RECOMMENDED DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
The plaintiff, Pharmaceutical Care Management Association (PCMA), is anational trade association representing pharmaceutical benefitsmanagement companies (PBMs).1 PCMA brings this action on behalf ofits members to obtain an order enjoining enforcement of Maine's UnfairPrescription Drug Practices Act (UPDPA), as amended, 22 M.R.S.A. § 2699.According to PCMA's complaint, the UPDPA may not be enforced because it,by count: (1) is preempted by the Employee Retirement Income Security Act; (2) is preempted by the Federal Employee Health Benefits Act; (3) would effect a regulatory taking of industry trade secrets; (4) would effect a regulatory taking of revenues and other contractual rights and violates Due Process; (5) violates the Contracts Clause;
(6) violates the Commerce Clause;Page 2
(7) violates free speech rights; and
(8) subjects PCMA's members to the deprivation of "rights, privileges and immunities secured by the Constitution," in violation of 42 U.S.C. § 1983.
Now before the court are cross-motions for summary judgment. In itsmotion, PCMA moves the court to enter summary judgment against the MaineAttorney General with respect only to its ERISA preemption claim andtakings claim. (Docket No. 85.) In his motion, the Attorney General movesthe court to enter summary judgment against all of PCMA's claims, withthe exception of the claims related to takings of revenues and othercontractual rights and alleged violation of the Contracts Clause (counts4 and 5), both of which have been waived by PCMA. (Docket No. 88.) Irecommend that the court enter summary judgment in favor of the AttorneyGeneral on all claims.
PCMA is a national trade association representing PBMs. (Docket No.104, ¶ 1.) The parties are in agreement that it is the business of PBMsto act as transactional intermediaries or "middlemen" in themulti-billion dollar trade in prescription drugs. Among their customersare insurance companies, health maintenance organizations and private andpublic health plans and programs (collectively, what I will call "benefitsproviders"), including employee benefit plans subject to the EmployeeRetirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461. Generallyspeaking, the services that PBMs extend to these benefits providers aredesigned to facilitate the provision of prescription drug benefits to thebenefits providers' insureds, participants or subscribers. For example, aPBM might provide its benefits provider customers with access to anestablished network of pharmacies, including mail order pharmacies, orwithPage 3certain formulary services, all of which permit the benefits providercustomers to obtain drugs at established prices.3 (Docket No. 94, ¶4; Docket No. 89, ¶ 164.) Conceptually, by pooling the prescription drugpurchasing power of a number of benefits providers, a PBM can negotiatesubstantial volume discounts and rebates from drug manufacturers andpharmacies, and thereby not only provide its customers with savings onprescription drugs and other pharmaceutical products, but also ensure aprofit for itself and its shareholders or stakeholders. (Docket No. 89,¶ 165; Docket No. 94, ¶ 4; Docket No. 101, ¶ 4.) Additional servicesthat a PBM might extend to a benefits provider include "drug utilizationreview services" and "therapeutic interchange programs." (Docket No. 94,¶ 4.)
As intermediaries, PBMs provide services to pharmacies and drugmanufacturers (the supply-side of the trade) as well as to benefitsproviders (the demand side of the trade). (Docket No. 89, ¶¶ 8-20.) Inparticular, when it comes to drug utilization services and therapeuticinterchange programs, PBMs are as apt to be serving pharmacies andmanufacturers as health benefits providers. For example, "therapeuticinterchange" refers to the practice of substituting a drug for the oneactually prescribed by a doctor. This may involve substituting an equallyefficacious and cheaper generic drug for a brand name drug, which mightbenefit a provider. On the other hand, the practice may involvesubstituting a more expensive brand name drug for the benefit of themanufacturer, a pharmacy and/or the PBM. Thus, for instance, a brand namedrug might be substituted so that a pharmacy or PBM can obtain a "reward"or "incentive" from the manufacturer for helping increase themanufacturer's market share within a certain drug category. (Docket No.89, ¶¶ 37-38, 42-44, 83.) Similarly, a PBM might be paid a rebate or feeby a drug manufacturer in exchange for including a drug on the PBM'sformulary or forPage 4"featuring" or "preferring" that drug, sometimes to the exclusionof others. (Docket No. 89, ¶¶ 12, 39-41.)
Whether and how a PBM actually saves an individual benefits providercustomer money with respect to the purchase of a particular prescriptiondrug is largely a mystery to the benefits provider. To illustrate theconcern raised by the lack of transparency that typifies the PBMs'dealings with drug manufacturers and pharmacies, the Attorney Generaloffers expert testimony from Stephen W. Schondelmeyer, a professor at theUniversity of Minnesota's College of Pharmacy. (Id., ¶ 123-125.) Icredit this testimony, over PCMA's foundation objection. The objection isnot briefed and the foundation objection was not preserved during thedeposition questioning, which was conducted by PCMA's counsel. Accordingto Professor Schondelmeyer, it is difficult for a benefits provider toknow whether it is getting a lower net cost for a drug received through aPBM due to a lack of transparency in the PBM market. (Id., ¶ 124, citingEx. O at 52.) For instance, if a drug manufacturer provides a higherrebate to a PBM on a $100 drug than it does on a $20 drug and the PBMshares the rebate with the benefits provider, it may appear to thebenefits provider as though it is saving money. However, it is just aslikely that the amount of rebate received by the benefits provider doesnot make up for the higher base price of the more expensive drug, so thatthe net economic effect to the benefits provider is a loss. (Id., ¶123, citing Schondelmeyer Deposition, Exhibit O, at 50-51.) This lack oftransparency also has a tendency to undermine a benefits provider'sability to determine which is the best proposal among competing proposalsfrom PBMs. For example, if a benefits provider had proposals from threedifferent PBMs for pharmacy benefits management services, eachguaranteeing a particular dollar amount of rebate per prescription, thePBM proposal offering the highest rebate for each prescription filledcould actually be the worst proposal as far as net cost savings areconcerned,Page 5because that PBM might have a deal with the manufacturer that gives it anincentive to sell, or restrict its formulary to, the most expensivedrugs. (Id., ¶ 125, citing Ex. O at 58.) In other words, although PBMsafford a valuable bundle of services to benefits providers, they alsointroduce a layer of fog to the market that prevents benefits providersfrom fully understanding how best to minimize their net prescription drugcosts.
In an effort to help control prescription drug costs and increasepublic access to prescription drugs (Docket No. 94, ¶ 17), the MaineLegislature enacted into law what is now known either as "An Act toProtect Against Unfair Prescription Drug Practices" or the "UnfairPrescription Drug Practices Act," 22 M.R.S.A. § 2699 (UPDPA). The UPDPAregulates "pharmacy benefit managers" (PBMs) and "contracts for pharmacybenefits management." Id.4 The UPDPA imposes on PBMs certainfiduciary duties and "required practices," which duties and obligationsare owed to the PBMs' benefits provider customers, whom the UPDPA labels"covered entities." Id., § 2699(1)(A) & (2)(A). Among other duties, theUPDPA requires that PBMs "shall notify the covered entity in writing ofany activity, policy or practice of the pharmacy benefits manager thatdirectly or indirectly presents any conflict of interest with thePage 6duties imposed by this subsection." Id., § 2699(2)(C). The UPDPA alsocompels PBMs to disclose the following information to covered entities: (1) "[A]ll financial and utilization information requested by the covered entity relating to the provision of benefits to covered individuals through that covered entity and all financial and utilization information relating to services to that covered entity," id., § 2699(2)(D); (2) "[T]he cost of both drugs and any benefit or payment directly or indirectly accruing to the pharmacy benefits manager as a result of the substitution," in the event that the PBM "makes a substitution in which the substitute drug costs more than the prescribed drug," id., § 2699(2)(E)(2); and (3) "[A]ll financial terms and arrangements for remuneration of any kind that apply between the pharmacy benefits manager and any prescription drug manufacturer or labeler, including, without limitation, formulary management and drug-switch programs, educational support, claims processing and pharmacy network fees that are charged from retail pharmacies and data sales fees," id., § 2699(2)(G).The first category of information need be disclosed only upon request bya covered entity. Id., § 2699(2)(D). The latter two categories ofinformation must be disclosed even in the absence of a request. Id., §2699(2)(E)(2) & (2)(G). In the event of any disclosure under the firstor third category, the PBM may designate the information disclosed asconfidential. Id., § 2699(2)(D) & (2)(G). "Information designated asconfidential by a pharmacy benefits manager and provided to a coveredentity . . . may not be disclosed by the covered entity to any personwithout the consent of the pharmacy benefits manager" or in the absenceof a court order or an investigative demand made by the Attorney Generalin an effort to police compliance with the UPDPA. Id. A violation of theUPDPA "is a violation of the Maine Unfair Trade Practices Act, for whicha fine of not more than $10,000 may be adjudged." Id., § 2699(4). Inaddition to compelling the disclosure of such information, the UPDPArequires PBMs to pass on, in full, to covered entities "any payment orbenefit" that is received "based on volume of sales for certainprescription drugs or classes or brands of drugs within the State," id.,§ 2699(2)(F), as well as for drug substitution,Page 7including substitution of "a lower-priced generic and therapeuticallyequivalent drug for a higher-priced prescribed drug," id., §2699(2)(E)(3).
In support of its regulatory takings claim, PCMA offers evidencerelating to four (now three through a merger or other combination) of itsten PBM members (a small sample in a market occupied by 40-50 PBMs).Those members are Express Scripts, Inc., Medco Health Solutions, Inc.,and Caremark Rx, Inc. (Docket No. 94, ¶ 2.) To illustrate theconfidentiality of PBM contracts and the uniqueness of each PBM'scontract with a given manufacturer or pharmacy, PCMA even more narrowlyoffers a contract from each of its three representative PBMs, all ofwhich contracts were entered into with one manufacturer, Pfizer, ineither 2003 or 2004. (Id., ¶ 20.) Relying on this evidence, PCMAmaintains that the terms of all PBMs' agreements with pharmacies and drugmanufacturers constitute trade secrets, the forced disclosure of whichwould constitute a regulatory taking of the PBMs' property. In my view,it is impossible for the court to make a finding as to the practices ofthe entire PBM market when it comes to keeping secret the terms ofagreements with pharmacies and manufacturers based on this limitedevidence.5 However, the Attorney General appears willing to concedethat contracts between PBMs and pharmacies or manufacturers generallyinclude provisions that are designed to avoid transparency, so that thePBMs' provider customers are incapable of ascertaining the full extent ofthe discounts, rebates and drug substitution incentives PBMs negotiate orotherwise obtain and, by extension, the extent to which PBMs retain orgenerate revenues from discounts, rebate and drug substitutions above andbeyond what they pass through to their benefits provider customers in theway of savings. (Docket No. 94, ¶ 18; Docket No. 101, ¶ 18.) AccordingtoPage 8PCMA, confidentiality provisions in such contracts are also designed toensure competition and prevent one PBM from learning about another PBM's"unique" agreement with a given manufacturer or pharmacy. (Docket No.94, ¶ 20.) That any given manufacturer or pharmacy actually preservesthe secrecy of one PBM's contract terms when dealing with another PBM issomething the court is apparently supposed to assume. PCMA offers onlythat PBMs endeavor to maintain the secrecy of their agreements. (DocketNo. 94, ¶¶ 6-8.)
