The Third Circuit recently denied a petition for rehearing en banc a panel’s earlier decision in the In re Flonase Antitrust Litigation. In that case, the panel decision addressed the degree to which class settlements can bind non-participating U.S. state class members. After vigorous briefing on the issue, the panel found that the state of Louisiana had not waived its sovereign immunity, and therefore could not be bound by a class settlement that enjoined class members from subsequently bringing separate suits. This is a case with potentially wide reaching implications, as it could impact the negotiation of settlements in class actions that include states as class members.
Case Background
The In re Flonase Antitrust Litigation began in 2008, when indirect purchasers of Flonase, a nasal spray intended to relieve allergy symptoms, sued SmithKline Beecham (d/b/a GlaxoSmithKline) (“GSK”) for alleged violations of state antitrust laws in the United States District Court for the Eastern District of Pennsylvania. Plaintiffs alleged that GSK improperly delayed the introduction of a generic competitor to Flonase by filing baseless citizen petitions prior to approval by the Food & Drug Administration. Plaintiffs further alleged that, as a result, they purchased Flonase, rather than a cheaper generic, while approval was improperly delayed.
In 2012, the class entered into a settlement agreement with GSK. The District Court certified a settlement class, granted preliminary approval of the class action settlement, and approved the form and manner of notice to class members that the parties had settled. Louisiana did not receive a copy of the settlement notice approved by the District Court, but did receive a separate notice that was issued pursuant to the Class Action Fairness Act (“CAFA”), which requires defendants to serve on “the appropriate State official of each State in which a class member resides . . . a notice of the proposed settlement.” 28 U.S.C. § 1715(b). The District Court approved the settlement agreement in a Final Order and Judgment on June 19, 2013. The Final Order and Judgment enjoined class members from subsequently bringing claims related to allegations that were or could have been raised in that case.
Louisiana did not object to the class settlement before the District Court issued its order approving the settlement agreement. Nonetheless, in December 2014, Louisiana filed suit against GSK in Louisiana state court, making substantially the same allegations as the class action. GSK moved to enforce the Settlement Agreement against Louisiana in the Eastern District of Pennsylvania. Louisiana, in turn, moved to dismiss proceedings in the Eastern District of Pennsylvania for lack of subject matter jurisdiction. The District Court granted Louisiana’s motion to dismiss, and the Third Circuit affirmed.
The Third Circuit’s Decision
The Third Circuit explained that two questions guided its decision:
First, does a motion for approval of a class action settlement qualify as a suit against a state for Eleventh Amendment purposes if the requested settlement agreement enjoins a state from suing in a state court? Second, if the Eleventh Amendment does cover this motion for settlement approval, may GSK avoid the Eleventh Amendment’s prohibition by showing that Louisiana waived its sovereign immunity?
As for the first question, the Third Circuit found that the Eleventh Amendment applies to the case. The Eleventh Amendment provides that “[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State.” (emphasis supplied). Although the plain text of the Eleventh Amendment applies only to actions brought “against” a state, the Third Circuit found that a motion to approve a class settlement qualifies as an action “against” a state because the motion “sought an equitable remedy against a State,” namely, an injunction prohibiting the state from bringing claims released in the class settlement.
With respect to the second question, the Third Circuit found that Louisiana did not waive its sovereign immunity. Quoting College Savings Bank v. Florida Prepaid Postsecondary Education Expense Board, 527 U.S. 666, 670 (1999), the Third Circuit explained that a waiver occurs only where there is a “clear declaration by the State of its waiver.” (emphasis in original.) The Third Circuit further explained that Louisiana “did not waive its sovereign immunity by receiving a CAFA notice and by failing to oppose the settlement based on that notice” because “a state cannot waive its immunity merely by receiving notice and failing to act.”
Petition for Rehearing or en banc Review
GSK filed a petition seeking rehearing or en banc review of the panel’s decision. In its petition, GSK argued that “the panel’s decision exempts states from every class-action settlement to which they have not expressly consented and renders federal courts powerless to exercise their continuing jurisdiction over court-approved settlements,” which would “place intolerable burdens on attempts to settle class-action litigation.” Moreover, the entry of an injunction as part of the approval of a class-action settlement cannot be considered a suit against Louisiana, according to GSK, rendering the Eleventh Amendment inapplicable.
In addition, the Chamber of Commerce of the United States (the “Chamber of Commerce”) filed an amicus curiae brief in support of panel rehearing or rehearing en banc. The Chamber of Commerce made its position crystal clear: “the panel’s decision is wrong.” It further explained that the “panel’s decision would deal a major blow to class-action settlements” because class action defendants generally “seek and pay for global peace.” Policy reasons aside, the Chamber of Commerce argued that the Third Circuit’s decision is wrong because the Eleventh Amendment extends sovereign immunity only to suits “commenced or prosecuted against” a state, and “does not apply when the State is a plaintiff.”
Nonetheless, the Third Circuit denied GSK’s petition on February 7, 2018. We will continue to monitor any further developments in this case.
