Attorney General’s arguments, at least with respect to the price-collusion allegations. The alleged conduct either “violates the policy or spirit of the antitrust laws” or “otherwise significantly threatens or harms competition.” (People’s Choice Wireless, Inc. v. Verizon Wireless (2005) 131 Cal.App.4th 656, 662.) Regardless, the demurrer should be overruled. Case law is split on “the proper test for determining whether a business practice is unfair under the UCL in consumer cases” (Nationwide, supra, 9 Cal.5th at 303), yet the trend favors the FTC test. (See, e.g., Stern, supra, at ¶ 3:121.1.) It is appropriate to overrule the demurrer since the Complaint satisfies the FTC test.

(81) “[T]he UCL permits a cause of action to be brought if a practice violates some other law. In effect, the ‘unlawful’ prong . . . makes a violation of the underlying law a per se violation of [section] 17200.” (Stern, supra, at ¶ 3:53.) “Virtually any law or regulation – federal or state, statutory or common law – can serve as predicate for” an unlawful claim. (Id. at ¶ 3:56.) “Thus, if a ‘business practice’ violates any law – literally – it also violates [section] 17200 and may be redressed under that section. [Citation.]” (Ibid.)

(82) The underlying statute highlighted in the complaint is Civil Code section 1770(a)(13), the Consumer Legal Remedies Act (“CLRA”). (See Complaint, ¶ 229 [alleging that “Defendants’ acts or practices are unlawful, as that term is used in the UCL, and include, but are not limited to, violating the [CLRA], Civil Code section 1770, subdivision (a), subpart (13), by making false or misleading statements of fact concerning reasons for, existence of, or amounts of, price reductions to analog insulin”].)

(83) The Attorney General points out three alleged misstatements that they contend subsection (a)(13) covers:

* “Manufacturer Defendants have publicly represented that the prices for their analog insulins are justified because . . . insulin’s net price is decreasing” (Complaint, ¶ 186; see also Opposition, p. 22);

* “[e]ach of the Manufacturer Defendants claims to offer support programs, including coupons, to help consumers afford their insulin” (Complaint, ¶ 190; see also Opposition, p. 22); and

* “[i]n March 2019, Defendant Eli Lilly announced that it would produce an authorized generic version of Humalog, ‘Insulin Lispro,’ and promised that it would ‘work quickly with supply chain partners to make [the authorized generic] available in pharmacies as quickly as possible.’” (Complaint, ¶ 191; see also Opposition, p. 22.)

(84) Manufacturer Defendants contend the statements are true and are not about price reductions. (See Demurrer, p. 22 [arguing that the case is about purported price increases]; see also Reply, pp. 12-13.) The alleged misstatements do have some truth to them. For instance, the complaint admits that “net prices have shrunk in recent years” (Complaint, ¶ 171), Manufacturer Defendants do offer support programs (see id. at ¶ 193), and Eli Lilly does produce Insulin Lispro. (See id. at ¶ 196.) Also, the Court is inclined to agree with Manufacturer Defendants that the first and third statements do not address price reductions. (See Reply, p. 13.)

(85) The second statement is a close call. The Complaint says the second statement is misleading because “not all consumers are eligible” for the support programs, and “Manufacturer Defendants do not sufficiently advertise such support programs, resulting in limited awareness by consumers.” (Complaint, ¶¶ 193, 194.) Per the complaint, “[s]tudies [] suggest that consumers have been turned away from” the programs “due to their strict eligibility requirements.” (Id. at ¶ 194.) A broad reading of the statement is that it is about price reductions as it indicates to many consumers that they can receive cheaper prices via coupons and other programs that, in many cases, they do not qualify for. A narrower reading is that it merely notes the general availability of coupons without guaranteeing eligibility or a cheaper price. Since this is the demurrer stage, the Court leans toward the broad interpretation and overruling the demurrer. Indeed, how a reasonable consumer would interpret the second statement is a factual question.

(86) However, the Court is willing to grant leave to amend to give the Attorney General an opportunity to add details to all three statements – or include new statements – to render them actionable under subsection (a)(13) and the UCL.

(87) “The third type of conduct proscribed by § 17200 is ‘fraudulent’ business practices.” (Stern, supra, at ¶ 3:153.) “A business practice is ‘fraudulent’ within the meaning of § 17200 if ‘members of the public are likely to be deceived.’” (Id. at ¶ 3:154.) “An advertisement's potentially deceptive effect is measured by the audience to which it is addressed. Under the UCL and False Advertising statute, this will usually be the ‘reasonable person’ standard.” (Ibid.)

“231. Defendants’ acts or practices are fraudulent, as that term is used in the UCL, and include, but are not limited to:

b. making material misrepresentations regarding or failing to disclose the existence, amount, and/or purpose(s) of discounts, rebates, and/or other payments offered by the Manufacturer Defendants to PBM Defendants.”

(89) The Manufacturer Defendants argue that the Attorney General fails to demonstrate any specific misrepresentation connected to insulin list prices or rebates within the complaint. They assert that:

· The Complaint lacks allegations of a duty to disclose that would support a fraudulent-omission claim.

· The Attorney General 's characterization of list prices as "artificially inflated" does not equate to fraudulent conduct, as federal law requires Manufacturers to publish list prices without including rebates.

· The Complaint lacks any factual allegations of misrepresentations by the Manufacturers regarding the existence, amount, or purpose of rebates offered to PBMs.

· There is no "secrecy" or collusion surrounding pharmaceutical rebates, as Manufacturers have openly disclosed their payment of rebates, acknowledging their increasing prevalence over time.

· The Attorney General 's reliance on an omissions theory is flawed, as there was no duty for Manufacturers to disclose the existence, amount, or purpose of rebates.

(90) The artificial-inflation allegation is founded on the alleged price-collusion conspiracy. (See, e.g., Complaint, ¶¶ 4-9, 62, 133-143, 147-176.) The People's argument centers on three key examples of alleged misrepresentations:

• The Manufacturer Defendants claimed that net prices for insulin were decreasing, which the Attorney General suggested was misleading because the Manufacturers knew that net prices had already shrunk. The Attorney General asserts that a reasonable consumer could have been misled by this statement, especially as PBMs allegedly make it difficult to determine the amount of rebates they secure, thus obscuring the true net price.

• The Manufacturer Defendants promoted insulin affordability programs, which the Attorney General suggests created a false impression that the Manufacturers were taking meaningful steps to address high insulin prices. The Attorney General does not specify what aspects of these programs are misleading but argue that the existence of such programs, in conjunction with other alleged conduct, contributes to an overall deceptive picture of insulin pricing.