PCMA offers additional statements that are designed to have the courtenter a finding that enforcement of the UPDPA would either destroycompetition among PBMs in the marketplace or else enable the PBMs' largerbenefits provider customers to essentially cut the PBMs out of the marketand deal directly with the pharmacies and manufacturers. (Id., ¶ 19.) Inaddition, PCMA would have the court find, as a material fact, that "PBMsare likely to cease doing business in Maine and with Maine coveredentities to the extent necessary to avoid application of the UPDPA."(Id., ¶ 23.) As to the likely implications of the UPDPA on the PBMmarket, the Attorney General offers numerous statements designed tosupport a finding that entrance into the PBM market is not as simple asknowing a PBM's drug costs, financial and utilization data and how itarranges for direct remuneration from manufacturers and pharmacies forthe services it provides. (Docket No. 89, ¶¶ 26-34.) Moreover, there is acontract in the record that expressly prohibits the manufacturer fromentering into rebate agreements directly with the PBMs' benefits providercustomers. (Docket No. 89, ¶ 86.) On the issue of market impact, neitherparty has marshaled the kind of evidence that would reliably, in PCMA'swords, "speak to the ability [let alone the likelihood] of any individualplan, employer or other PBM customer to self-provide or provide to otherscertain PBM services." (Docket No. 104, ¶¶ 26-34.) As to the admonitionthat PBMs are "likely" to withdraw from the Maine market, I make nofinding. The statementPage 9offered by PCMA is inherently speculative and, in the context of PCMA'smotion for summary judgment, the court is constrained to infer that anygiven PBM is equally likely not to withdraw from the market. Moreover,although disputed by the Attorney General, this is not the sort of factthat is readily susceptible to trial on the merits or, for that matter,even material to the disposition of this motion. For the same reason, Idecline to make any finding on broader health care policy questions or,with respect to competing expert opinions, on the UPDPA's likely impacton the prescription drug market in Maine. (See, e.g., Docket No. 89, ¶¶118, 123-130, 170; Docket No. 104, ¶¶ 118, 123-130, 170; Docket No. 94,¶ 19 (last sentence), ¶ 20 (last paragraph) & ¶¶ 21-22; Docket No. 101,¶¶ 19-22.)
PCMA's member PBMs do not exercise any discretionary authority ordiscretionary control respecting the management of employee benefitplans. (Docket No. 89, ¶ 159.) PCMA's member PBMs do not exercise anydiscretionary authority or discretio nary control respecting managementor disposition of the assets of employee welfare benefit plans. (Id., ¶160.) PCMA's member PBMs do not have any discretionary authority ordiscretionary responsibility in the administration of employee welfarebenefit plans. (Id., ¶ 161.) PCMA's member PBMs are not ERISAfiduciaries. (Id., ¶ 162.) PBMs enter contracts with drug manufacturersthat require the manufacturers to supply drugs to the PBMs' benefitsprovider customers. (Id., ¶ 163; Docket No. 104, ¶ 163.) PBMs entercontracts with pharmacies whereby the pharmacies agree to charge certainprices to the customers of the PBM. (Docket No. 89, ¶ 164.) PBMs entercontracts with health plans that allow the health plans' members toobtain drugs at certain prices and that provide financial rebates to thehealth plans based on volume of utilization. (Id., ¶ 165.) Except whenoperating mail order pharmacies, PBMs do not actually acquire or handleprescription drugs. (Id., ¶ 166.) PBMs do not make final determinationsof whether health planPage 10members are entitled to receive drug benefits under the plan. (Id., ¶167.) PBMs may perform ministerial tasks associated with the processingof drug claims under a health plan. (Id., ¶ 168.)
Facts Submitted Under Seal6Page 11
I. ERISA Preemption
In its motion for summary judgment, PCMA maintains that the UPDPA ispreempted by ERISA because it "attempts to dictate the terms under which. . . ERISA plans and their sponsors may contract with PBMs to administer[prescription drug benefit] programs and to define the duties andliabilities of PBMs to such plans, their sponsors and participants."(Docket No. 85 at 4.) According to PCMA, the UPDPA undermines thecongressional goal of "establishing a uniform regulatory scheme" (Id. at7) because it adds an additional layer of regulation to importantadministrative functions that PBMs perform for, among other entities,ERISA plans and plan sponsors (Id. at 6-7) and because it would affordplans and plan sponsors rights and remedies against PBMs that Congress didnot speak of in ERISA (Id. at 11). For his part, the Attorney Generalargues that the UPDPA is not preempted because it applies to all entitiesproviding pharmacy benefit management services in Maine, regardless ofwhether such benefits arise out of a plan subject to ERISA (Docket No. 88at 9), because PBMs are not ERISA fiduciaries or entities (which theAttorney General refers to as "primary" ERISA entities) and because theonly burdens the UPDPA imposes fall on PBMs, whom the Attorney Generaldescribes as "merely third-party service providers," rather than on anyERISA fiduciary or entity (Id. at 10). According to the AttorneyGeneral, acceptance of PCMA's logic would mean that ERISA preemptionwould foreclose state regulation of any service enterprise that isnecessary to the provision of ERISA benefits (such as medical, legal, andaccounting services), even though the market for such services extendsbeyond the ERISA universe. (Id. at 12-13.)
Both parties analyze the preemption issue through the three lensesprescribed by the Supreme Court: (1) whether the UPDPA has a "connectionwith" an ERISA plan or plans; (2)Page 12whether the UPDPA "refers to" an ERISA plan or plans; and (3) whether theUPDPA's remedial scheme conflicts with the "exclusive" remedial schemeset forth by Congress in ERISA. See Carpenters Local Union No. 26 v.United States Fid. & Guar. Co., 215 F.3d 136, 139-40 (1st Cir. 2000)(outlining the development of ERISA preemption doctrine based on theSupreme Court's interpretation of the "relates to" language of ERISA §1144(a)); Hampers v. W.R. Grace & Co., 202 F.3d 44, 49-51 (1st Cir.2000) (discussing circumstances in which a state law cause of action maybe deemed to impermissibly conflict with ERISA's exclusive remedialscheme). I follow their lead.
A. "Connection with"
Whether a state law is preempted by ERISA by virtue of an impermissibleconnection with an ERISA plan or ERISA plans, is determined by judicialinterpretation of congressional intent. New York State Conference of BlueCross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656-57(1995). Essentially, the inquiry is whether a state law would interferewith the congressional purpose to "avoid a multiplicity of regulation inorder to permit the nationally uniform administration of employee benefitplans." Id. at 657. Thus, state laws that prescribe specific benefits thatan employee benefit plan must afford are preempted, as are state lawsthat restrict the ability of an employee benefit plan to use or enforceterms in plans or plan documents or state laws that would prevent plansfrom using a uniform set of rules or formulae for computing benefits.See id. at 657-58 (discussing the holding of Shaw v. Delta Air Lines,Inc., 463 U.S. 85 (1983), and FMC Corp. v. Holliday, 498 U.S. 52(1990)). In such cases, state laws are said to be preempted because they"mandate? employee benefit structures or their administration." Id. at658. In contrast to such cases are state laws that would impose anindirect cost on plan administration in a given state, but would in noway circumscribe the ability of planPage 13administrators to structure or administer their ERISA plans in thatstate. Id. at 658-59. Thus, in Travelers, the Supreme Court held that aNew York law that "requires hospitals to collect surcharges from patientscovered by a commercial insurer" and that "subjects certain healthmaintenance organizations (HMO's) to surcharges that vary with the numberof Medicaid recipients each enrolls," id. at 649, does not have animpermissible connection with ERISA because the law "does not bind planadministrators to any particular choice and thus function as a regulationof an ERISA plan itself" and does not "preclude uniform administrativepractice or the provision of a uniform interstate benefit package if aplan wishes to provide one." Id. at 659. In concluding on the issue, theCourt observed: In sum, cost uniformity was almost certainly not an object of preemption, just as laws with only an indirect economic effect on the relative costs of various health insurance packages in a given State are a far cry from those "conflicting directives" from which Congress meant to insulate ERISA plans. See [Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990)]. Such state laws leave plan administrators right where they would be in any case, with the responsibility to choose the best overall coverage for the money. We therefore conclude that such state laws do not bear the requisite "connection with" ERISA plans to trigger preemption.Id. at 662.
The question presented by the instant litigation is whether the UPDPA,in placing fiduciary duties and administrative burdens on PBMs operatingin Maine, thereby precludes the ability of employee bene fit planadministrators to administer their plans in a uniform fashion. PCMAcontends that it does because it: "attempts to dictate the terms" ofcontracts between ERISA plans and PBMs, including by redefining the"duties and liabilities of PBMs to such plans, their sponsors andparticipants" (Docket No. 85 at 4); "attempt[s] to regulate [plans']relationship[s] with PBMs when PBMs perform administrative functions forsuch plans" (Id. at 6); and "attempt[s] to supplement ERISA's fiduciaryduty and disclosure provisions" so that planPage 14administrators cannot "predict the legality of proposed actions withoutthe necessity of reference to varying state laws" (Id. at 7, citationomitted). The Attorney General rejects these arguments. According tohim, the UPDPA does not undermine the congressional goal of uniform planstructure and administration because it does not mandate benefits andbecause PBMs are not ERISA entities. (Docket No. 88 at 10.) I agree withthe Attorney General on this issue.
