July 9, 2020
On July 8, 2020, Judge Alison Burroughs granted-in-part Defendants Shire and Actavis’s motion to decertify a direct purchaser plaintiff class in an alleged reverse payment antitrust case pending in the Federal District Court for the District of Massachusetts captioned FWK Holdings LLC v. Shire PLC et al (Direct Purchaser Action), Case No. 16-cv-12653-ADB. Ruling on an issue of first impression for the First Circuit, Judge Burroughs agreed that the current class representative, Rochester Drug Co-Operative, INC. (“RDC”), was no longer qualified to lead the class due to its Chapter 11 bankruptcy filing whereby the Defendants became unsecured creditors of RDC. The Court explained that “[a]s a debtor-in-possession and class representative, RDC has at least two conflicting duties. First, it must maximize the value of its assets and the value of this lawsuit for the benefit of its creditors, including the Defendants in this case. Second, it must fairly and adequately protect the interests of the class. The Court therefore finds that RDC is now an inappropriate class representative.“
Judge Burroughs further found that Defendants’ status as creditors created an additional layer of conflicts of interest, as “the parties both may have incentives to settle the case to lessen the amount owed in bankruptcy.“ Judge Burroughs noted that it would be in RDC’s interest to accept a settlement award that would mitigate any potential debt in the bankruptcy proceeding, whereas it’s creditors have an interest in RDC maximizing the value of this lawsuit. In light of such a “a web of potentially conflicting and misaligned interests,” the Court concluded that it “would be unfair to those absent plaintiffs (neither debtors nor creditors) who would depend on RDC to fairly and adequately protect the interests of the class.”
RDC’s bankruptcy falls on the heels of a deferred prosecution agreement (“DPA”) that RDC entered into with the U.S. Department of Justice related to RDC’s role in the opioid epidemic. In a first of its kind case, RDC admitted to the unlawful distribution of controlled substances and conspiring to defraud the DEA. As a result of the DPA, RDC agreed to forfeit $20 million, but RDC defaulted on the first $2 million payment, instead choosing to voluntarily file for bankruptcy.
RDC is the second lead plaintiff disqualified from representing the direct purchaser plaintiffs after Judge Burroughs refused to appoint FWK Holdings LLC (“FWK”), an entity that had been formed in 2016 to purchase antitrust claims from the bankruptcy estate of a pharmaceutical wholesaler. Judge Burroughs found FWK to not be engaged in “meaningful supervision” of the case, and to be too closely entangled with plaintiffs’ counsel because of an arrangement between counsel and one of FWK’s founders. Judge Burroughs also denied class status to a proposed class of indirect purchaser plaintiffs, finding that a large portion of the proposed class were likely not injured.