• Eli Lilly, one of the Manufacturer Defendants, represented in 2019 that it would offer a cheaper, generic version of its insulin. The Attorney General claim this was misleading because the generic insulin was largely unavailable in pharmacies. The Attorney General asserts that this misrepresentation, coupled with the Manufacturers’ other alleged conduct, forms part of a pattern of misleading statements about insulin pricing.

(91) The discounts/rebates allegation is founded, at least partly, on the alleged violations of the CLRA, subsection (a)(13). As misrepresentations and/or omissions, the allegations state claims under the fraud prong for the reasons stated in the unfair-prong and unlawful-prong sections.

(92) Unjust enrichment is an equitable doctrine. It “is based on the idea that ‘one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution of or for property or benefits received, retained, or appropriated, where it is just and equitable that such restitution be made, and where such action involves no violation or frustration of law or opposition to public policy, either directly or indirectly.’” (City of Oakland v. Oakland Raiders (2022) 83 Cal.App.5th 458, 478.) “The elements . . . are the ‘receipt of a benefit and [the] unjust retention of the benefit at the expense of another.’” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4th 1583, 1593.)

(93) Manufacturer Defendants contend “unjust enrichment is not a distinct cause of action” (Demurrer, p. 23; see also Reply, p. 14), the Attorney General “have an adequate remedy at law” (Demurrer, p. 23; see also Reply, pp. 14-15), the Attorney General fails to show that “[He has] a ‘better right’ to the [insulin] revenue” (Demurrer, p. 24; see also Reply, p. 15), and “an express contract governs the subject matter of this action[.]” (Reply, p. 15; see also Demurrer, p. 24.)

(94) The demurrer is sustained. Case law is split about whether unjust enrichment can be a standalone cause of action. (See O’Grady v. Merchant Exchange Productions, Inc. (2019) 41 Cal.App.5th 771, 791 [acknowledging the split].) Apparently, the Second District falls on the side of it not being a cause of action. (See Jogani v. Superior Court (2008) 165 Cal.App.4th 901, 911; see also Bank of New York Mellon v. Citibank, N.A. (2017) 8 Cal.App.5th 935, 955; Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793.) The Court intends to follow the Second District.

(95) The Attorney General’s cases do not change the outcome. Except for O’Grady, a First District decision, none of them takes up the issue. (See Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018) 29 Cal.App.5th 230, 238; see also Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1132; Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 50.)

(97) Manufacturer Defendants’ Request for Judicial Notice (“RJN”) is denied.

(a) A four-year limitations period applies to the UCL and either a three-year limitations period or a four-year limitations period applies to unjust enrichment.

(b) The equitable exceptions may overcome any applicable statute of limitations defense to the UCL at the pleading stage. The Complaint states the alleged conspiracy and misconduct, including inflated prices and overcharging, are ongoing. However, the Court observes that the Complaint lacks explicit allegations identifying a specific overcharge within the past four years. Therefore, the Court believes an alternative option is available. The Court sustains the demurrer with leave to amend allowing the Attorney General to provide more detailed allegations demonstrating specific overcharges within the past four years. The Court favors this option due to a discrepancy between the Plaintiff's statements and a chart in paragraph 130 of the Complaint regarding the flattening of price increases. The Court leans toward overruling the demurrer on the grounds of the continuing violation doctrine and continuous accrual doctrine. The Court believes that the Attorney General should be allowed to pursue discovery to develop the facts related to the alleged conspiracy.

(d) The allegations of price inflation, coupled with allegations of collusion and significant harm to insulin consumers in California, as alleged in the Complaint state a claim of an unfair business practice and unlawful conduct under the UCL.

(e) The allegations of "secret rebates" and inflated list prices as alleged in the Complaint state a claim of unfair and unlawful conduct under the UCL.

(f) The discounts/rebates allegation is founded, at least partly, on the alleged violations of the CLRA, subsection (a)(13). As misrepresentations and/or omissions, the allegations state claims under the fraud prong of the UCL for the reasons stated in the unfair-prong and unlawful-prong sections.

(g) The unjust enrichment claim does not describe a theory of recovery; thus, the Court sustains the demurrer to this cause of action. The Court’s inclination is to grant the Attorney General leave to assert a common count for restitution based on unjust enrichment as an alternative in case.

The hearing on CVS Health’s motion to quash is continued to give the People an opportunity to conduct discovery regarding purposeful availment.

The People filed this case against three manufacturers of insulin, three pharmacies, and a holding company. According to the complaint, the manufacturers provide rebates to the pharmacies for filling insulin prescriptions. The People claim the publicly reported list prices for insulin are inflated and misleading because the manufacturers fail to take the rebate payments into account when they list the prices.

Here, the holding company, CVS Health, moves to quash service of the summons. CVS Health contends the Court lacks personal jurisdiction.

There are “two types of personal jurisdiction[,]” general and specific. (Bristol-Myers Squibb Co. v. Superior Court (2017) 582 U.S. 255, 262 (“BMS”).) Plaintiff only relies on specific jurisdiction.

“When determining whether specific jurisdiction exists, courts consider the ‘relationship among the defendant, the forum, and the litigation.’” (Halyard Health, Inc. v. Kimberly-Clark Corp. (2019) 43 Cal.App.5^th 1062, 1070.) “[C]ourts focus on the nature and quality (not the quantity) of defendant’s activity in the forum state.” (Edmond & Karnow, Cal. Practice Guide: Civ. Procedure Before Trial (The Rutter Group June 2023 Update) ¶ 3:240.) “[S]ingle or occasional acts of the corporate agent in a state” may be adequate as long as the lawsuit relates to the “in-state activity.” (Daimler AG v. Bauman (2014) 571 U.S. 117, 127; see also Edmond & Karnow, supra, at ¶ 3:240.1 [“Provided a ‘substantial connection’ with the forum is created thereby, even a single act may support specific personal jurisdiction over a nonresident.”].)

To exercise specific jurisdiction, a court must find purposeful availment (the defendant made purposeful contacts with the forum), relatedness (the litigation arises out of or relates to the defendant’s forum contacts), and reasonableness (the forum’s “assertion” of specific jurisdiction “comport[s] with ‘fair play and substantial justice’”). (Halyard Health, supra, 43 Cal.App.4^th at 1070.)

Plaintiff bears the initial burden to establish specific jurisdiction. (See Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4^th 434, 449.)

“‘The purposeful availment inquiry . . . focuses on the defendant's intentionality. [Citation.] This prong is only satisfied when the defendant purposefully and voluntarily directs his activities toward the forum so that he should expect, by virtue of the benefit he receives, to be subject to the court's jurisdiction based on’ his contacts with the forum.” (Pavlovich v. Superior Court (2002) 29 Cal.4^th 262, 269.)