The UPDPA imposes fiduciary and reporting obligations exclusively onPBMs, not on plans, plan sponsors or plan participants and theirbeneficiaries.7 And with respect to the provision of prescriptiondrug benefits by employee benefit plans, the UPDPA "does not bind planadministrators to any particular choice and thus function as a regulationof an ERISA plan itself" and does not "preclude uniform administrativepractice or the provision of a uniform interstate benefit package if aplan wishes to provide one." Id. at 659. The fact that the UPDPA requiresPBMs to engage in certain "required practices" in Maine, such asdivulging the terms of contracts with pharmaceutical manufacturers andlabelers does not restrict the freedom of employee benefit plans toadminister or structure their plans in Maine precisely as they wouldelsewhere. Nor does it obligate any plan to act upon, or even consider,any of the information that might be disclosed pursuant to the operationof the UPDPA. Because the UPDPA leaves ERISA plans, sponsors,participants, beneficiaries, and the duties and obligations running amongthem untouched, and because the record does not permit the court toascertain whether or in what ways the UPDPA would require employeebenefit plans to implement unique measures in Maine in connection withplan structure or administration, I conclude that the UPDPA does not havean impermissible "connection with" ERISA plans or plan administration.Page 15
B. "Reference to"
A state law is preempted by ERISA by virtue of an impermissible"reference to" an ERISA plan "where a State's law acts immediately andexclusively upon ERISA plans . . . or where the existence of ERISA plansis essential to the law's operation." Cal. Div. of Labor StandardsEnforcement v. Dillingham Constr., 519 U.S. 316, 325 (1997). See alsoCarpenters Local, 215 F.3d at 143. PCMA argues that the "reference to"test is met here because the UPDPA "purports to regulate the relationshipbetween health benefit plans, plan sponsors and PBMs . . . [,]relationships that cannot exist without the plans themselves." (DocketNo. 85 at 9.) In addition, PCMA argues that the UPDPA impermissiblyrefers to ERISA because "[a]ll of these provisions depend on theexistence of health benefit plans." (Id. at 10.) The Attorney Generalargues that the Dillingham standard makes the "refers to" issue an easyone to call because the obligations imposed on PBMs under the UPDPA applyirrespective of whether PBMs are serving ERISA plans. (Docket No. 88 at8.) I conclude that the UPDPA does not impermissibly refer to an ERISAplan or plans because it applies with respect to pharmacy benefitsmanagement services supplied to a broad spectrum of health careinstitutions and health care benefits providers, including but notlimited to employee benefit plans, see 22 M.R.S.A. § 2699(1)(A),(B) &(E), and, therefore, neither acts immediately and exclusively upon ERISAplans nor depends on the existence of ERISA plans in order to havemeaning. PCMA's invocation of District of Columbia v. Greater WashingtonBoard of Trade, 506 U.S. 125 (1992), does not dissuade me from thisconclusion. In that case, the Supreme Court affirmed a finding that ERISApreempted a singular section of a District of Columbia workers'compensation amendment that required employers providing health insurancecoverage to their workers to obtain insurance that would extend healthinsurance coverage for up to 52 weeks while a workerPage 16was receiving workers' compensation benefits. Id. at 128. The statutethus exclusively concerned employee benefits (the District of Columbiadid not even contest that the statute related to ERISA) and also mandatedspecific benefits. See id. at 130 (finding that the only health insuranceprograms the statute applied to were ones "subject to ERISA regulation").The same distinction is applicable to the statute at issue in Mackey v.Lanier Collection Agency & Service, Inc., the other opinion primarilyrelied upon by PCMA in support of its position. See 486 U.S. 825, 829(1988) ("The Georgia statute at issue here expressly refers to — indeed,solely applies to — ERISA employee benefit plans."). The UPDPA is not ofthe same species.
C. Remedial conflict
In addition to impermissible connections and references, a thirdcategory of ERISA preemption applies to state laws that would have theeffect of affording to an ERISA entity, most commonly an ERISAbeneficiary, an "alternative enforcement mechanism [or] remedy for theviolation of a right expressly guaranteed and exclusively enforced by theERISA statute." Carpenters Local, 215 F.3d at 141 (citing Ingersoll-Randv. McClendon, 498 U.S. 133, 145 (1990)). Preemption of this sort does notextend to state laws that merely "touch upon enforcement but have no realbearing on the intricate web of relations hips among the principalplayers in the ERISA scenario (e.g., the plan, the administrators, thefiduciaries, the beneficiaries, and the employer)." Id. (citingWoodworker's Supply, Inc. v. Principal Mut. Life Ins. Co., 170 F.3d 985,990 (10th Cir. 1999)).
PCMA argues that the UPDPA runs afoul of the exclusiveenforcement/remedy test because it "purports to create a new fiduciarybreach cause of action against a specific category of ERISA plan serviceprovider," when no ERISA remedy would be afforded against [them] underERISA. (Docket No. 85 at 13.) For his part, the Attorney General arguesthat conflictPage 17preemption does not arise because the UPDPA has "no real bearing on theintricate web of relationships among the principal players in the ERISAscenario" and because "PCMA's member PBMs are not ERISA fiduciaries."(Docket No. 88 at 15.) I agree with the Attorney General that the UPDPAdoes not impermissibly intrude upon the remedial scheme Congress devisedto govern the relationships among ERISA entities. Although ERISAprescribes the duties that are owed by ERISA entities to one another, andprescribes remedies for their breach, it is not designed to regulate orafford remedies against entities that provide services to plans.Furthermore, PCMA has failed to present any set of circumstances in whichenforcement of the UPDPA's "required practices" against a PBM wouldundercut ERISA's civil enforcement scheme. Finally, it seems to me thatthere is no logical basis to infer that Congress intended for ERISA toforeclose state regulation of third-party pharmacy benefits managementservices engaged in by non-ERISA fiduciaries or to preclude ERISA plansfrom employing state-created remedies against PBMs on an equal footingwith other consumers of such services.
II. FEHBA Preemption
PCMA maintains that the UPDPA is preempted by the Federal EmployeeHealth Benefits Act (FEHBA). (Docket No. 85 at 14-15.) The AttorneyGeneral argues that it is not. (Docket No. 88 at 16-18.) Both agree thatwhether the FEHBA preempts the UPDPA depends on essentially the sameanalysis as the question of whether ERISA preempts the UPDPA. (DocketNo. 85 at 15; Docket No. 88 at 18.) Based on the parties' concessionsthat the analysis would be redundant, I conclude that the FEHBA does notpreempt the UPDPA for the same reasons I set forth with regard to ERISApreemption.Page 18
III. Regulatory Taking
According to PCMA, information concerning the discounts and othercontract terms that PBMs are able to negotiate with drug manufacturersand pharmacies are "classic trade secrets." (Docket No. 85 at 19.)Because the UPDPA requires PBMs to disclose these trade secrets to theirbenefits provider customers in Maine, PCMA contends that the UPDPArequires PBMs to surrender trade secrets as a condition of doing businessin Maine. (Docket No. 85 at 18-19.) For his part, the Attorney Generaldoes not categorically argue that information and terms developed throughcontract negotiations are never trade secrets.8 Instead, the AttorneyGeneral argues that PCMA's takings claim is misconceived at afundamental, jurisdictional level because it seeks injunctive reliefrather than just compensation. (Docket No. 88 at 20-26.) On a somewhatrelated note, the Attorney General argues that whether or not a tradesecret exists or is taken depends on a number of individualized findingsthat cannot be made in the context of a lawsuit brought by a tradeassociation, as opposed to a lawsuit brought by one or more PBMsindividually. (Docket No. 88 at 19-32; Docket No. 100 at 8-10.) Inaddition to this concern over PCMA's associational standing to pursue itstakings claim, the Attorney General argues that PCMA's facial challengeto the constitutionality of the UPDPA cannot succeed because PCMA cannotprove that there is no set of circumstances under which the UPDPA would bevalid — because PCMA has offered evidence pertaining only to threeexisting PBMs and because that evidence suggests that the informationthat would be disclosed under the UPDPA is not always secret. (DocketNo. 88 at 32-33; Docket No. 100 at 9-10.) Finally, the Attorney Generalargues that the confidentiality protections afforded by the UPDPA"inoculate" the disclosure provisions. (Docket No. 88 at 33-42.) Beforeaddressing the merits of the takings claim, I pause to address thejurisdictional and prudential concerns raised by the Attorney General.Page 19
The Attorney General contends that this court does not havejurisdiction to enjoin enforcement of the UPDPA before there has been aneffort to enforce it against a PBM or, at least, before a PBM candemonstrate that state law remedies are inadequate to redress any allegedinjury to the PBM's interests in its trade secrets. (Docket No. 88 at20-26.) As the court observed in its order granting preliminaryinjunctive relief, the current controversy is ripe for adjudicationbecause PCMA brings a "facial" takings claim rather than an "as applied"takings claim. Pharm. Care Mgmt. Ass'n v. Rowe, 307 F. Supp. 2d 164,180 n. 17 (D. Me. 2004). However, as discussed below, the scope of afacial takings claim must be restricted to the theory that the challengedregulation does not substantially advance a legitimate state interest, orthat recourse to state procedures for obtaining just compensation wouldbe futile. Yee v. City of Escondido, 503 U.S. 519, 534 (1992) ("As this[facial challenge] does not depend on the extent to which petitioners aredeprived of the economic use of their particular pieces of property orthe extent to which these particular petitioners are compensated,petitioners' facial challenge is ripe."); Sinclair Oil Corp. v. County ofSanta Barbara, 96 F.3d 401, 406-407 (9th Cir. 1996), cert. denied,523 U.S. 1059 (1998) (discussing Williamson County Reg'l Planning Comm'nv. Hamilton Bank, 473 U.S. 172 (1985) and Yee, supra, and explaining thedifferent kinds of facial takings claims at issue in each); Daniels v.Area Plan Comm'n, 306 F.3d 445, 458 n. 13 (7th Cir. 2002) ("Litigants arenot required to meet the Williamson County ripeness requirements whensolely mounting a pre-enforcement facial challenge to theconstitutionality of a statute under the Fifth Amendment."); See alsoPhilip Morris, Inc. v. Reilly, 312 F.3d 24, 52 (1st Cir. 2002) (Lipez,dissenting) (discussing the stringent burden placed on plaintiffspresenting only facialPage 20takings claims). Whether the takings claim that PCMA advances in itsmemoranda of law actually adheres to this limitation is an interestingquestion.
The real focus of the Attorney General's jurisdictional objection goesto PCMA's request for injunctive relief. According to the AttorneyGeneral, "[n]o court prior to this case has . . . found" that thereexists such a thing as a "`facial per se takings claim for which therewas no adequate state compensatory remedy and thus the claim was ripe forfederal court equitable relief." (Docket No. 88 at 23.) In response, PCMAassures the court that it need not be concerned over this issue becausePCMA "challenges the UPDPA's generic condition, without exception andapplicable to PBMs as a class, requiring surrender of property rights inreturn for the ability to do business in Maine." (Docket No. 103 at 15.)According to PCMA, the First Circuit recognized an "unconstitutionalcondition" doctrine in Philip Morris, Inc. v. Reilly that bars statelegislation that attempts to impose a taking as a quid pro quo for accessto state markets. (Id. at 17.) Thus, PCMA cites a footnote in JusticeTorruella's primary opinion to the effect that it creates an"unconstitutional condition" when a state puts the sellers of products inthe "untenable position of having to choose between relinquishing theirvaluable trade secrets or pulling their products out of [a statemarket]," Philip Morris, 312 F.3d at 39 n. 11, and Justice Selya's moreemphatic statement in concurrence that "companies are left with aHobson's choice: either comply with the Disclosure Act and forfeit yourvaluable trade secrets or withdraw from the . . . market. Thisconstitutes an unconstitutional condition on [a] compan[y's] right tosell [its] products. . . . Id. at 50. I agree with PCMA that the PhilipMorris opinion appears to assert that there is a constitutional rightunder the Takings Clause to access a state's markets without having firstto satisfy a taking condition, and that a federal court hasjurisdiction, at the veryPage 21least, to declare a statute imposing such a conditionunconstitutional.9 Thus, PCMA's facial takings claim is ripe foradjudication.
