Case 4:19-cv-04994 Document 82 Filed on 03/25/21 in TXSD Page 1 of 13
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF TEXAS
`HOUSTON DIVISION
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`HARRIS COUNTY, TEXAS,
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` Plaintiff,
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`v.
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`ELI LILLY & COMPANY, et al.,
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` Defendants.
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`§ CIVIL ACTION H- 19-4994
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`MEMORANDUM OPINION AND ORDER
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`Pending before the court is a motion for partial dismissal of plaintiff Harris County’s
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`second amended complaint. Dkt. 76. Defendants Eli Lilly and Company, Novo Nordisk Inc., and
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`Sanofi-Aventis U.S. LLC (collectively, the “Manufacturer Defendants”); and defendants Express
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`Scripts Holding Company, Express Scripts, Inc., ESI Mail Pharmacy Services, Inc., Express
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`Scripts Pharmacy, Inc., CVS Health Corporation, Caremark RX, L.L.C., Caremark, L.L.C.,
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`CaremarkPCS Health, L.L.C., Caremark Texas Mail Pharmacy, LLC, Aetna RX Home Delivery,
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`LLC, Aetna Pharmacy Management Services, LLC, Optum, Inc., and OptumRX, Inc.,
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`(collectively, the “PBM Defendants”), request that the court dismiss Harris County’s claims
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`asserted under the Texas Deceptive Trade Practices Act (“DTPA”) with prejudice. Id. After
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`considering the motion, response, reply, second amended complaint, and the applicable law, the
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`court is of the opinion that the motion to dismiss Harris County’s DTPA claim (Dkt. 76) should
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`be DENIED.
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`I. BACKGROUND
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`This order only addresses Harris County’s DTPA claim. Harris County provides health
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`benefits to its employees through a self-funded health plan. Dkt. 68 (second amended complaint).
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`It subsidizes its beneficiaries’ prescription drug purchases, including purchases of drugs used to
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`treat diabetes. Id. It also purchases diabetes medications for prisoners in Harris County jails. Id.
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`Harris County alleges that the Manufacturer Defendants manufacture most diabetes
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`medications in the United States, and the PBM Defendants manage the pharmacy benefits for most
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`people in the United States. Id. It asserts that the Manufacturer Defendants “have in lockstep
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`raised the reported prices of their respective diabetes drugs in an astounding manner,” including
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`an insulin price increase of up to 1000%. Id. Harris County contends the reason for the price
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`increase is a conspiracy between the PBM and Manufacturer Defendants to create a secret spread
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`between the reported price for diabetic medications and the true net price for the same drugs. Id.
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`Harris County calls this conspiracy the “Insulin Pricing Scheme.” Id.
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`Under this alleged scheme, the PBM Defendants represent to their clients that they use
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`their market power to drive down prices by causing manufacturers to compete on price for
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`placement on their formularies. Id. Harris County alleges that instead, the PBM Defendants
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`“exploit their market power to cause substantial increases in the prices of diabetes medications in
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`order to create massive profits for themselves and the Manufacturer Defendants,” which increases
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`costs for employers who provide employee health benefits, like Harris County. Id. Harris County
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`asserts that the Manufacturer Defendants artificially raised their reported prices and then secretly
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`refunded a significant portion of the increase to the PBM Defendants, calling the secret refunds
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`“rebates, discounts, concession fees, etc.” Id. Harris County asserts that in reality the refunds are
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`a quid pro quo for formulary inclusion and that the PBM Defendants grant formulary status based
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`on the highest inflated price and largest refund amount. Id. Harris County asserts that it spends
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`millions of dollars on diabetes medications and that a substantial part of the amount it spends can
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`be attributed to the inflated prices due to the Insulin Pricing Scheme. Id.