* CVS Health “has no regular business operations or employees” in California (Motion, p. 3; see also Reply, pp. 1-2 [discussing Corcoran v. CVS Health Corp. (N.D. Cal. 2016) 169 F.Supp.3d 970, asserting that CVS Health “is a holding company that performs no functions unrelated to that status[,]” and criticizing the People’s evidence]);

* the People cannot use allegations to meet their evidentiary burden (Motion, pp. 3-4 [arguing that allegations treating subsidiary CaremarkPCS Health, LLC (“CVS Caremark”) and parent CVS Health “as one and the same” are inadequate to show purposeful availment];

* CVS Health “has ‘no direct involvement in directing, managing, or supervising the operations or employees of’” CVS Caremark (id. at pp. 4-5; see also Reply, pp. 3-4); and

* “CVS Caremark is not an agent or alter ego of CVS Health.” (Motion pp. 5-6; see also Reply, pp. 3-4.)

The People disagree. They contend “CVS deliberately and purposefully availed itself of California’s benefits” by:

* having “a corporate mandate to increase drug rebates” (Opposition, p. 10);

* involving CVS Health employees in (1) “insulin rebate negotiation and contracting” (ibid.), and (2) “the [Formulary Review Committee (“FRC”)] and [Pharmacy and Therapeutics] Committee [(“PTC”)] that set the standard (template) formularies” (ibid.); and

* using the formularies “nationwide, including in California” (id. at pp. 10-11 [analogizing SK Trading International Co. Ltd. v. Superior Court (2022) 77 Cal.App.5^th 378 (“SK Trading”)]).

* “for personal jurisdiction based solely on CVS Health’s status as the parent of” CVS Caremark (ibid.);

* “that they can satisfy the purposeful availment only based on” allegations (id. at pp. 11-12); or

* “for personal jurisdiction based on an agency or alter ego theory” (id. at p. 12).

The Court starts with CVS Health’s evidence. CVS Health cites the declaration of Thomas Moffat, the vice president and senior legal counsel of CVS Pharmacy, Inc. Moffatt declares:

4. CVS Health Corporation is a holding company, and its primary functions are to issue stock that is traded on the New York Stock Exchange and to file reports with the U.S. Securities and Exchange Commission. CVS Health Corporation also performs certain other functions related to those primary functions. However, CVS Health Corporation has no operations unrelated to its status as a holding company.

5. CVS Health Corporation is organized under the laws of the State of Delaware, and its principal place of business is located in the State of Rhode Island. It has no offices or facilities in California, and none of its limited business functions regularly occur there. CVS Health Corporation has no assets, income, employees, or operations in California. CVS Health Corporation is not qualified as a foreign corporation under the laws of California, it does not have a registered agent for service of process there, and it is not regulated by any California state agency.

6. CVS Health Corporation has agreements with a limited number of senior executives who are officers of CVS Health Corporation and who are employed by and provide services to various subsidiaries of CVS Health Corporation. None of these officers is located in California. CVS Health Corporation has no direct involvement in directing, managing, or supervising the operations or the employees of any of its direct or indirect subsidiary companies, including CaremarkPCS Health, L.L.C.

7. CVS Health Corporation is a separate and distinct company from CaremarkPCS Health, L.L.C. Both of these companies observe and enforce corporate formalities. CaremarkPCS Health, L.L.C. is not a reporting division of CVS Health Corporation. Rather, it is a separate entity. It has its own governing documents; maintains its own corporate records, bank accounts, and financial records; for jurisdictions where required to file separately, files its own tax returns; funds its own operations, if any; bears responsibility for its own debts, if any; and has its own managers, who meet separately from the board of directors of CVS Health Corporation.

(Moffatt Decl., ¶¶ 4-7.) These facts support CVS Health’s position, but they do not end the analysis.

“[C]ourts ‘begin[ ] with “the firm proposition that neither ownership nor control of a subsidiary corporation by a foreign parent corporation, without more, subjects the parent to the jurisdiction of the state where the subsidiary does business.”’” (SK Trading, supra, 77 Cal.App.5^th at 388.) The result changes, however, if the parent’s contacts “reflect more than passive investment or ownership of a subsidiary.” (Ibid.) The necessary “question is . . . whether the defendant has purposefully directed its activities at the forum state by causing a separate person or entity to engage in forum contacts.” (Ibid.)

In SK Trading, which the People cite, the plaintiff alleged that “several oil and gas firms” “participat[ed] in a multiyear conspiracy to manipulate the California gasoline market[.]” (Id. at 382.) One of the companies – SK Trading, a South Korean corporation – moved to quash. The trial court denied the motion, finding that “SK Trading purposefully directed its activities at California residents by and through” a subsidiary, “SK Energy, whose employees made trades on the California spot market and engaged in business in California on behalf of SK Trading.” (Id. at 387.) The Court of Appeal considered the following evidence and affirmed:

. . . In January 2014, SK Trading conducted its “1st Half 2014 Strategic Meeting” at which it set forth a plan to improve SK Energy's profits from trading on the spot market in California. The plan encouraged SK Energy to hire a new trader with California gasoline trading experience and expertise and called for the promotion of “alliances” or “joint ventures” between SK Energy and other gas firms. Thereafter, a business plan was drafted for SK Energy incorporating the strategies previously discussed.

SK Trading subsequently supported and approved the hiring of former Vitol trader David Niemann as SK Energy's new west coast gasoline trader. SK Trading received background information on potential hires, including their trading history and likelihood of being recruited. SK Trading organized the information that SK Energy provided to its personnel committee in support of its decision to hire Niemann. A SK Trading executive interviewed Niemann at SK Energy's headquarters in Houston and provided final approval for his hire. The SK Trading executive then reported to the SK Trading CEO that he supported hiring Niemann “given his focus on teamwork, clear views based on more than 20 years of experience in the [United States West Coast] market, and decent attitudes.” Niemann thought of SK Trading as his “management” and accused SK Trading of “micromanaging every little aspect of the finances.”

Executives of both SK Trading and SK Energy met regularly with Vitol executives throughout 2014 and 2015. In early 2015, SK Trading's CEO reported on a meeting with Vitol's CEO and Global Distillates Bookleader, among others, at which they “exchanged opinions on the overall issues of the oil industry such as oil prices” and “Vitol agreed to make mutual efforts to develop cooperative projects with SK.” In July 2016, a SK Trading executive visited Houston to meet with, among others, Vitol's west coast gasoline trader. Vitol's trader informed him that Vitol “has been achieving good performance record last year and this year through JV [joint venture] with SK ... in the USWC market” and that their “JV with Niemann is more effective and creates higher net profits than any other Regional Book.” The Vitol trader also advised that “[d]ue to [his] lack of experience, he had quite a tough time in his first year of trading (year 2014), but along with the super strong trend of USWC market in 2015, he has continued collaboration with Niemann through Storage, cargo JV, etc.”