B. Associational standing
The Attorney General argues that, even if the court has jurisdiction toevaluate a facial challenge to the constitutionality of the UPDPA underthe Takings Clause, PCMA does not have associational standing to litigatethe claim because "the nature of the takings claim is extraordinarilyindividualized, there is no commonality of relief because justcompensation . . . is the appropriate remedy, and . . . the associationalstanding vehicle was not intended . . . to make it more difficult fordefendants, and particularly sovereign states, to defend themselves."(Docket No. 88 at 26.) In support of this position, the Attorney Generalpoints to evidence obtained during discovery that tends to demonstratevoluntary divulgence of some trade secret information by certain PBMs tosome of their customers, most commonly in the context of annual audits.(Id. at 27-28.) Because some of PCMA's members would likely have extradifficulty proving that the terms they have negotiated with drugmanufacturers are "classic trade secrets," and therefore that the UPDPAsubjects them to a taking, the Attorney General argues that PCMA cannotstand in for the PBMs in this litigation. (Id. at 28-30, arguing at page30 that "[a]s long as there is one hypothetical contract between a PBMand the thousands of customers out there allowing access, there is nostanding.") PCMA sees things quite differently. In PCMA's view, "[i]twould be sufficient for associational standing purposes if every PCMAmember but one had abandoned their trade secrets." (Docket No. 103 at23.)Page 22
In Warth v. Seldin, the Supreme Court first recognized associationalstanding, holding that: The association must allege that its members, or any one of them, are suffering immediate or threatened injury as a result of the challenged action of the sort that would make out a justiciable case had the members themselves brought suit. So long as the nature of the claim and of the relief sought does not make the individual participation of each injured party indispensable to proper resolution of the cause, the association may be an appropriate representative of its members, entitled to invoke the court's jurisdiction.422 U.S. 490, 511 (1975). Thus, the Attorney General focuses on the needfor individual participation to prove the existence of a trade secret andindividualized damages, whereas PCMA focuses on the fact that only one ofits members need suffer a threatened injury that would generate ajusticiable case if it brought suit in its own name. It seems to me thatboth parties are correct, but each of their statements focuses on adifferent aspect of the associational standing test. PCMA is correct thatthe mere fact one or more of its members might not be able toindependently sustain a takings claim does not preclude PCMA from meetingthe associational standing test, so long as one of its members doessuffer injury to a cognizable interest. That fact goes to the first prongof the test (whether at least one of the association's members would havestanding to sue on its own), but not the third, prudential, prong thatthe Attorney General's argument focuses on (whether the nature of thelitigation requires the participation of individual members). See UnitedFood & Commer. Workers Union Local 751 v. Brown Group, Inc., 517 U.S. 544,554-557 (1996). Thus, although I credit PCMA's point, in my view it doesnot carry the day because it remains a basic fact of this litigation thatat least one of PCMA's members must participate in this litigation inorder for PCMA to prove that compliance with the UPDPA's disclosureprovision will effectively "take" a trade secret and that the resultantinjury to that member is sufficiently weighty to override the State'slegislative prerogative. Whether or not thePage 23information PBMs would have to divulge under the UPDPA deservesconstitutional protection under the Takings Clause, i.e., whether or notjustice and fairness require the payment of compensation for thedisclosure of such information, Penn Central Transp. Co. v. New YorkCity, 438 U.S. 104, 124 (1978), depends on a host of factors and PCMAcannot prove that the interest of trade secret protection is sufficientlycompelling to require compensation for the UPDPA's disclosure provisionsexcept by introducing evidence pertaining to how, inter alia, one or moreof its members develops, and maintains the secrecy of, its informationand how one or more of its members would be injured by disclosure. Thus,in my view, PCMA fails to meet the third, prudential,10 prong of theSupreme Court's standing test because its claim "requires theparticipation of [at least one] individual member? in the lawsuit," Huntv. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 343 (1977), and cannotbe determined without individualized evidence.
I recognize, of course, that an association can pursue a claim eventhough it must submit some evidence drawn from its members, as isdemonstrated by Hunt, in which the trial court entered findings about theeffects a North Carolina statute had upon some Washington apple growers,id. at 343-44. But here, unlike Hunt, the viability of PCMA's takingsclaim varies member-by-member, not based on the threshold question ofwhether a given member does business in Maine and complies with thestatute, but based on the highly individualized, underlying factualquestions of whether and how a given member protects the information atissue and whether the confidential disclosure of the information tospecific benefits providers or "covered entities" strips the informationof all value as a trade secret or causes economic injuryPage 24of constitutional proportion. By comparison, to dispose of the CommerceClause claim in Hunt, it appears that the only evidence the associationplaintiff had to put forward from its members was that the North Carolinastatute had the "consequence of raising the costs of doing business inNorth Carolina for Washington apple growers and dealers," a genericcondition imposed on every member participating in the North Carolinamarket.11 In the instant case, however, there is a genuine issue ofmaterial fact whether the mere fact of a PBM's compliance with the UPDPAby disclosure of information, subject to confidentiality, at the requestof a given provider customer, will cause appreciable economic injury, letalone effectuate a taking. In my view, prudence cautions against furtherentertaining PCMA's Takings Clause challenge to the UPDPA because thedetermination of this aspect of the litigation requires the court toevaluate highly individualized evidence and circumstances, so much sothat it is strange to even conceptualize this aspect of the litigation aspresenting only a "facial" challenge. For this reason, I recommend thatthe court grant summary judgment in favor of the Attorney General withrespect to count III.
Despite my recommendation concerning the Attorney General's challengeto PCMA's standing to sue in a representative capacity, I address themerits of PCMA's presentation of its facial takings claim because PCMAhas separately moved for summary judgment in its favor and that motionhas been referred for recommended decision. Should the courts choose togrant the Attorney General's motion for summary judgment against thisclaim, then this discussion will be largely academic.Page 25
PCMA argues that it is entitled to summary judgment in its favor on itstakings claim and its 42 U.S.C. § 1983 claim based on an analysis of thethree takings factors set forth in Penn Central Transportation Companyv. New York City, 438 U.S. 104 (1978), as applied to concerns over tradesecret protection in Ruckelshaus v. Monsanto Company, 467 U.S. 986(1984), and Philip Morris, Inc. v. Reilly, 312 F.3d 24 (1st Cir. 2002).According to PCMA, "if PBMs must reveal the information [required by theUPDPA] to their customers, even if to no one else, all value as propertyis destroyed, resulting in an unconstitutional taking." (Docket No. 85 at24.) The Attorney General argues that summary judgment should enteragainst PCMA's takings claim because PCMA cannot meet the heightenedburden that applies to a facial challenge. (Docket No. 88 at 32.)According to the Attorney General: [I]f a single PBM had a single contract with a covered entity that afforded that covered entity access to the type of information to be disclosed under sections 2(D) and 2(G), with the same or fewer confidentiality protections than those in the statute, the facial challenge fails because . . . there is no "trade secret," no adverse economic impact, and no interference with investment backed expectations.(Id.) Alternatively, the Attorney General argues that even if the courtconcludes that the information at issue in this case is entitled to tradesecret protection, the UPDPA's confidentiality provisions "`inoculate'the disclosure provisions from constitutional infirmity." (Id. at 33.)Like PCMA, the Attorney General discusses all three of the Penn Centralfactors in his memorandum. (Id. at 35-42.) Those three factors are thefollowing: (1) "the extent to which the regulation [would] interfere? with distinct investment backed expectations"; (2) "the economic impact of the regulation on the claimant"; and
(3) "the character of the governmental action."Page 26 Penn Central, 438 U.S. at 124.12
Because PCMA brings only a facial challenge, "the narrow inquiry"before this court is "whether the mere enactment of the [UPDPA]constituted a taking." Tahoe-Sierra Pres. Council, Inc. v. Tahoe Reg'lPlanning Agency, 535 U.S. 302, 318 (2002). Typically, in the context of aphysical taking of property, a facial challenge invites a categoricalrule. See id. at 320-21. Although PCMA maintains that a per se takingresults from the enactment of the UPDPA because it requires thedisclosure of trade secrets as a condition of doing business in Maine(Docket No. 85 at 15), I am not persuaded that application of a per serule makes sense in this case because of the need for searching andindividualized fact finding in order to evaluate the Penn Centralfactors. See Tahoe-Sierra, 535 U.S. at 322-23 (describing the distinctionbetween physical takings, which permit a categorical approach, andregulatory takings, which "entail? complex factual assessments of thepurposes and economic effects of government actions "). Indeed, I haveconcerns that PCMA is not really pressing a facial challenge here. Foreach of the three Penn Central factors, PCMA presents arguments that aredependent not only upon evidence of its members' internal practices, theeconomic value of the information at issue, and the impact the UPDPAwould have on its members' use of information, but also upon entirelyhypothetical projections about what some of its customers might do withthe information once it is disclosed to them. (Docket No. 85 at 18-23.)In contrast, in Yee the Supreme Court held that a regulatory takingsclaim was ripe because the plaintiff argued only that the regulation inquestion did not "`substantially advance' a `legitimate state interest,'no matter how it is applied," and did not base the claim on the "extentto which [they were] deprived of the economic use of their [property]."503 U.S. at 534. My impression is that PCMA's taking claim is really anunripe as-applied claim masquerading as a facial claim.Page 27
PCMA contends that the constitutional finding it seeks is plainlyrequired by Ruckelshaus v. Monsanto and Philip Morris and that the courtonly needs to determine that PCMA's members have at least some reasonableinvestment-backed expectation that their trade secrets will remainsecret, to conclude, categorically, that disclosure to PBM's providercustomers works a taking. (Docket No. 88 at 17-18.) I disagree becausethe record does not compel a finding that confidential disclosure tothese customers will destroy or extinguish the PBMs' alleged tradesecrets. The point is that viewing the record in the light most favorableto the Attorney General, and drawing all reasonable inference in hisfavor, the court cannot conclude that the confidential disclosures theUPDPA requires will destroy the PBMs' trade secrets or their reasonableinvestment-backed expectations.