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`The fifth cause of action in Harris County’s complaint is a DTPA claim based on the Insulin
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`Pricing Scheme. Id. Harris County alleges that the defendants’ scheme resulted in violations of
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`the following subsections of the DTPA: 17.46((B)(5), 17.46(B)(11), 17.46(B)(24), and
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`17.50(A)(3). Id. Harris County alleges that it is a “consumer” under the DTPA because it is “‘a
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`subdivision . . . of this state who seeks or acquires by purchase or lease, any goods or services,’
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`including diabetes medication and pharmacy benefit management services.” Id. (quoting the
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`definition of “consumer” in the DTPA). It asserts that the defendants misrepresented that the
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`prices for diabetes medications, the PBM Defendants misrepresented the price reductions to payors
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`like Harris County by indicating that the money they received from the Manufacturer Defendants
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`lowered the overall prices of the medications, the Manufacturer Defendants failed to disclose that
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`the reported prices were not the result of competitive market forces and were artificially inflated
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`in coordination with the PBM Defendants, the PBM Defendants failed to disclose that their
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`formulary construction did not lower the overall price for diabetes medications, and the defendants
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`took advantage of Harris County’s lack of knowledge of the scheme to a “grossly unfair degree.”
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`Id. Harris County alleges that each purchase it made based on the falsely inflated prices represents
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`an independent harm to the County. Id. It asserts that it paid excessive and inflated prices every
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`time it paid for an at-issue drug, noting that there are sixty different National Drug Codes
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`associated with the at-issue drugs and the purchases took place at varying times and were dispensed
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`at countless different pharmacies. Id. It contends that each purchase benefitted Harris County
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`because “the health and well-being of its employees is essential to Harris County’s ability to fulfill
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`its mission.” Id. Harris County also alleges that the defendants engaged in a conspiracy to violate
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`the DTPA, citing Four Brothers Boat Works, Inc. v. Tesoro Petroleum Cos., Inc., 217 S.W.3d 653,
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`667 (Tex. App.—Houston [14th Dist.] 2006, pet. denied). Id.
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`The defendants move for dismissal of the DTPA claims. Dkt. 76. First, they assert that
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`the DTPA has a statutory limit of $500,000 because it is designed to protect small consumers, and
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`Harris County by no means qualifies as a small consumer and does not, in fact, meet the statutory
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`definition of “consumer.” Id. They contend that all of Harris County’s purchases relate to two
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`“projects” and must be aggregated accordingly. Id. The defendants’ proposed project categories
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`are (1) providing insurance coverage to subsidize prescription drugs purchased by Harris County’s
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`health plan beneficiaries; and (2) purchasing drugs for Harris County inmates. Id. The defendants
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`assert that since Harris County alleges it “spent tens of millions of dollars on at-issue diabetes
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`products,” there is no way the purchases in these two categories fall below the $500,000 statutory
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`limit. Id. Second, they argue that the claims relating to the diabetes medicines for employees
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`should be dismissed because Harris County is not a consumer under the DTPA with regard to the
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`drugs purchased for health plan beneficiaries because the drugs were not purchased for Harris
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`County’s benefit and any benefit Harris County received was an incidental benefit. Id. Third, the
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`defendants argue that the claim that the defendants conspired to violate the DTPA must be
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`dismissed because the County fails to state an underlying DTPA claim. Id.
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`Harris County responds that it provides insurance coverage that subsidizes prescription
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`drugs for its 38,000 employees, retirees, and their dependents, and it purchases diabetes
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`medications for inmates in the county’s jails, and each insulin transaction involving the at-issue
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`drugs is a separate DTPA violation. Dkt. 78. Harris County contends that it never purchased
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`insulin in an aggregated amount or for a contracted price exceeding $100,000. Id. Also, the
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`County asserts that the transactional limit is an affirmative defense that the defendants have to
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`plead and prove. Id. (citing Eckman v. Centennial Savs. Bank, 784 S.W.2d 672, 675 (Tex. 1990)
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`(holding that the defendant has the burden of proving the applicability of a $25 million exception
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`to “business consumer status” under the DTPA). At the bare minimum, Harris County contends
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`there are genuine issues of material fact relating to whether the entire series of purchases was a set
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`of transactions relating to the same project. As to the incidental beneficiary argument, Harris
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`County argues that it pled that it benefitted from the transactions because it prioritizes the health
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`and well-being of its employees, and it thus is a “consumer” under the DTPA for all of the
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`transactions at issue. It notes that Texas law does not require that DTPA “consumers” are direct
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`purchasers; instead, standing is established based on the individual’s relationship to the
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`transaction. Id. (citing Kennedy v. Sale, 689 S.W.2d 892 (Tex. 1985), and Birchfield v. Texarkana
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`Mem’l Hosp., 747 S.W.2d 361 (Tex. 1987) (“A plaintiff establishes her standing as a consumer in
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`terms of her relationship to a transaction, not by a contractual relationship with the defendant.”)).