Throughout the relevant time period, SK Energy submitted a weekly report to SK Trading. The report included position and valuation information as well as information on CARBOB trading and the ongoing coordination with Vitol related to the California market.

The record establishes that SK Trading actively adopted and implemented a plan designed to increase SK Energy's profits derived from trading on the California spot markets. SK Trading actively participated in the hiring and management of SK Energy's California trader and facilitated agreements between SK Energy and Vitol regarding gasoline sales in California. These are not, as SK Trading suggests, “general management activities common to parent-subsidiary relationships.” In Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4^th 523, 552, 99 Cal.Rptr.2d 824, the court emphasized that “[t]he critical acts may be taken directly by the parent or indirectly through the subsidiary, but in all events must be attributable to the parent corporation itself. Thus, the theory does not rest on a finding that the subsidiary is a sham corporation or an agent or representative of the parent. Rather, the focus is on the acts of the parent itself.” Here, the record establishes that SK Trading officers personally and directly participated in making the decisions affecting the California gasoline market that the People allege violated California law.

The Court turns to the People’s evidence. The People cite eight exhibits. The Court will discuss them individually.

Exhibit H is testimony from Dr. Alan Lotvin, CVS Health’s executive vice president and chief transformation officer, during a motion hearing in a federal case called United States v. CVS Health Corp. Dr. Lotvin testified that, “across the entire” CVS corporate family, “the mandate . . . is to grow the business[,]” which necessitates “winning new clients.” (The People’s Exhibit List, Ex. H, p. 305.) The testimony says nothing about California contacts by either CVS Health or CVS Caremark.

Exhibit M is a July 2013 rebate contract between CVS Caremark and Sanofi-Aventis U.S. LLC (“Sanofi”). The People pinpoint page CVSCM_SFC_0003995, the signature page of the contract. (See Opposition, p. 10 [misnumbering the page as CVSCV_SFC_0003995.) It contains signatures from CVS Caremark’s senior vice president of trade relations and two Sanofi vice presidents. (See the People’s Exhibit List, Ex. M, p. CVSCM_SFC_0003995.) There is no mention of CVS Health.

Exhibit N is a printout of Gary Loeber’s LinkedIn profile. No specific page is pinpointed. (See Opposition, p. 10.) Loeber is the person who signed the exhibit M rebate contract on behalf of CVS Caremark. The LinkedIn profile suggests that he also worked for CVS Health at that time; however, the page does not establish that signed the contract in his capacity as a CVS Health employee. (See the People’s Exhibit List, Ex. N, p. 003.) Moreover, the website is unauthenticated and unverified.[1]

Exhibit O is a testimony from Joseph Anderson in a federal case called In re EpiPen (Epinephrine Injection, USP) Marketing, Sales Practices & Antitrust Litigation. The People do not explain who Anderson is. The pinpoint is page 51 (see Opposition, p. 10), which states:

THE WITNESS: So if I -- I recall, the statement I made was that one of the -- one of the roles that FRC plays is ensuring that the -- that the recommendations, you know, focus on those that must align with the priorities and strategies of CVS Caremark and its clients.

In general, that -- that is, you know, based on the, you know, the formulary that a particular client has chosen, you know, trying to deliver the -- the lowest net cost, manage a clinically appropriate formulary, provide, you know, you know, formulary, you know, services to those clients that, you know, that we believe are, you know, competitive in the market.

Exhibit Q is a list of CVS Health’s PTC participants. Most of the participants are unnamed. The extent of the California connection shown on the face of the list is that a couple of the unnamed participants are licensed to practice medicine in California. (See id. at Ex. Q, pp. 001, 004.) Purposeful availment requires more.

Exhibit R is an August 2019 letter from CVS Health’s counsel to United States Senators Charles Grassley and Ron Wyden. The People highlight pages three through five. While the pages do address the FRC and PTC, they do not address California, let alone targeted contacts. (See the People’s Exhibit List, Ex. R, pp. 3-5). Indeed, at most, the letter shows contacts targeted at Washington, DC.

Exhibit T is a July 2015 declaration from Brian McCarthy in a federal case called Pharmaceutical Care Management Association v. Rutledge. McCarthy is the chief operating officer of the Pharmaceutical Care Management Association. The pinpointed paragraphs are paragraphs two through 4 and 6:

2. Pharmacy Benefit Managers ("PBM" or ''PBMs") administer prescription drug plans for more than 236 million Americans covered by self-funded and insured ERISA-governed employee health benefit plans, health plans offered by non-profit hospital or medical services corporations, health insurers, health maintenance organizations, and union-sponsored plans. PBMs also administer pharmaceutical benefit plans for state governments, as well as Federal programs including Medicare Part D, Medicaid, and the Federal Employee Health Benefits Program (FEHBP). Each Member PBM conducts business nationwide.

3. Plaintiff PCMA is a non-profit 50l(c)(6) corporation organized in 2002 under the laws of laws of the State of Delaware. It is the national trade association representing PBMs. PCMA currently comprises the following eleven member companies: Aetna, Cigna, Catamaran, CVSHealth, Express Scripts, Humana Pharmacy Solutions, LDI, Medlmpact Healthcare System, Optum Rx, Prime Therapuetics, and USScript (collectively, Member PBMs"). The Member PBMs comprise the largest PBMs in the country and account for approximately 75% of annual prescription volume nationwide, as of the latest figures available, from the third quarter of 2012.

4. As reflected in PCMA's certificate of incorporation, a true copy of which is attached hereto as Exhibit A, PCMA's purpose is as follows:

(a) to advance the common interests of these companies engaged in the business of pharmaceutical care management; (b) to improve the safety and affordability of prescription drug services; ( c) to advance pharmaceutical care management as the most effective means of delivering prescription drug care; ( d) to lead, educate and advocate on behalf of those companies engaged in pharmaceutical care management; and ( e) to do everything necessary, proper, advisable, or convenient for the accomplishment of PCMA's purposes . . . .

6. PCMA fulfills this purpose in part by leading industry initiatives on legislation and regulation. As part of its legal strategy, PCMA also initiates litigation on behalf of Member PBMs to challenge those laws and regulations that cause the Member PBMs undue harm. On information and belief, PCMA has brought four such challenges since its founding, including the present litigation regarding Act 900.