In Ruckelshaus v. Monsanto, the Supreme Court considered whether tradesecret data Monsanto submitted to the Environmental Protection Agencyunder the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA),could be disclosed publicly by the EPA without effecting a regulatorytaking. The Court's answer was that it depended upon which of threeevolving statutory schemes applied at the time the data were submitted.Ruckelshaus v. Monsanto, 467 U.S. at 990-97 (describing FIFRA's originalpurpose and its evolution through two amendments), 998-99 (describing thenature of Monsanto's claims), & 1004-14 (discussing the merits based onwhich statutory scheme the data were submitted under). The question ofwhether the data deserved trade secret protection was not before theCourt. The EPA stipulated that Monsanto had property rights in the data,and the Court merely paused to consider whether "the intangible nature ofa trade secret" deserved protection under the Fifth Amendment. Id. at1001-1004. The Court concluded that trade secrets are protected by theTakings Clause. Id. at 1003-1004. Turning to the ultimate takingsquestion, the Court observed that the ad hoc,Page 28regulatory takings analysis set the appropriate standard. Id. at1004-1005. The Court concluded that of the three ad hoc factors (thecharacter of the government action, its economic impact, and itsinterference with reasonable investment-backed expectations), the casecould be resolved solely by reference to Monsanto's investment-backedexpectations. Id. at 1005. Based on that factor, the Court rejected mostof Monsanto's case, holding that public disclosure of data submittedunder the latest (post-1978) and the earliest (pre-1972) versions ofFIFRA could not effect takings. As for post-1978, a taking could not befound because "Monsanto knew that, for a period of 10 years from the dateof submission, EPA would not [disclose] data . . . without Monsanto'spermission," because "Monsanto was further aware that it was entitled toan offer of compensation [from the party receiving a disclosure] . . .until the end of the 15th year from the date of submission," and becauseMonsanto knew that "much of the . . . data . . . could be disclosed tothe general public at any time." Id. at 1006. Because Monsanto was awareof all these different avenues for public disclosure and neverthelesssubmitted its data to the FDA "in exchange for the ability to marketpesticides," id. at 1007, the Court reasoned that it could not find thatMonsanto had a reasonable, investment-backed expectation that could be"disturbed" by a disclosure made in compliance with the act. Id. at1006-1007. As for pre-1972, the Court reasoned that a taking could not befound because there was no federal law in effect at that time that couldhave justified Monsanto in thinking that its data would remainconfidential or that the EPA would not conclude that public disclosurewas needed. Id. at 1008-1009. In other words, the Court appeared toreason that submission of trade secret data to a federal agency, withoutan "express promise" of confidentiality, precludes a finding of areasonable investment-backed expectation that the trade secret would notbe publicly divulged. Id. at 1008-1009. Another way of looking at thisaspect of the holding is that government disclosure, for public benefit,of tradePage 29secret data submitted to it in exchange for the right to market aregulated product does not amount to a taking unless the government hasmade an express promise to protect the data's confidentiality. Thisreading is born out by the Court's analysis of data submitted by Monsantobetween 1972 and 1978. During this timeframe, FIFRA afforded a submitterof data the "opportunity to protect its trade secrets from disclosure bydesignating them as trade secrets at the time of submission." Id. at1010-11. Thus, because "the Federal Government had explicitly guaranteedto Monsanto and other registration applicants an extensive measure ofconfidentiality and exclusive use[,]" the Court held that Monsanto had a"reasonable investment-backed expectation with respect to its controlover the use and dissemination of the data it submitted." Id. at 1011.
In all three situations described above, the Court's holding turnedentirely on the past submission of trade secret data with or withoutstatutory assurances that the data would be protected. Reviewing ahistorical record of this kind, the task faced by the Court inRuckelshaus v. Monsanto was much "cleaner" than what is presented in thiscase. Here, PCMA wants a prospective ruling that any requirement ofdisclosure, even if subject to confidentiality, works a taking, somethingthat has very little resemblance to what the Supreme Court did inRuckelshaus v. Monsanto. Also distinct from Ruckelshaus v. Monsanto isPCMA's demand for injunctive relief. With respect to remedy fordisclosure of data submitted between 1972 and 1978, the Supreme Court inRuckelshaus v. Monsanto entered an order that the time had not yet comefor imposing any relief because there remained an opportunity forMonsanto to obtain just compensation:
EPA consideration or disclosure of health, safety, and environmental data will constitute a taking if Monsanto submitted the data to EPA between October 22, 1972, and September 30, 1978; the data constituted trade secrets under Missouri law; Monsanto had designated the data as trade secrets at the time of itsPage 30 submission; the use or disclosure conflicts with the explicit assurance of confidentiality or exclusive use contained in the statute during that period; and the operation of the arbitration provision does not adequately compensate for the loss in market value of the data that Monsanto suffers because of EPA's use or disclosure of the trade secrets.
Id. at 1013-14 (footnote omitted). See also id. at 1016 ("Equitablerelief is not available to enjoin an alleged taking of private propertyfor a public use, duly authorized by law, when a suit for compensationcan be brought against the sovereign subsequent to the taking. The FifthAmendment does not require that compensation precede the taking.")(footnote and citation omitted), 1019 ("The District Court erred inenjoining the taking.") & 1020 (noting, in conclusion, that a Tucker Actremedy is available to provide Monsanto with just compensation," and that"[o]nce a taking has occurred, the proper forum . . . is the ClaimsCourt"). In my view, Ruckelshaus v. Monsanto does not provide a goodformat for analyzing whether PCMA's prospective submission of informationunder the UPDPA works a taking because we are not concerned here withpast submissions of data or information. If Ruckelshaus v. Monsantodictates anything with respect to the disposition of this suit, it isthat declaratory relief might be in order, but injunctive relief is not.
The First Circuit's en banc opinion in Philip Morris comes closer tothe mark, but is still no cigar. In Philip Morris, the First Circuitreviewed a facial challenge to a Massachusetts tobacco ingredientsdisclosure act. 312 F.3d at 26. The act required disclosure of allingredients used in tobacco products, "by relative amount," other thantobacco, water and reconstituted tobacco sheet. Id. The act furtherprovided that the information would be disclosed to the public. Id. at28. A number of tobacco companies (not an association)13 brought afacial challenge to the act, before it could be implemented, contendingthat the act "create[d] anPage 31unconstitutional taking." Id. at 26. The district court agreed, enjoiningenforcement of the act; a divided First Circuit panel reversed,concluding that public disclosure . . . is a valid exercise of the policepower and, in the absence of explicit guarantees of confidentiality . .., does not effect an unconstitutional taking"; and after an "en banc"review of the takings issue by three judges, the panel decision wasreplaced with an opinion affirming the district court. Id. at 26. LikeRuckelshaus v. Monsanto and unlike this case, the key factual findingsthat the Philip Morris opinion turned on were not disputed. Thus, it wasnot disputed by the Massachusetts Attorney General "that the tobaccocompanies' ingredient lists are trade secrets," Philip Morris,312 F.3d at 31, or that "publication of [the tobacco companies']ingredient lists, organized by relative amount, on a brand-by-brand basiswould likely destroy the secrecy of their formulas," id. at 27.Moreover, unlike the UPDPA, the Massachusetts act allowed forunrestricted public disclosure of the tobacco companies' ingredientlists. The Court found as a fact that Massachusetts "hope[d] to publicizethe ingredient list of various brands" in order to "help consumers makemore informed choices." Id. at 28. Based on those undisputed facts, themajority of the en banc Court concluded that it could dispose of thefacial challenge on the merits, having a record that plainly establishedthat the companies had, at least until passage of the act, reasonableexpectations in the safety of their trade secrets by virtue ofMassachusetts common law, and that public disclosure (and, thus,disclosure to competing manufacturers), would "extinguish," id. at 41,"essentially destroy," id. at 42, or "completely destroy," id. at 43, thecompanies' trade secrets. See also id. at 41 (finding it "paradigmatic"that the tobacco companies' assertion that their trade secrets would lose"all value" was true.) (emphasis added). Finally, the court concludedthat the act also imposed an unconstitutional condition becauseMassachusetts was not offering tobacco companies a "benefit" ofcorresponding value to offset the taking. Id. at 47. AsPage 32for remedy, the Court affirmed the district court's entry of injunctiverelief, but only on a technicality: the legality of imposing injunctiverelief was not challenged on appeal. Id. at 47 n. 22.
The takings claim presented in the instant case is like the takingsclaim presented in Philip Morris to the extent that PCMA seeksprospective relief and no PBM has yet divulged any of its alleged tradesecrets in compliance with the UPDPA. According to Judge Torruella,author of the lead opinion in Phillip Morris, when a trade secret takingclaim is raised before disclosure, it is more likely that a taking willbe found, because unless a promise of confidentiality is extended orextracted from the government, there is no reasonable basis to expectthat the trade secret will not be divulged by the State. Id. at 38.However, this case is also different from Philip Morris in significantways. The UPDPA does not subject information to unfettered publicdisclosure, but affords a measure of confidentiality. Furthermore, it isnot clear that the information that would be disclosed under the UPDPAdeserves trade secret protection and it is established that disclosuresof at least some information to at least some PBM customers will notundermine trade secrets protection because those customers have alreadybeen granted access to the information. In addition, PCMA's evidenceabout the likelihood of harm, given the confidentiality provisions nowengrafted to the UPDPA, is entirely conjectural and will likely varyaccording to which PBM is under consideration. On this record, I am notpersuaded that PCMA can carry its burden to prove that every disclosureunder the UPDPA, if uncompensated, will result in an unconstitutionaltaking, and I believe that the question ought to be presented in thecontext of an as-applied challenge. Nevertheless, I follow JudgeTorruella's lead and address the Penn Central factors in turn, mindfulthat PCMA faces "an uphill battle" and "must establish that no set ofcircumstances exists under which the Act would be valid." PhilipPage 33Morris, 312 F.3d at 52 (Lipez, J., dissenting) (quoting Tahoe-SierraPres. Council, 535 U.S. at 1477, and Pharm. Research & Mfrs. of Am. v.Concannon, 249 F.3d 66, 77 (1st Cir. 2001)).
According to PCMA, the UPDPA places PBMs' reasonable investment-backedexpectations in jeopardy of destruction because the disclosures the UPDPAcalls for will divulge trade secrets to customers who, as commercialentities, could derive economic value from the information by enteringthe PBM industry and eliminating PBMs as middlemen. (Docket No. 85 at23-24.) Contrary to PCMA's assertions, the record does not clearlyestablish that any given disclosure under the UPDPA will divulge tradesecrets, destroy or extinguish the economic value of the alleged tradesecret information, or cause provider customers to enter the PBM market.
