West Virginia Ex Rel. McGraw v. CVS Pharmacy, Inc.
646 F.3d 169, 2011 U.S. App. LEXIS 10171, 2011 WL 1902678 (2011)
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Rule of Law:
A state action brought by an Attorney General under state consumer protection statutes is not a "class action" removable under the Class Action Fairness Act (CAFA) if the state statutes are not "similar" to Federal Rule of Civil Procedure 23, meaning they do not authorize an action to be brought by a representative party who is a member of the class and whose claim is typical of the class members' claims.
Facts:
- West Virginia had a Pharmacy Act requiring pharmacists to pass on generic drug cost savings to consumers.
- West Virginia also had a Consumer Credit Protection Act (WVCCPA) prohibiting "unfair or deceptive acts or practices" and "excess charges."
- CVS Pharmacy, Inc., Kmart Holding Corporation, The Kroger Company, Wal-Mart Stores Inc., Walgreen Co., and Target Stores, Inc. (the "Pharmacies") allegedly sold generic drugs to West Virginia consumers without passing along the required cost savings.
- The Pharmacies thereby obtained unjust profits through these alleged overcharges and excess charges.
Procedural Posture:
- Attorney General Darrell McGraw, on behalf of the State of West Virginia, commenced an action against CVS Pharmacy, Inc., Kmart Holding Corporation, The Kroger Company, Wal-Mart Stores Inc., Walgreen Co., and Target Stores, Inc. in the Circuit Court of Boone County, West Virginia (state court of first instance).
- The Pharmacies removed the action to the United States District Court for the Southern District of West Virginia, relying on multiple grounds, including the Class Action Fairness Act (CAFA), arguing it was a "disguised class action."
- The State of West Virginia moved to remand the action back to state court.
- The district court granted the State's motion to remand, holding that the action was not a "class action" under CAFA but a "classic parens patriae action."
- The Pharmacies (appellants) sought and were granted permission to appeal the CAFA portion of the district court’s remand order to the United States Court of Appeals for the Fourth Circuit (intermediate appellate court); the State of West Virginia was the appellee.
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Issue:
Does an action brought by a state Attorney General under state consumer protection statutes, seeking injunctive relief and restitution for consumers, qualify as a "class action" removable to federal court under the Class Action Fairness Act (CAFA) if the state statutes do not contain the procedural requirements similar to Federal Rule of Civil Procedure 23 for representative actions?
Opinions:
Majority - Niemeyer, Circuit Judge
No, an action brought by a state Attorney General under state consumer protection statutes does not qualify as a "class action" removable to federal court under CAFA because the state statutes are not "similar" to Federal Rule of Civil Procedure 23. The court affirmed the district court's remand order, holding that CAFA defines "class action" as one filed under Federal Rule of Civil Procedure 23 or a "similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action." The West Virginia action was not brought under Federal Rule of Civil Procedure 23 or West Virginia's corresponding Rule 23. The state statutes relied upon (the Pharmacy Act and the WVCCPA) contain virtually none of the essential requirements for a Rule 23 class action, such as numerosity, commonality, typicality, adequacy of representation, or notice to class members. The Attorney General is not designated as a member of the class whose claim would be typical, but rather acts as a parens patriae to vindicate the State’s sovereign and quasi-sovereign interests, as well as the individual interests of its citizens, including seeking disgorgement of ill-gotten gains separate from specific consumer recompense. This type of representation is analogous to actions brought by the EEOC or other regulators, which the Supreme Court has held are not Rule 23 class actions, as seen in General Telephone Co. v. EEOC. The court also emphasized principles of federalism and comity, noting a federal court's reluctance to compel removal of state-initiated actions unless clearly demanded by federal law, which CAFA does not clearly demand here, especially when the case involves only state law and West Virginia citizens.
Dissenting - Gilman, Senior Circuit Judge
Yes, the action brought by the West Virginia Attorney General should be considered a "class action" removable under CAFA, as the state statutes, in substance, are "similar" to a Rule 23 class action, and the consumers are the real parties in interest. Judge Gilman argued that CAFA's definition of "class action" is circular, and the essence of a class action, as defined by Black's Law Dictionary, is a lawsuit where a single person or small group represents a larger group. He believed the Attorney General's suit fit this definition, and the specific Rule 23 factors (numerosity, commonality, typicality, adequacy) are "bells and whistles" not essential for CAFA's "similarity" requirement. The dissent advocated a "claim-by-claim approach" to determine the state's quasi-sovereign interest. Applying this, Judge Gilman found that the primary thrust of the case was Count III, which sought reimbursement directly to affected consumers for "excess charges." He argued that the Attorney General did not have a quasi-sovereign interest in these direct refunds, making the individual consumers the "real parties in interest." He distinguished General Telephone and Edmond, arguing that the WVCCPA's provisions allow consumers to control their claims, unlike the EEOC or Maryland's Consumer Protection Division, making the Attorney General's role more akin to a class representative. He also pointed to similar cases filed as class actions in other states and CAFA's legislative history, which expressed concern about states being used as "pawns" to avoid federal jurisdiction.
Analysis:
This case narrowly interprets CAFA's "similar State statute" provision, reinforcing the distinction between parens patriae actions brought by a state to protect its general welfare and true class actions where a representative is a member of the class. It limits the scope of federal removal jurisdiction under CAFA, particularly for state-initiated consumer protection enforcement actions that seek both state-level remedies (like civil penalties and disgorgement) and individual restitution, thereby upholding principles of federalism and state sovereignty. Future cases will likely scrutinize whether state statutes explicitly contain Rule 23-like procedural mechanisms to determine CAFA removability, or if the state's interest is truly "quasi-sovereign" as opposed to merely acting as a conduit for individual claims.