(Id. at Ex. T, ¶¶ 2-4, 6; see also Opposition, pp. 10, 11.) The declaration is unauthenticated, the statements are unverified, and the statements fail to establish contacts targeted at California as opposed to generic targeting of the nation.

Exhibit W is a January 2021 SAG-AFTRA summary plan description. The People cite page 57. (See Opposition, p. 10.) Among other things, it states that “[t]he Plan uses Caremark’s Advanced Control Formulary, which is a list of covered brand-name and generic medications.” (The People’s Exhibit List, Ex. W, p. 57 [also numbered as page 002].) CVS Health is not named, nor do the statements show direction and participation.

On the current record, the People’s showing is insufficient to satisfy their burden, and SK Trading is distinguishable.

The Court finds that a discovery continuance should be granted. (See Opposition, pp. 14-15 [requesting a discovery continuance]; see also In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4^th 100, 127 [“A plaintiff attempting to assert personal jurisdiction over a nonresident defendant is entitled to an opportunity to conduct discovery of the jurisdictional facts necessary to sustain its burden of proof.”].)

For the relatedness prong, “‘the suit’ must ‘aris[e] out of or relat[e] to the defendant’s contacts with the forum.’” (BMS, supra, 582 U.S. at 262.) “In other words, there must be ‘an affiliation between the forum and the underlying controversy, principally, [an] activity or occurrence that takes place in the forum State and is therefore subject to the State’s regulation.’” (Id.)

This prong appears to be uncontested. CVS Health does not address it in the moving brief.

“Finally, it must appear that the exercise of jurisdiction by local courts in the particular case would ‘comport with fair play and substantial justice.’” (Edmond & Karnow, supra, at ¶ 3:244.) “The burdens on the nonresident must clearly outweigh the plaintiff’s and forum’s interests.” (Id. at ¶ 3:247.)

[1] Almost all of the exhibits lack authentication and verification. The People’s counsel lacks personal knowledge to render the exhibits admissible.

Moving Party: CaremarkPCS Health, LLC (“CVS Caremark”), CVS Health Corp. (“CVS Health”), Express Scripts, Inc. (“Express Scripts”), and OptumRX, Inc. (“OptumRX”) (collectively “PBM Defendants”)

PBM Defendants’ demurrer is overruled as to the safe-harbor issue, unfair-prong issue, unlawful-prong issue, and fraud-prong issue.

PBM Defendants’ demurrer is sustained with leave to amend to assert a common count for restitution.

The People filed this case against three manufacturers of insulin (Manufacturer Defendants), three pharmacy-benefit managers (“PBM Defendants” or “PBMs”), and a holding company (CVS Health).

1. Millions of Californians suffer from diabetes. For many diagnosed with this condition, access to insulin to regulate their blood sugar levels is a matter of life and death. Yet, the excessive price of insulin undermines their access to this century-old, life-sustaining drug.

2. Inexplicably, list prices for insulin have risen several hundred percent over the last two decades. Today, California diabetics who require insulin to survive and who are exposed to insulin’s full price, such as uninsured consumers and consumers with high deductible insurance plans, pay thousands of dollars per year for insulin.

3. The excessive price of insulin disproportionately harms low-income communities who must choose between paying for insulin or everyday necessities, such as housing and food. To stretch dollars and insulin supplies, many Californians have turned to the dangerous practice of rationing insulin or skipping doses despite the severe risks of loss of sight, limbs, or death. These harms are further compounded for Black, Hispanic, and low-income communities in California as they are more likely to be diagnosed with diabetes and to be uninsured or underinsured.

4. The United States insulin market is an oligopoly. The defendants include three insulin manufacturers (Manufacturer Defendants)—Eli Lilly, Novo Nordisk, and Sanofi—who make nearly all of the insulin sold in the United States.

5. Also named as defendants are the three pharmacy benefit managers (PBM Defendants) that dominate the PBM market—CVS Caremark, Express Scripts, and OptumRx. PBMs are entities that administer prescription drug programs, which are a part of the essential benefits that health insurance plans must cover. One aspect of the PBM’s role is determining the prescription drugs a given health insurance plan covers (known as a formulary). Another aspect of the PBM’s role is negotiating confidential contracts that provide for post-sale discounts (rebates) that a drug manufacturer will provide to the PBM, not the consumer, if a consumer fills a prescription for the manufacturer’s drug.

6. The conduct at issue in this Complaint has two main components. First, the Manufacturer Defendants aggressively raise the list price of insulin in lockstep with each other to artificial levels. The inflated and artificial insulin price increases have significantly exceeded inflation and are not justified by advances in the efficacy of the drugs or the cost of manufacturing. Insulin costs less than $10 a month to manufacture and its development costs have long been recouped.

7. Second, PBM Defendants obtain significant secret rebates, which are a percentage of the inflated and artificial list price, from the Manufacturer Defendants in exchange for favorable placement on the PBM’s standard formularies. This rebating strategy incentivizes the Manufacturer Defendants to raise their list prices high and higher. The result is that the PBM Defendants’ standard formularies promote the Manufacturer Defendants’ high list-price insulin products over lower list-price insulins in California and nationwide.

8. The Manufacturer Defendants participate in this conduct because being listed on a PBM Defendant’s standard national formulary is a financial boon. Like the insulin market in the United States, the PBM market in the United States is also oligopolistic. The PBM Defendants capture over 75% of the market. Being included on a PBM Defendant’s standard national formulary drives higher sales volume and revenue.

9. The PBM Defendants participate in this conduct because their revenue is related to the size of the secret rebates they negotiate. Larger list prices support larger secret rebates because rebates are calculated as a percentage of the list price. Also, the PBM Defendants have a perverse incentive for ever-growing list prices. The PBM Defendants claim they can extract higher rebates due to their market power. If drug list prices grow, demand for their rebate negotiation services increases.

10. In addition to participating in conduct raising list prices, Defendants made misrepresentations about insulin prices and their actions in relation to insulin prices.

11. By increasing the list price of insulin, Defendants harm diabetic Californians who require insulin. They are exposed to insulin’s unaffordable list price and do not benefit from the secret rebates.

12. Defendants are liable for the harms caused by their conduct under theories that protect consumers and competition. Defendants’ conduct harms diabetic Californians who require insulin without a sufficient counterweighing benefit to them. Additionally, Defendants’ conduct runs against several principles of honesty and fair dealing with competitors and consumers, including (a) prohibition on false discounts and prohibition on misleading statements made in furtherance of the false discounts, (b) prohibition on members of oligopolies abusing their market power in order to raise their product prices to unconscionable levels, (c) prohibition on middlemen in product distribution chains with large market share leveraging their market power to obtain secret rebates from manufacturers that are not granted to their smaller middlemen competitors, and (d) prohibition on members of oligopolies adopting practices that facilitate the coordination of price increases.