1. Reasonable investment backed expectations
From PCMA's perspective, if it can show that any one of its memberswould have to disclose information under the UPDPA that is otherwisesubject to trade secret protection, then not only will the first andsecond prongs of the Penn Central test be established, but also a per setaking will be conclusively established. (Id.) PCMA thus fully briefs whythe terms of the contracts that PBMs negotiate with drug manufacturersand pharmacies deserve trade secret protection. (Id. at 18-23.) I do notreproduce PCMA's arguments here because, although I agree with PCMA thatthe terms and conditions set forth in confidential contracts could14amount toPage 34"information . . . that . . . [d]erives independent economic value . . .from not being generally known to and not being readily ascertainable byproper means by other persons who can obtain economic value from itsdisclosure or use," 10 M.R.S.A. § 1542(4), I also agree with theAttorney General that the question under the first prong of the facialtest is not whether such information could be a trade secret, but whetherthe record proves that it is reasonable for PBMs to expect that theinformation at issue could never be subject to a disclosure regulation,including a disclosure regulation with a confidentiality provisionrestricting further disclosure. On that question, I agree that PCMAcannot establish a facial taking on the existing record. The recordclearly establishes that in at least some instances, confidentialdisclosure under the UPDPA would be in keeping with preexisting PBMpractice between some PBMs and some of their customers.15 I thereforeconclude that PCMA fails to carry its burden of demonstrating that theUPDPA could not be valid under any set of circumstances. Tahoe-SierraPres. Council, 535 U.S. at 1477; Pharm. Research & Mfrs. of Am.,249 F.3d at 77. Furthermore, it seems striking to me that, although theAttorney General has strived to present evidence of actual situations inwhich no taking would occur, PCMA has not even attempted to present oneconcrete situation where the disclosure of information by one of itsrepresentative PBMs to an actual, identified, Maine-based benefitsprovider customer or "covered entity" would compromise trade secretinformation. Instead it has put forth highly-generalized statements offact that depend upon thePage 35court drawing rather liberal inferences in its favor as the summaryjudgment movant. Finally, I agree with the Attorney General that theyear-to-year nature of these contracts significantly erodes PCMA'sposition that any diminution in the value of the information contained inthe contracts works a taking. (Docket No. 88 at 40.) Unlike classic tradesecrets, like the formulas used to produce pesticides or cigarettes,which have an abiding market value, the terms of an annual contractexpire annually. The Legislature amended the UPDPA to provide that itsterms were only applicable to contracts entered into or renewed after theUPDPA's effective date. 22 M.R.S.A. § 2699(5). Because expectations mustbe evaluated at the date of disclosure, Ruckelshaus v. Monsanto,467 U.S. at 1014 n. 17, and because the contracts found in the recordreflect that drug rebates and other terms are renegotiated annually, thecontractual information at issue does not deserve to be treated ascategorically untouchable trade secrets but as new data that is subjectto health and safety regulations requiring transparency. Stated anotherway, the PBMs' market "relationships" with drug manufacturers andpharmacy networks are not something that the Takings Clause requiresgovernments to treat as sacrosanct or opaque in perpetuity andexpectations in as-yet unexecuted or yet-to-be negotiated contracts arenot reasonable if they fail to take into consideration newly enactedregulations.
2. Economic impact
PCMA's economic impact argument is the same argument it presents insupport of its members' investment-backed expectations. The primaryfactual assertion that PCMA advances in support of its economic impactargument is the projection that disclosure will undermine the PBMs'negotiating position with their benefits provider customers, therebycosting them money, and that the PBMs' provider customers willpotentially enter the PBM market and cut PBMs out of the loop if PBMs haveto make the disclosures called for by the UPDPA. (Docket No. 94, ¶Page 3619.) In support of this assertion, PCMA offers passages from thedeposition testimony of numerous individuals currently or formerlyretained by PCMA or otherwise within the PBMs' employ. (Id.) Even if thecourt were to credit these predictions, I conclude that the lack ofreasonable investment-backed expectations in new and future contractterms overrides this factor and that the injuries alleged are but partand parcel of the regulatory environment. Philip Morris, 312 F.3d at 36("Courts protect only reasonable expectations. Ideally, the relevantinquiry should recognize that not every investment deserves protectionand that some investors inevitably will be disappointed."); see also id.at 48 (arguing that the investment-backed expectation factor should haveprimacy when trade secrets are at issue); Penn Cent., 438 U.S. at 124("The economic impact of the regulation on the claimant and,particularly, the extent to which the regulation has interfered withdistinct investment-backed expectations are, of course, relevantconsiderations) (emphasis added). In this case there is undisputedconfidential evidence in the record demonstrating that with respect to atleast one PBM's relationship with one of its provider customers,compliance with the UPDPA's disclosure provisions would have absolutelyno economic impact. (Docket No. 89, ¶¶ 140-41.) Thus, PCMA cannot succeedwith its facial challenge because it cannot establish that there is nocircumstance under which the UPDPA will not effect a taking. Finally,PCMA's allegations that the UPDPA will undermine competition in themarket is diluted by the fact that the disclosures called for by theUPDPA are to be made to benefits providers, not to PBMs and, except withrespect to drug substitution information, the PBM may imposeconfidentiality obligations on the recipients of the information.
3. Character of the governmental action
PCMA argues that the character of the governmental action at work inthe UPDPA is "a naked transfer of wealth by appropriation of property[,]a classic taking." (Docket No. 85 at 26;Page 37Docket No. 103 at 31.) Thus, PCMA argues that the court must find theUPDPA to be an illegitimate exercise of the police power because thestate has not offered any benefit to offset the burden imposed on PBMs(Docket No. 85 at 25-26) and because the stated goal of lowering drugcosts will not result (Id. at 27). The problem with the first argument isthat it conflates the inquiry of whether the State is pursuing a properobjective with the separate inquiry of whether the UPDPA imposes anunconstitutional condition. (Docket No. 85 at 24-26.) If the court cannotdetermine in the context of this facial challenge that the UPDPA wouldnecessarily effect a taking, how can it make the finding thatpreconditioning market access on compliance with the UPDPA would impose anunconstitutional condition? The problem with the second argument is thatit assumes that it is the province of this court to judge policy issuesalready addressed, and more appropriately addressed in our system ofgovernment, by the Legislature.
The standards assigned by the Supreme Court teach that violations ofthe Takings Clause are not so readily to be found when interference withproperty "arises from some public program adjusting the benefits andburdens of economic life to promote the common good." Penn Cent.,438 U.S. at 124. "Government hardly could go on if to some extent valuesincident to property could not be diminished without paying for everysuch change in the general law," Pa. Coal Co. v. Mahon, 260 U.S. 393, 413(1922), and "recognized economic values" could not be adversely affectedthrough the enactment of new laws or government programs, Penn Cent.,438 U.S. at 124. And where personal property is concerned, "regulationcan severely undermine [its] economic value . . . and not rise to thelevel of a taking." Philip Morris, 312 F.3d at 43 (citing Andrus v.Allard, 444 U.S. 51, 66 (1979)). The purpose of the UPDPA is clearly toserve and protect the public health and welfare, whether its executionwas ill-conceived or not. Adjusting the benefits and burdens of theprescription drug trade that transpires in this State to ensurePage 38transparency in the sale and purchase of drugs is an appropriategovernmental endeavor.16 The fact that, going forward, PBMs mustabide by certain restrictions within that market in connection with theprovision of PBM services to Maine "covered entities" simply influences orinforms the PBMs' future (i.e., post enactment) contract negotiationswith drug manufacturers, pharmacy networks and their benefits providercustomers, for future trades in prescription drugs. It does not serve totake the value of present or past contracts for PBM services. Settingthese parameters on the provision of PBM services may or may not bestserve the interest of the Maine public, but it is not an illegitimateexercise of the police power to regulate with respect to the publichealth.
D. Unconstitutional condition
In Philip Morris, Judge Torruella concluded that the tobacco disclosureact was invalid as an unconstitutional condition because Massachusettssought to impose the burden of unrestricted public disclosure of tradesecret information on tobacco companies as a precondition to marketingproducts in the Commonwealth. 312 F.3d at 47. This finding turned entirelyonPage 39Judge Torruella's prior finding that the disclosure act effected ataking. Id. In this case PCMA has failed to carry the burden ofdemonstrating a facial taking and, therefore, I recommend that the courtreject PCMA's assertion that the UPDPA imposes unconstitutionalconditions on PBMs' access to the Maine market for PBM services.
IV. Due Process
PCMA maintains that the UPDPA violates the Due Process Clause becauseit deprives PBMs of property rights without providing any notice oropportunity to be heard. (Complaint, Docket No. 1, "Count Four," ¶ 68.)PCMA's memorandum of law makes it apparent that this claim is meant totag along with its takings claim. (Docket No. 103 at 32-33.)Essentially, PCMA's position is that there must be a "predeprivationhearing" before a PBM can be expected to comply with the UPDPA'sdisclosure provisions. (Id.) See Zinermon v. Burch, 494 U.S. 113, 132(1990) ("In situations where the State feasibly can provide apredeprivation hearing before taking property, it generally must do soregardless of the adequacy of a postdeprivation tort remedy to compensatefor the taking."). I recommend that the court grant summary judgment infavor of the Attorney General on this claim. Because PCMA fails todemonstrate that the UPDPA facially works a taking of PBM property, Iconclude that it likewise fails to demonstrate that the UPDPA is faciallydeficient for want of a predeprivation hearing provision.
V. Commerce Clause
Article I, Section 8, Clause 3 of the Constitution cedes to Congressthe power "to regulate Commerce . . . among the several States." TheSupreme Court has recognized as implicit within this affirmative grant ofpower a "negative" or "dormant" aspect that restricts the ability of stateand local governments to burden interstate commerce by impeding privatetrade in the national marketplace through local regulation or taxation.GMC v. Tracy, 519 U.S. 278, 287 (1997).Page 40According to PCMA, the UPDPA violates the Commerce Clause "because theburden it imposes on interstate commerce `is clearly excessive inrelation to the putative local benefits'" (Docket No. 103 at 33, quotingPike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)), and because it hasan impermissible extraterritorial effect (Id. at 38, relying on Edgar v.MITE Corp., 457 U.S. 624 (1982)). I address the extraterritoriality claimfirst.