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`As to the alleged conspiracy, Harris County asserts that it has properly pled that each defendant’s
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`conduct violated the DTPA and thus the defendants’ argument that the conspiracy claims fails for
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`lack of an underlying DTPA claim has no merit. Id.
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`The motion to dismiss is now ripe for consideration. The court will first set forth the legal
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`standard and then consider the parties’ arguments.
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`II. LEGAL STANDARD
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`Neither party asserts in their briefing on this motion that a heightened pleading standard
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`applies. See Dkts. 76, 78 (both noting the Rule 8(a)(2) pleading standard). “Federal Rule of Civil
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`Procedure 8(a)(2) requires only ‘a short and plain statement of the claim showing that the pleader
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`is entitled to relief.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964–65 (2007).
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`In considering a Rule 12(b)(6) motion to dismiss a complaint, courts generally must accept the
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`factual allegations contained in the complaint as true. Kaiser Aluminum & Chem. Sales, Inc. v.
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`Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982). The court does not look beyond
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`the face of the pleadings in determining whether the plaintiff has stated a claim under Rule
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`12(b)(6). Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). “[A] complaint attacked by a
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`Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, [but] a plaintiff’s
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`obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and
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`conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly,
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`550 U.S. at 555 (citations omitted). The “[f]actual allegations must be enough to raise a right to
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`relief above the speculative level.” Id. The supporting facts must be plausible—enough to raise a
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`reasonable expectation that discovery will reveal further supporting evidence. Id. at 556.
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`A.
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`Statutory Limit
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`III. ANALYSIS
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`The court first considers whether Harris County’s purchases of diabetes medications should
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`be treated as separate, distinct transactions, or if all of the health care plan beneficiary purchases
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`and all of the Harris County jail purchases should be aggregated into two separate “projects.” The
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`DTPA does not “apply to a cause of action from a transaction, a project, or a set of transactions
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`relating to the same project, involving total consideration by the consumer of more than $500,000,
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`other than a cause of action involving a consumer’s residence.” Tex. Bus. & Com. Code Ann.
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`§ 17.49(g). The defendants argue that this provision “ensures that the DTPA remains a source of
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`relief for small consumer transactions, not for multi-million-dollar disputes brought by a single,
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`sophisticated plaintiff like Harris County.” Dkt. 76. They note that Harris County asserts in the
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`second amended complaint that it has spent tens of millions of dollars on diabetes products. Id.
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`Harris County alleges in its pleading that each at-issue purchase constitutes a separate DTPA
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`violation, but the defendants contend this is a legal conclusion and does not correspond with the
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`purpose of this portion of the statute, which was included by the legislature to relieve consumers
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`in small transactions. Dkts. 68, 76. The defendants point out that courts broadly construe the
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`“large-transactions exemption” of the DTPA and find that if sets of transactions relate to the same
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`project, or are part of a “common undertaking,” they should be valued collectively. Dkt. 76. Here,
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`the defendants argue that all of Harris County’s diabetes drug purchases relate to two “projects”:
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`health benefits for employees or medications for inmates. Id. Thus, according to the defendants,
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`these transactions were part of a “common undertaking” even if they were for different medications
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`at different times.
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`Harris County responds that none of the individual transactions involves consideration over
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`$500,000. Dk. 78. Instead, the most Harris County paid for any of the at-issue transactions was
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`$1,784.40. Id. It notes that the term “project” is not defined in the DTPA, but Texas courts have
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`found that transactions relate to the same “project” if they are part of a “proposed or planned
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`undertaking.” Dkt. 78 (citing Spraj Props. LLC v. Regions Bank, No. 3:13-cv-3472, 2015 WL
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`11120528, at *7 (N.D. Tex. May 12, 2015), and Glob. Int’l, LLC v. ProBalance, Inc., No. 3:15-
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`cv-677, 2016 WL 6646225 (N.D. Tex. Nov. 9, 2016)). According to Harris County, this is
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`typically in cases where there are defined business relationships between corporate entities to
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`achieve a particular aim, such as a series of transactions related to the same construction loan or a
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`long-running manufacturing and distribution relationship involving the same product. See id.