The complaint contains two causes of action: (1) violation of the UCL; and (2) unjust enrichment.

When considering demurrers, courts read the allegations liberally and in context, and “treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.” (Serrano v. Priest (1971) 5 Cal.3d 584, 591.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed.” (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) It is error “to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

PBM Defendants seek judicial notice of legislative reports and hearings (exhibits A through E) and rules published in the Federal Register (exhibits F through I).

The Court finds that the RJN should be denied because PBM Defendants failed to submit evidence authenticating the documents.

Alternatively, if defense counsel makes a successful offer of proof at the hearing, the Court’s inclination would be to grant the RJN since the documents constitute legislative official acts.

The Court incorporates the tentative ruling on Manufacturer Defendants’ demurrer. For the most part, the analysis there applies equally here.

A four-year limitations period applies to the UCL (see Stern, Business and Professions Code Section 17200 Practice (The Rutter Group March 2023 Update) ¶ 5:290), and either a three-year limitations period or a four-year limitations period applies to unjust enrichment. (See Federal Deposit Ins. Corp. v. Dintino (2008) 167 Cal.App.4^th 333, 347 [finding a three-year limitations period applicable to fraud-based unjust enrichment]; see also Opposition, p. 33 [arguing that Code of Civil Procedure section 343’s four-limitations period should apply because the People’s claim is equity-based].)

PBM Defendants contend the demurrer should be sustained because both causes of action accrued prior to 2019, more than four years before the People filed their complaint. (See Demurrer, pp. 4-6.)

The People claim the allegations satisfy equitable exceptions, namely, the last-overt-act rule, the continuing-violation doctrine, and the continuous-accrual doctrine. (See Opposition, pp. 29-33.)

Manufacturer Defendants assert that the equitable exceptions do not apply. (See Demurrer, pp. 5-6; see also Reply, pp. 1-3.)

The demurrer is sustained with leave to amend. The complaint alleges a two-part conspiracy between two oligopolies – Manufacturer Defendants and PBM Defendants. In short, the People claim Manufacturer Defendants agree to artificially inflate list prices in order to fund large rebates to PBM Defendants “in exchange for favorable placement on” PBM Defendants’ “standard formularies.” (Complaint, ¶¶ 6, 7; see also id. at ¶¶ 4-5, 8-9, 62, 133-143, 147-176.) Allegedly, the large rebates “are a percentage of the inflated and artificial list price[s.]” (Id. at ¶ 7.) The problem is that the People’s own chart shows prices flatlining since 2018 (see id. at ¶ 130), which, seemingly, if true, could have curtailed, if not ended, the purported rebate scheme. The People need to provide amended allegations to address this discrepancy and to show price increases and actionable conduct during the limitations period. (See Tentative Ruling Re: Manufacturer Defendants’ Demurrer, pp. 4-7.)

“If the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination.” (Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4^th 1342, 1379 [quoting Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4^th 163, 182].) “When specific legislation provides a ‘safe harbor,’ plaintiffs may not use the general unfair competition law to assault that harbor.” (Ibid.)

This rule “does not . . . prohibit an action under the unfair competition law merely because some other statute on the subject does not . . . prohibit the challenged conduct.” (Ibid.) “To forestall an action under the unfair competition law, another provision must . . . clearly permit the conduct. There is a difference between (1) not making an activity unlawful, and (2) making that activity lawful.” (Ibid. [instructing that “a statute that does not ‘affirmatively permit[ ] [a type of conduct] . . . does not preclude a court from deeming [such] conduct unfair under the unfair competition law’”].) Stated another way, “the Legislature's mere failure to prohibit an activity does not prevent a court from finding it unfair.” (BBBB Bonding Corp. v. Caldwell (2021) 73 Cal.App.5^th 349, 377.) “[T]o ‘qualify for the “safe harbor” rule, the defendant must show that a statute “explicitly prohibit[s] liability for the defendant's acts or omissions” [citation] or “expressly precludes an action based on the conduct.”’” (Ibid.) “If a statute does not ‘explicitly prohibit liability’ for a defendant's specific acts or omissions, the court may not create an ‘implied safe harbor.’” (Ibid.)

PBM Defendants claim the safe harbor applies because federal and state law “protect[] manufacturers’ ability to ‘voluntarily make pricing decisions’ and PBMs’ right ‘to negotiate discounts and rebates.’” (Demurrer, p. 8.) In support, PBM Defendants cite 42 U.S.C. sections 1320b-23(b), 1395w-3a(c)(6)(B), and 1396r-8(k)(1)(B)(i)(IV), Health and Safety Code section 127676(b)(2), and Business and Professions Code section 4441(e). (See Demurrer, pp. 7-9; see also Reply, pp. 4-5.)

Sections 1320b-23(b), 1395w-3a(c)(6)(B), and 127676(b)(2) do not help PBM Defendants. (See Tentative Ruling Re: Manufacturer Defendants’ Demurrer, pp. 7-11.)

Section 1396r-8(k)(1)(B)(i)(IV) defines “average manufacturer price” and excludes “rebates or discounts” from the definition:

(IV) payments received from, and rebates or discounts provided to, pharmacy benefit managers, managed care organizations, health maintenance organizations, insurers, hospitals, clinics, mail order pharmacies, long term care providers, manufacturers, or any other entity that does not conduct business as a wholesaler or a retail community pharmacy, unless the drug is an inhalation, infusion, instilled, implanted, or injectable drug that is not generally dispensed through a retail community pharmacy

(e) The pharmacy benefit manager shall, on a quarterly basis, disclose, upon the request of the purchaser, the following information with respect to prescription product benefits specific to the purchaser:

(1) The aggregate wholesale acquisition costs from a pharmaceutical manufacturer or labeler for each therapeutic category of drugs containing three or more drugs, as outlined in the state's essential health benefits benchmark plan pursuant to Section 1367.005 of the Health and Safety Code.

(2) The aggregate amount of rebates received by the pharmacy benefit manager by therapeutic category of drugs containing three or more drugs, as outlined in the state's essential health benefits benchmark plan pursuant to Section 1367.005 of the Health and Safety Code. The aggregate amount of rebates shall include any utilization discounts the pharmacy benefit manager receives from a pharmaceutical manufacturer or labeler.

(3) Any administrative fees received from the pharmaceutical manufacturer or labeler.

