Federal officer jurisdiction is the quiet center youngster of the federal jurisdiction household. All of us got here out of legislation faculty totally versed in federal query jurisdiction and variety jurisdiction (and we additionally vividly recall our civil process professor utilizing Wyoming and Colorado for all his hypotheticals on range of citizenship as a result of these had been the one two states he might draw). However federal officer jurisdiction is an actual participant within the federal jurisdiction sandbox, and it shouldn’t be missed.
The First Circuit certainly didn’t overlook it, and the result’s federal officer jurisdiction over an insulin pricing dispute and a really sturdy opinion rejecting the plaintiff’s try to “disclaim” reduction regarding any federal program. The case is Puerto Rico v. Categorical Scripts, Inc., No. 23-1612, 2024 U.S. App. LEXIS (1st Cir. Oct. 18, 2024), the place the Commonwealth of Puerto Rico sued numerous pharmacy profit managers on behalf of residents of the Commonwealth to recuperate for allegedly inflating insulin costs. Because the courtroom described, pharmacy profit managers (or PBMs) act as “middlemen” between well being care plans, pharmacies, and pharmaceutical producers. In that function, PBMs contract with their shopper well being plans to manage prescription drug advantages, handle drug prices, and negotiate rebates and reductions from producers. Id. at *4-*5. On the core of the plaintiff’s declare is its unproven allegation that the PBMs inflated costs by means of their rebate negotiations with drug producers.
For federal jurisdiction, the important thing truth right here is that not less than one PBM defendant carried out providers for carriers providing advantages to federal staff below the Federal Staff Well being Advantages Act. That’s to say, when federal staff residing in Puerto Rico bought insulin utilizing advantages below their FEHBA plans, they had been buying medicine below phrases negotiated by the defendant.
Furthermore—and that is the actually key truth—when negotiating with producers, the defendant didn’t distinguish between FEHBA purchasers and non-FEHBA purchasers. When a PBM negotiated with a producer, it was one set of negotiations on behalf of all its purchasers, making the work “indivisible.”
The plaintiff clearly knew that elimination to federal courtroom was a danger, so it preemptively included in its grievance an specific “disclaimer” of any federal-related declare:
The [Commonwealth] shouldn’t be searching for reduction regarding any federal program (e.g., Medicaid, Medicare) or any contract associated to a federal program. Furthermore, the [Commonwealth’s] claims don’t come up out of a written contract, however quite are based mostly on the bigger unfair and misleading scheme that violates the Honest Competitors Act and elevated costs . . . for Puerto Rico Shoppers.
Id. at *8. The district courtroom accepted this disclaimer and remanded the case, however the First Circuit reversed, holding that the defendants correctly eliminated the case, and that the disclaimer had no impact.
To evaluation, the U.S. Code permits elimination of an motion to federal courtroom if the defendant “is an officer (or any particular person performing below that officer) of the USA” and is sued “in an official or particular person capability, for or regarding any act below shade of such workplace.” Id. at *14-*15 (citing 28 U.S.C. § 1442(a)(1)). That is federal officer jurisdiction, and it requires three parts: (1) that the defendant was performing below a federal officer’s authority; (2) that the charged conduct was carried out for or regarding the asserted official authority; and (3) that the defendant will assert a colorable federal protection to the swimsuit. Id. at *16-*17.
Right here, when the defendant negotiated drug rebates and drug pricing on behalf of federal staff lined by FEHBA plans, it was performing below federal authority and its conduct was associated to that authority. The defendant additionally had a colorable federal protection: FEHBA consists of an specific preemption provision, which the defendant had a proper to current in federal courtroom. Id. at *25-*27. That could be a rock-solid foundation for federal officer jurisdiction.
However what in regards to the plaintiff’s tried “disclaimer”? Nicely, it turns on the market are two sorts of disclaimers. First, there may be an specific disclaimer of claims that would function the grounds for elimination; and second, there may be mere “suave pleading” for functions of circumventing federal officer jurisdiction. Mere suave pleading isn’t credited. Id. at *21. By comparability, an specific disclaimer could be efficient, nevertheless it “should remove any foundation for federal officer elimination in order that, upon remand, there isn’t any risk {that a} state courtroom must decide whether or not a defendant acted below a federal officer’s authority.” Id. at *19-*20 (emphasis inoriginal).
That’s the place the plaintiff’s specific disclaimer failed. Whereas the plaintiff tried to deny any reduction regarding any federal program, together with FEHBA, the defendant negotiates for rebates collectively for all its purchasers—together with FEHBA-based carriers. Furthermore, these negotiations result in rebate agreements that don’t distinguish between FEHBA and non-FEHBA plans. The plans and their beneficiaries all get the identical rebates.
In consequence, although the plaintiff tried to deny “federal” reduction, it was nonetheless trying to recuperate based mostly on the defendant’s “official acts” as a result of the charged conduct was all the identical—or “indivisible.” The First Circuit emphasised three factors. First, as talked about, by concentrating on the defendant’s rebate negotiations, the plaintiff was essentially concentrating on acts below a federal officer as a result of the defendant negotiated for FEHBA and non-FEHBA plans concurrently. Second, as a result of these negotiations couldn’t be “disassembled,” crediting the disclaimer would foreclose the defendant’s proper to have a federal courtroom decide its specific preemption protection. Third, crediting the disclaimer would undercut § 1442(a)(1)’s requirement that federal courts decide whether or not a defendant acted below a federal officer’s authority. Id. at *28-*30.
As you’ll be able to see, the indivisible nature of the defendant’s negotiations on behalf of all its purchasers was dispositive. Because the First Circuit put it, “[Defendant] claims that it negotiates for FEHBA and non-FEHBA plans in a single fell swoop. Given this purported indivisibility, . . . the Commonwealth might recuperate within the [Puerto Rico] Courtroom of First Occasion for [Defendant’s] acts below a federal officer’s authority. That may deprive [Defendant] of the federal discussion board to which it’s entitled.” Id. at *30-*31. We’ve got by no means recognized “in a single fell swoop” to be a authorized time period of artwork, however we’ll take it.