Among the various ways that state regulation may run afoul of theCommerce Clause is by having the effect of regulating commercial activityoccurring wholly outside of the regulating state. Thus, in MITE, theSupreme Court held that an Illinois securities law that sought toregulate tender offers for the stock of Illinois corporations violatedthe Commerce Clause because of its "nationwide reach which purports togive Illinois the power to determine whether a tender offer may proceedanywhere." 457 U.S. at 643. Similarly, in Brown-Forman DistillersCorporation v. New York State Liquor Authority, the Supreme Courtinvalidated a New York wholesale liquor price control regulation becauseit "[f]orc[ed] a merchant to seek regulatory approval in [New York]before undertaking a transaction in another [state]." 476 U.S. 573, 582(1986). According to PCMA, the UPDPA has an unconstitutionalextraterritorial reach because it "`could be applied to [PBM-manufacturercontracts] which would not affect a single [Maine resident].'" (DocketNo. 103 at 39, paraphrasing MITE, 457 U.S. at 642.) I disagree with thischaracterization. The UPDPA clearly provides: "Compliance with therequirements of this section is required in all contracts for pharmacybenefits management entered into in this State or by a covered entity inthis State." 22 M.R.S.A. § 2699(3). Furthermore, the UPDPA defines"pharmacy benefits management" as "the procurement of prescription drugs. . . for dispensation within this State to covered individual." Id., §2699(1)(E). Only someone engaged in a highly-abstractPage 41theoretical exercise could seriously maintain that the UPDPA is designedto regulate contracts for pharmacy benefits management services thatwould not affect a single Maine resident. The obvious import of theprovisions just quoted is that the UPDPA applies when a PBM enters into apharmacy benefits management contract with a Maine covered entity forprovision of pharmacy benefits management services that benefit Mainecovered individuals.
B. Pike balancing test
Non-discriminatory and non-protectionist regulations that have indirector incidental effects on interstate commerce are valid unless the partychallenging the regulations can demonstrate that "the burden imposed onsuch commerce is clearly excessive in relation to the putative localbenefits." Bruce Church, 397 U.S. at 142. According to PCMA, the UPDPAimposes burdens that are excessive because "the costs of disclosure . .. could lead to the total curtailment of any PBM cross-border commerce."(Docket No. 103 at 33.) Other than this threat, PCMA's argument forexcessiveness turns entirely on the presupposition that the UPDPA willeffect takings of information that would otherwise be given trade secretprotection in every other state. (Id. at 33-34.) Because PCMA has failedto support its facial challenge under the Takings Clause, it has likewisefailed to provide the court with any great weight to place on theexcessive burden side of the scale. This is a failure of proof thatwarrants an entry of summary judgment against PCMA on this claim. N.H.Motor Transp. Ass'n v. Flynn, 751 F.2d 43, 48 (1st Cir. 1984) ("[T]heburden of proving `excessiveness' falls upon the [plaintiff], not thestate."). As for the "putative local benefits" side of the scale, PCMAargues that the UPDPA will not achieve its purpose of reducing the costsof, and increasing the public's access to, prescription drugs. (Id. at36.) Even assuming that the likelihood of the UPDPA achieving the State'sobjectives could be proven in this or any litigation, which I doubt, I donot believe that thePage 42evidence PCMA offers of this likelihood is probative enough, even if allinferences are drawn against the Attorney General as the movant, for thecourt to presume that it might pass on the wisdom of the healthcarepolicies adopted by the Legislature in the context of a trial. In anyevent, the salient point is that the UPDPA is clearly designed to improvepublic health by increasing access to prescription drugs and, therefore,the putative benefit is substantial, quite distinct from the situation inBruce Church, where the legislation under review involved the "tenuousinterest in having . . . cantaloupes identified as originating inArizona." 397 U.S. at 145. See also Pharm. Research & Mfrs. of Am.,249 F.3d at 84 (finding it a substantial benefit that Maine's Rx Program"will potentially provide prescription drugs to Maine citizens who couldnot otherwise afford them."). The substantiality of the putative benefitat issue here will support the imposition of some appreciable incidentalburdens on interstate commerce. Without the benefit of an establishedtaking on the record, I conclude that the burden of disclosinginformation to a customer, subject to confidentiality, is not "clearlyexcessive" in relation to the putative local benefit of "a novellegislative approach to one of the serious problems of our time." Pharm.Research & Mfrs. of Am., 249 F.3d at 80.17
VI. Free Speech
The seventh count of PCMA's complaint concerns the First Amendment.According to PCMA, the UPDPA violates the First Amendment because itcompels PBMs to engage in commercial speech by mandating disclosure oftheir confidential business information to those they would notvoluntarily communicate the information to. (Docket No. 103 at 41.) TheAttorney General argues that the First Amendment has nothing to do with amandatoryPage 43disclosure law and, alternatively, that the disclosures called for in theUPDPA serve an appropriate government interest. (Docket No. 88 at 47.)
"`[C]ommercial speech [enjoys] a limited measure of protection,commensurate with its subordinate position in the scale of FirstAmendment values,' and is subject to `modes of regulation that might beimpermissible in the realm of noncommercial expression.'" Bd. of Trs. v.Fox, 492 U.S. 469, 477 (1989) (quoting Ohralik v. Ohio State Bar Ass'n,436 U.S. 447, 456 (1978)). Broadly stated, "commercial speech compelledby government is governed by a . . . set of principles which require acourt to balance a number of factors according to its judgment concerningthe welfare of buyers and sellers in the market place." United Foods,Inc. v. United States, 197 F.3d 221 (6th Cir. 1999). First Amendmentprotections are implicated not only by regulations designed to restrict aperson's right to speak freely, but also by regulations that would compelspeech and thus override a person's "right to refrain from speaking atall." Wooley v. Maynard, 430 U.S. 705, 714 (1977). Because the UPDPAundeniably compels commercial speech, I disagree with the AttorneyGeneral's suggestion that the UPDPA is not subject to First Amendmentscrutiny. However, there does not appear to be any clear precedent forthe situation presented herein; those in the business of selling goodsand services do not appear to have often raised First Amendmentchallenges to statutes forcing disclosures pertaining to the servicesbeing sold.
Loosely analogous to this case are those Supreme Court precedents inwhich the Court has reviewed state and federal regulations that exactmonetary contributions from businesses in order to fund governmentadvertising campaigns that are, ostensibly, supposed to benefit theentire industry that is subject to the regulation. See, e.g., UnitedStates v. United Foods, Inc., 533 U.S. 405 (2001) (holdingunconstitutional a state regulatory scheme that mandated that freshPage 44mushroom handlers pay assessments to a state "Mushroom Council" to fundgeneric advertisements promoting mushroom consumption). For such cases,the Supreme Court has developed the rule that compelled contributions aregenerally constitutional when the industry at issue is characterized by acooperative or collectivist market (such as the professional bar or acooperative agricultural market subject to regulation that displacescompetition) in which group action is deemed necessary to maintain astable market, but unconstitutional where the only impetus behind theregulation is to ensure an adequate subsidy for the government'sadvertising campaign. Id. at 414-15. This line of demarcation appears toreflect the position that the government may not compel commercial speechor subsidization of commercial speech simply because it believes thecommercial speech will serve the interest of those supplying thesubsidy. In my view, because the UPDPA compels speech in order to advancethe public good, those cases involving regulatory restrictions oncommercial speech for public purposes are more analogous to the currentsituation than are the compelled advertising cases such as United Foods.
In Zauderer v. Office of Disciplinary Counsel, the Supreme Courtreviewed the constitutionality of reprimands imposed on an attorney forcertain newspaper advertisements he ran to attract clients. 471 U.S. 626(1985). Zauderer illustrates how the constitutionality of restrictions onadvertising generally turn on the government's ability to tie therestriction to concern over preventing "the dissemination of commercialspeech that is false, deceptive, or misleading." Id. at 638. However, alsorecognized by the Court is the ability of the states to restrictcommercial speech that is not false, deceptive or misleading so long asthe restriction is imposed "in the service of a substantial governmentalinterest" and the means chosen "directly advance that interest." Id. Thelogical corollary to these rules is that states may also compel thedissemination of commercial speech in order to ensure that othercommercial speech is not false,Page 45deceptive or misleading, or in order to serve a substantial governmentinterest, regardless of concerns over deception. Thus, states have broadauthority to regulate the content of speech that is designed "to solicitor obtain legal business" in order to advance a substantial governmentalinterest. Id. at 641. Moreover, where a mere "disclosure requirement" isimposed, rather than a restriction on speech, the Supreme Court has heldthat the standard is lowered somewhat because a business's "interest innot providing any particular factual information in . . . advertising isminimal." Id. at 651. Thus, the Court has emphasized that "disclosurerequirements trench much more narrowly on an advertiser's interest thando flat prohibitions on speech" and that disclosure requirements needonly be "reasonably related" to advancing the governmental interest atissue. Id.
The Attorney General argues that the UPDPA's disclosure provisions aredesigned to overcome the potential conflict of interest that PBMs have tocollude with drug manufacturers to increase the prescription drug costsimposed on benefits providers and their sponsors and subscribers("covered entities" and "covered individuals" under the UPDPA), insofaras manufacturers afford monetary incentives for PBMs to manipulate theirformularies or use drug switching programs and other practices to ensurea certain volume of purchases for a specific manufacturer's drugs,regardless of the cost effectiveness of such practices for the ultimateconsumers. (Docket No. 88 at 47-48.) The Attorney General maintains thatthere is no doubt as to "the potential for conflicts and deceptivepractices by PBMs," citing a handful of cases decided by this court andothers and a consent order entered into by Medco and the AttorneyGeneral's Office.18 (See id. at 48.) In the Attorney General'swords:Page 46
Maine has chosen to [control costs and increase access] by providing information to the entity that is responsible for paying the cost of those drugs and is in the best position to protect the interests of Maine citizens; with that information, obtained from the PBM with which it contracts, the covered entity will be able to enter negotiations with a full picture of the PBM's arrangements.(Id.) There is no question in this case but that the UPDPA is designed toserve a substantial governmental interest: increasing public access toprescription drugs. Thus, the only question is whether compelling PBMs todisclose confidential information to their provider customers, subject toconfidentiality restrictions on further dissemination, is reasonablyrelated to advancing the governmental interest the UPDPA is designed toachieve. I conclude that requiring PBMs to confidentially disclose totheir provider customers: "financial and utilization information"regarding the services they provide, subject to confidentiality,22 M.R.S.A. § 2699(2)(D); the costs of drugs involved in a drugsubstitution where the substituted drug is more expensive than theoriginally prescribed drug, id., § 2699(2)(E)(2); the financial incentiveoffered by the manufacturer for substituting its drug for anothermanufacturer's drug, if any, id.; and the "financial terms andarrangements for remuneration" that PBMs negotiate with manufacturers andpharmacies, subject to confidentiality, is reasonably related tocontrolling the cost of prescription drugs in Maine because it isdesigned to create incentives within the market for the abandonment ofcertain practices that are likely to unnecessarily increase cost withoutproviding any corresponding benefit to the individual whose prescriptionis being filled and that appear to be designed merely to improve a drugmanufacturer's market share. As argued by the Attorney General, the UPDPAessentially has the effect of imposing on entities seeking to sellpharmacy benefits management services within the State of Maine, thefiduciary duties of full disclosure and, with respect to drugsubstitution practices, non-self-dealing. Because the imposition of theduties to disclose financial information, subject to confidentiality, isreasonably related to thePage 47substantial governmental interests that invigorate the UPDPA,19 Iconclude that PCMA cannot sustain its facial free speech challenge andsummary judgment should enter in favor of the Attorney General on thisclaim.