(4) Whether the pharmacy benefit manager has a contract, agreement, or other arrangement with a pharmaceutical manufacturer to exclusively dispense or provide a drug to a purchaser's employees, insureds, or enrollees, and the application of all consideration or economic benefits collected or received pursuant to that arrangement.

(5) Prescription drug utilization information for the purchaser's enrollees or insureds that is not specific to any individual enrollee or insured.

(6) The aggregate of payments, or the equivalent economic benefit, made by the pharmacy benefit manager to pharmacies owned or controlled by the pharmacy benefit manager.

(7) The aggregate of payments made by the pharmacy benefit manager to pharmacies not owned or collected by the pharmacy benefit manager.

(8) The aggregate amount of the fees imposed on, or collected from, network pharmacies or other assessments against network pharmacies, and the application of those amounts collected pursuant to the contract with the purchaser.

The Court agrees with the People that neither of these statutes provides a safe harbor as to the price-inflation/rebates conspiracy alleged in the complaint. (See Opposition, pp. 23-26; see also Tentative Ruling Re: Manufacturer Defendants’ Demurrer, pp. 7-11 [analyzing safe-harbor issue and conspiracy allegations].)

The UCL’s unfair prong prohibits unfair business practices. Because the UCL is written in the disjunctive, “a business practice can be ‘unfair’ . . . even if it is not ‘deceptive’ and even if it is ‘lawful.’” (Stern, supra, at ¶ 3:112.) “The ‘unfair’ standard is intentionally broad, allowing courts maximum discretion to prohibit new schemes to defraud.” (Id. at ¶ 3:113.)

PBM Defendants contend the People’s allegations fail under the UCL’s balancing test, Federal Trade Commission post-1980 test, and tethering test. (See Demurrer, pp. 16-19; see also Reply, pp. 8-12.)

The Court disagrees. The allegations tend to show a price-collusion/rebate conspiracy between oligopolies. (See, e.g., Complaint, ¶¶ 4-9, 62, 133-143, 147-176.) They pass the tests (assuming, of course, that the People are able to amend to allege misconduct within the limitations period); thus, the demurrer is overruled. (See Tentative Ruling Re: Manufacturer Defendants’ Demurrer, pp. 11-12.)

As a result of the People alleging a violation of the unfair prong, the Court does not need to reach the unlawful and fraud prongs. (See Durell v. Sharp Healthcare (2010) 183 Cal.App.4^th 1350, 1359 [stating that, “[b]ecause the statute is framed in the disjunctive, a business practice need only meet one of the three criteria to be considered unfair competition”]; see also Stern, supra, at ¶¶ 3:15-3:16.) The partial-demurrer rule prevents the Court from striking portions of the cause of action.

“[T]he UCL permits a cause of action to be brought if a practice violates some other law. In effect, the ‘unlawful’ prong . . . makes a violation of the underlying law a per se violation of [section] 17200.” (Stern, supra, at ¶ 3:53.) “Virtually any law or regulation – federal or state, statutory or common law – can serve as predicate for” an unlawful claim. (Id. at ¶ 3:56.) “Thus, if a ‘business practice’ violates any law – literally – it also violates [section] 17200 and may be redressed under that section. [Citation.]” (Ibid.)

The underlying statute highlighted in the complaint is Civil Code section 1770(a)(13), the Consumer Legal Remedies Act (“CLRA”). (See Complaint, ¶ 229 [alleging that “Defendants’ acts or practices are unlawful, as that term is used in the UCL, and include, but are not limited to, violating the [CLRA], Civil Code section 1770, subdivision (a), subpart (13), by making false or misleading statements of fact concerning reasons for, existence of, or amounts of, price reductions to analog insulin”].)

The People point out three alleged misstatements that they contend subsection (a)(13) covers:

* in 2017, “CVS Caremark stated that it ‘[m]anage[s] formulary and leverage competition to negotiate for lowest-net cost’ and its ‘formulary and utilization management options helped reduce cost for antidiabetic drugs for clients’” (Complaint, ¶ 198; see also Opposition, p. 19);

* in 2017, an Express Scripts executive told CBS News that “PBMs work to ‘negotiate with drug companies to get the prices down’” and that Express Scripts’s “mission [is] to make the use of prescription drugs safer and more affordable” (Complaint, ¶¶ 200, 201; see also Opposition, p. 19); and

* “OptumRX’s website” contains “a company video stating that PBMs like OptumRX ‘negotiate with drug companies for the best medication prices[.]’” (Complaint, ¶ 202; see also Opposition, p. 19.)

PBM Defendants respond with three arguments. One, “the CLRA has its own safe harbor doctrine that independently bars the State’s ‘unlawful’ claims.” (Demurrer, p. 10.) Two, “PBMs engage in financial transactions with sophisticated health-plan clients; they do not transact with consumers or provide ‘goods’ or ‘services’ at all.” (Ibid.; see also id. at pp. 11-13; Reply, pp. 6-7.) Three, the three alleged misstatements do not include “false or misleading statements about price decreases.” (Demurrer, p. 10; see also id. at pp. 13-16; Reply, pp. 7-8.)

The first argument is unavailing. The CLRA safe harbor is inapplicable for the same reasons that the UCL safe harbor is inapplicable.

The second argument is persuasive. “The CLRA broadly applies to any transaction involving the sale or lease of goods or services to a ‘consumer.’” (Stern, supra, at ¶ 10:16.) “The CLRA’s substantive section . . . prohibits various unfair or deceptive acts . . . ‘in a transaction intended to result or which results in the sale or lease of goods or services to any consumer.’” (Ibid.) “The Act broadly defines ‘transaction’ as ‘an agreement between a consumer and any other person, whether or not the agreement is a contract enforceable by action, and includes the making of, and the performance pursuant to, that agreement.’” (Id. at ¶ 10:18.) “Broad as it is,” though, “the CLRA only permits ‘consumers’ to sue.” (Id. at ¶ 10:25.) A “consumer” is “an individual who seeks or acquires, by purchase or lease, any goods or services for personal, family, or household purposes.” (Id. at ¶ 10:26.) The Court’s understanding is that PBM Defendants transact with “pharmaceutical manufacturers, health-plan payors, and retail pharmacies[,]” not with individual “consumers.” (Demurrer, p. 11.) Given this distinction, the current allegations fail to render the CLRA applicable.

The third argument is also persuasive. The first and second alleged misstatements occurred in 2017; they are time-barred. The third alleged misstatement only concerns OptumRX and is merely a general statement about prescription drugs as opposed to a specific statement about reducing insulin prices. These allegations do not establish a violation of subsection (a)(13).

However, the Court is inclined to overrule the demurrer. The UCL cause of action incorporates all preceding allegations. (See Complaint, ¶ 225.) This means it incorporates the conspiracy allegations. (See, e.g., Complaint, ¶¶ 4-9, 62, 133-143, 147-176.) At the pleading stage, the Court believes a civil conspiracy – the purported price-collusion/rebate scheme – can serve as the predicate. (See Stern, supra, at ¶ 3:56.)

That said, the Court favors granting leave to amend to give the People an opportunity (if they want) to include new statements under subsection (a)(13) and/or facts showing violations of a different underlying statute, common law, etc. (See Tentative Ruling Re: Manufacturer Defendants’ Demurrer, p. 14.)

“The third type of conduct proscribed by [section] 17200 is ‘fraudulent’ business practices.” (Id. at ¶ 3:153.) “A business practice is ‘fraudulent’ within the meaning of [section] 17200 if ‘members of the public are likely to be deceived.’” (Id. at ¶ 3:154.) Indeed, “a plaintiff can prove a prima facie case that a business practice is ‘fraudulent’ without having to prove intent, scienter, actual reliance, or damage.” (Id. at ¶ 3:157.) “Even actual deception is not required.” (Ibid.) “If anything, the prohibition against ‘fraudulent’ business is broad[]” in that “it reaches practices that do not involve advertising [citation] and that involve no untrue statement. [Citation.]” (Id. at ¶ 3:158.)

231. Defendants’ acts or practices are fraudulent, as that term is used in the UCL, and include, but are not limited to:

PBM Defendants contend the artificial-inflation claim cannot be asserted against PBM Defendants because the list prices “are set unilaterally and exclusively by” Manufacturer Defendants, “and there is no allegation that” Manufacturer Defendants “misreported them.” (Demurrer, p. 20; see also Reply, p. 13.)

PBM Defendants claim the failure-to-disclose-rebating-practices claim fails because the complaint lacks facts showing materiality and a duty to disclose. (See Demurrer, pp. 21-22; see also Reply, pp. 13-14.)

On balance, the demurrer should be overruled. The artificial-inflation and failure-to-disclose-rebating-practices claims are both founded on PBM Defendants’ purported civil conspiracy with Manufacturer Defendants – the alleged price-collusion/rebates plot. (See, e.g., Complaint, ¶¶ 4-9, 62, 133-143, 147-176.) According to the complaint, PBM Defendants’ own conspiratorial conduct contributed to the inflated insulin pricing. (See id. at ¶¶ 149-162.) The Court agrees with the People that, at this stage, at minimum, the allegations give rise to a duty to disclose and state an omissions-based fraud-prong claim. (See Opposition, pp. 21-22.)[1]

Unjust enrichment is an equitable doctrine. It “is based on the idea that ‘one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution of or for property or benefits received, retained, or appropriated, where it is just and equitable that such restitution be made, and where such action involves no violation or frustration of law or opposition to public policy, either directly or indirectly.’” (City of Oakland v. Oakland Raiders (2022) 83 Cal.App.5^th 458, 478.) “The elements . . . are the ‘receipt of a benefit and [the] unjust retention of the benefit at the expense of another.’” (Peterson v. Cellco Partnership (2008) 164 Cal.App.4^th 1583, 1593.)

The demurrer is sustained. Unjust enrichment is not a standalone cause of action in the Second District. (See Tentative Ruling Re: Manufacturer Defendants’ Demurrer, pp. 14-15.)

The Court grants the People leave to assert a common count for restitution based on unjust enrichment as an alternative in case the UCL cause of action gets dismissed down the road. (See ibid.)

CVS Health claims it “is not liable for the acts of its subsidiary[y,]” and the People fail to allege facts sufficient to pierce the corporate veil. (Demurrer, p. 24; see also Reply, p. 15.)

The People disagree. They contend the claims against CVS Health are “based on [CVS Health’s] own conduct.” (Opposition, p. 34.)

The demurrer is sustained with leave to amend. The People focus on paragraphs 48 and 181. (See ibid.) Paragraph 48 states:

48. CVS Health holds itself out as deliberately directing, and is therefore responsible for, CaremarkPCS Health, LLC’s forum-related activities. Among other things:

a. Prior to 2014, CVS Health bore the name CVS Caremark Corporation. When announcing its name change in 2014, CVS Health stated that its PBM services would continue to be known as “CVS/Caremark.”

b. CVS Health continues to use CVS Caremark to refer to its PBM services on its website and in other locations.

c. The website located at www.caremark.com bears the name CVS Caremark. The website is interactive. Among other things, it allows customers to enter personal information, such as addresses.

d. CVS Health states in its filings with the U.S. Securities and Exchange Commission that its “Pharmacy Services segment provides a full range of PBM solutions, including plan design offerings and administration, formulary management, retail pharmacy network management services and mail order pharmacy.”

e. Likewise, CVS Health has stated that as part of its PBM services CVS Health: (a) designs pharmacy benefit plans; and (b) negotiates with pharmaceutical companies to obtain discounted acquisition costs for many of the products on CVS Health’s drug lists.

(Complaint, ¶ 48.) Paragraph 181 states: “Thomas Moriarty, Chief Policy and External Affairs Officer and General Counsel for CVS Health testified to similar concerns. He stated, ‘A real barrier in our country to achieving good health is cost, including the price of insulin products which are too expensive for too many Americans.’” (Id. at ¶ 181.) These allegations do not show direct misconduct by CVS Health or that “CVS Health performs the challenged PBM services.” (Reply, p. 15.) Additional facts need to be added.[2]

[1] To the extent the People intend to rely on the three alleged CLRA misstatements to allege a fraud-prong claim, the Court disagrees. Again, to the alleged misstatements are time-barred, and the third alleged misstatement does not specifically regard insulin prices.

[2] Mississippi ex rel. Fitch v. Eli Lilly and Co. (S.D.Miss. Aug. 29, 2022, No. 3:21-CV-674-KHJ-MTP) 2022 WL 18401603 (“Fitch”) is distinguishable. (See Opposition, p. 34 [claiming the Fitch court found that similar allegations stated a claim against CVS Health under Mississippi law].) The Fitch complaint “alleged that CVS Health . . . publicly represented that it constructs programs to lower the cost of the at-issue diabetes medications.” (Fitch, supra, 2022 WL 18401603, at *5, emphasis added.) Paragraph 48 is broader and vaguer. It has a general reference to “many of the products on CVS Health’s drug lists” but does not have a specific reference to insulin. (Complaint, ¶ 48.)