VII. 42 U.S.C. § 1983
Because I have concluded that the UPDPA does not violate any of thefederal rights raised by PCMA, I recommend that summary judgment enter infavor of the Attorney General on the 42 U.S.C. § 1983 claim as well. PCMAargues that summary judgment cannot be entered on this claim, even ifsummary judgment is entered against all of the substantive claims,because there remains the question whether post-injunction amendments tothe UPDPA20 confer "prevailing party" status on PCMA for purposes ofits pending motion for attorney's fees under 42 U.S.C. § 1988. (DocketNo. 103 at 46.) I fail to see why the motion for fees requires the courtto withhold the entry of judgment on this substantive claim and PCMA'smemorandum fails to provide me with any rationale why the court shouldmanage its docket in that fashion.
For the reasons stated herein, I RECOMMEND that the court GRANT theAttorney General's motion for summary judgment and DENY PCMA's motion forsummary judgment.
1. (Docket No. 94, ¶ 1.)
2. The facts set forth herein are drawn from the parties' Local Rule56 statements of material facts in accordance with the local rule.
3. Except when operating mail order pharmacies, PBM's do not actuallyacquire or handle prescription drugs. (Docket No. 89, ¶ 166.)
4. The UPDPA defines pharmacy benefit management as follows: E. "Pharmacy benefits management" means the procurement of prescription drugs at a negotiated rate for dispensation within this State to covered individuals, the administration or management of prescription drug benefits provided by a covered entity for the benefit of covered individuals or any of the following services provided with regard to the administration of pharmacy benefits: 1) Mail service pharmacy; 2) Claims processing, retail network management and payment of claims to pharmacies for prescription drugs dispensed to covered individuals; 3) Clinical formulary development and management services; 4) Rebate contracting and administration; 5) Certain patient compliance, therapeutic intervention and generic substitution programs; and 6) Disease management programs.22 M.R.S.A. § 2699(1)(E).
5. The Attorney General asserts in his statement of material facts,and PCMA admits, that PCMA maintains that the discovery of trade secretinformation from all of PCMA's members was not relevant to the claims ordefenses of any party and that PCMA objected to any discovery beyondinformation related to its three member representatives (Medco, Caremarkand ESI). (Docket No. 104, ¶¶ 172-174.)
6. I have included this portion of the facts separately because thedocuments from which these facts are drawn are confidential businessrecords that were filed under seal. I have placed these material factsunder seal until such time as the court has an opportunity to rule uponany objections to this recommended decision. I would recommend that thissection be unsealed after review by the court.
7. PCMA dismisses any suggestion that PBMs serve as ERISA fiduciariesin the performance of their services. (Docket No. 104, ¶¶ 159-162; seealso Docket No. 85 at 4, 6-7, 13.)
8. The Attorney General does not concede that they are, either.(Docket No. 88 at 33 n. 15.)
9. Justice Torruella made it clear in his opinion that the Court onlyaffirmed the district court's award of equitable relief because the Stateof Massachusetts failed to challenge the award of such relief on appeal.Philip Morris, 312 F.3d at 47 n. 22. Justice Torruella also made it clearthat his opinion did not rely on the Due Process Clause, although he didnot rule out the possibility of a due process violation. Id. at 47.
10. The Supreme Court has concluded that "the associational standingtest's third prong is a prudential one," rather than a jurisdictionalone. United Food, 517 U.S. at 555. "Hence the third prong of theassociational standing test is best seen as focusing on these matters ofadministrative convenience and efficiency, not on elements of a case orcontroversy within the meaning of the Constitution." Id. at 557.
11. That evidence may well have come from institutional records orknowledge or other evidence available to the Washington State AppleAdvertising Commission as a state agency. In this case, by comparison,PCMA asserts (as it must) that it does not have any first handinformation about its members' alleged trade secrets. (See Docket No.89, ¶ 172; Docket No. 104, ¶ 172: "No employees, officers, or directorsof PCMA have had access to its members' contracts and trade secrets inthe last three years.")
12. I have listed these factors in the order they were addressed byJudge Torruella in Philip Morris.
13. The panel opinion reveals that a number of separate suits werecommenced and subsequently joined by the trial court. Philip Morris,Inc. v. Reilly, 267 F.3d 45, *3, 2001 U.S. App. LEXIS 22348, *11 (1stCir. 2001) (withdrawn from bound volume).
14. I do not mean to suggest that proof of trade secret status is aforegone conclusion. Among the factors generally considered by Mainecourts is the relative "ease or difficulty with which others couldproperly acquire . . . the information." Bernier v. Merrill Air Eng'rs,2001 ME 17, ¶ 26, 770 A.2d 97, 106 n. 6. Although PCMA asserts thatevery PBM forms a unique contract with any given drug manufacturer, itseems highly likely to me that any two comparably situated PBMs (as faras bargaining power is concerned) could, in any given year, extract thesame or comparable rebate terms from a drug manufacturer as any otherPBM. In other words, the likelihood that one PBM will negotiatefunctionally equivalent or even identical rebate terms as another PBMdoes from a given manufacturer in any one year (all of the contractssupplied by PCMA in the record are annual contracts) seems, to me, likelyto occur. Also, I am not entirely sure that the court should simplyassume that PCMA's factual assertions about the costs to PBMs ofdeveloping "relationships with manufacturers and pharmacy networks"(Docket No. 94, ¶ 8), is an appropriate substitute for the amountinvested in, for example, each new year's rebate terms, which appear tobe set forth in appendixes to the contracts. These and other concerns,such as those highlighted by the court in its order granting thepreliminary injunction, do pose significant conceptual problems fortreating the information at issue herein as deserving trade secretstatus. On another note, I also observe that the Maine Trade Secrets Actexpressly cautions that the Act "does not affect . . . [t]he duty of anyperson to disclose information where expressly required by law." See also10 M.R.S.A. § 1548(1)(D). This express limitation in Maine's TradeSecrets Act may have more significance for the "reasonableinvestment-backed expectation" factor than did the ancillary common lawprinciples and statutes raised by the Massachusetts Attorney General inPhilip Morris. See 312 F.3d at 31-32. Given this express limitation inMaine's Trade Secrets Act, what basis is there for a PBM to expect thatcontracts and terms negotiated after the UPDPA's effective date will beafforded trade secret protection in Maine?
15. The Attorney General also asserts in his statement of materialfacts (Docket No. 88) that PBMs are already subject to extensiveregulation, including regulation designed to prevent violation of stateand federal anti-kickback legislation. (Docket No. 89, ¶¶ 182-184, citingposition paper prepared by AdvancePCS, Caremark Rx and Express Scripts anda report produced by the U.S. Department of Health and Human Services,Office of the Inspector General).
16. In the 96th footnote of its memorandum (Docket No. 85 at 27),PCMA makes reference to the UPDPA's statutory requirement that PBMs passthrough to their benefits provider customers (covered entities) allbenefit or payment received from drug substitution practices or that arebased on volume discounts. See 22 M.R.S.A. § 2699(2)(E)(3) & (2)(F).Although PCMA raises these provisions in this fashion, its briefing ofthe takings claim has focused entirely on the disclosure provisionsrather than on the requirement that any benefits or payments frommanufacturers be passed through to the PBMs' customers. I do notseparately evaluate the constitutionality of these provisions because Iconclude that PCMA has waived its challenge to them by its failure toseparately brief them. Furthermore, even if these benefit and paymenttransfer provisions were independently objectionable under the TakingsClause, it would appear that the court could readily sever them from theremainder of the statute. See R.I. Med. Soc'y v. Whitehouse, 239 F.3d 104,106 (1st Cir. 2001) ("Severability is a matter of state law.");1 M.R.S.A. § 71(8) ("If any provision of the statutes or of a sessionlaw is invalid, or if the application of either to any person orcircumstance is invalid, such invalidity does not affect other provisionsor applications which can be given effect without the invalid provisionor application."); Kittery Retail Ventures, LLC v. Town of Kittery,2004 ME 65, ¶ 18, 856 A.2d 1183, 1190 ("An invalid portion of a statuteor an ordinance will result in the entire statute or ordinance being voidonly when it is such an integral portion of the entire statute orordinance that the enacting body would have only enacted the legislationas a whole."). The severability issue has been joined previously, seePharm. Care Mgmt. Ass'n v. Rowe, 324 F. Supp. 2d 71 (D. Me. 2004)(Order on Defendant's Motion to Amend the Order of PreliminaryInjunction), and left unresolved. At least with respect to the UPDPA'stwo benefit and payment transfer provisions, I conclude that the AttorneyGeneral has taken sufficient steps to preserve the matter (Docket No. 100at 16), particularly when measured against PCMA's failure to directlychallenge in its memoranda the constitutionality of these twoprovisions.
17. I am also not persuaded that the economic impact faced by PBMsnecessarily presents anything more than "possible effects on the profitsof the individual [PBMs]," Pharm. Research & Mfrs. of Am., 249 F.3d at 84,something that is distinct from a burden on interstate commerce. See id.
18. The Attorney General also points to a proclamation issued by Medcothat its goal is "to position Medco as the most transparent company in[the] industry." (Docket No. 88 at 49, citing Docket No. 89, ¶¶187-188.)
19. To the extent that the applicable standard is in question, I alsoconclude that, for the same reasons, the means put in place by the UPDPA"directly advance" the substantial governmental interest of reducing thecost of, and increasing access to, prescription drugs. In other words,regardless of whether the UPDPA presents the "best" approach that mightever be conceived, there is: a "fit" between the legislature's ends and the means chosen to accomplish those ends — a fit that is not necessarily perfect, but reasonable; that represents not necessarily the single best disposition but one whose scope is in proportion to the interest served; that employs not necessarily the least restrictive means but . . . a means narrowly tailored to achieve the desired objective.Bd. of Trs v. Fox, 492 U.S. at 480 (internal quotation marks and citationomitted).
20. The State amended the UPDPA in certain respects after the courtgranted PCMA's motion for preliminary injunction. The parties'cross-motions for summary judgment both address the constitutionality ofthe statute as amended.Page 1