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`Harris County asserts that the cases the defendants rely on involved multi-million-dollar
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`corporations engaged in a series of nearly identical purchases of specific products from the same
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`upstream suppliers in the normal course of business. Id. Harris County asserts that it is not a large
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`corporation, and it pays a substantial portion of the pharmaceutical purchases for 38,000
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`beneficiaries from its self-funded health care plan as well as medications for the jails. Id. Harris
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`County contends that these are not repeat purchases for use in the ordinary course of business; they
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`are discrete consumer transactions. Id. Harris County also asserts that the transactional limit is an
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`affirmative defense and the defendants thus have the burden of proof. Id. (citing Eckman, 784
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`S.W.2d at 675). Harris County argues that at a bare minimum there are genuine issues of material
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`fact relating to whether the entire series of purchases was a set of transactions relating to the same
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`project.
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`In reply, the defendants first argue that it does not matter if section 17.49(g) is an
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`affirmative defense because dismissal under Rule 12(b)(6) is still appropriate when dismissal
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`based on an affirmative defense is appropriate based on the face of the complaint. Dkt. 80 at 2 n.1
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`(citing Basic Cap. Mgmt., Inc. v. Dynex Cap., Inc., 976 F.3d 585, 588 (5th Cir. 2020)). They state
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`that the County’s position that each transaction should be counted separately would render the
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`statutory limits in the DTPA meaningless. Dkt. 80. They argue that the County cannot reconcile
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`its $27 million in insulin purchases with the prohibition on claims arising from a set of transactions
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`relating to the same project that exceed $500,000. Id. The defendants again assert that the
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`County’s allegations establish the $27 million in insulin purchases relate to two projects (1)
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`subsidizing insulin purchases by beneficiaries of the County’s health plan; and (2) purchasing
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`insulin for inmates at HB jails. Id. They contend that the purpose of § 17.49(g) is to remove
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`litigation between big businesses from the scope of the DTPA. Id. (citing Spraj Props. LLC, 2015
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`WL 11120528, at *7). They argue that in construing § 17.49(g), courts do not focus on the types
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`of differences in the individual transactions noted by the County and instead focus on whether the
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`transactions are part of a “common undertaking.” Id. (citing Nestlé Purina Petcare Co. v. Blue
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`Buffalo Co. Ltd., 181 F. Supp. 3d 618, 635–36 (E.D. Mo. 2016) and Obermeyer Hydro Accessories,
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`Inc. v. CSI Calendering, Inc., No. 14-cv-00184-RM-KMT, 2015 WL 506896, at *3–4 (D. Colo.
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`Feb. 5, 2015)).
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`While the court finds Harris County’s argument that section 17.49(g) is an affirmative
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`defense persuasive, see Eckman, 784 S.W.2d at 675 (finding a similar exception to consumer status
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`is an affirmative defense), the court agrees with the defendants that dismissal under Rule 12(b)(6)
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`may still be appropriate if the defense appears on the face of the complaint. EPCO Carbon Dioxide
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`Prods., Inc. v. JP Morgan Chase Bank, NA, 467 F.3d 466, 470 (5th Cir. 2006). However, here, it
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`is plausible that after discovery it will make sense to divide the transactions into groups that have
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`total consideration for each set of transactions relating to the same project of less than $500,000.
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`It obviously depends on how one defines the “project.”1 The defendants favor a broad definition
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`that groups every purchase of diabetes medication from each defendant for every type of employee
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`together and then lumps all purchases for Harris County jails together. Harris County favors a
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`narrow definition that looks at each transaction separately. The court suspects that the correct
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`answer lies somewhere in the middle, but discovery will be necessary to look at the similarities of
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`the purchases and determine whether they relate to the same project. Is the project providing
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`diabetes drugs to employees, in general? Or should, for example, Eli Lilly drugs be considered
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`1 In the two cases that the defendants cite as supporting a “common undertaking,” the courts found
`that it was clear from the complaints that the defendants in those cases involved “an ongoing
`project worth over $500,000.” See Nestlé Purina Petcare, 181 F. Supp. 3d at 635–36 (considering
`a claim under the Texas DTPA and finding dismissal appropriate because a series of transactions
`to purchase chicken and turkey meal amounting to more than $63 million was a “series of ongoing
`related transactions constituting a project worth over $500,000” when the third-party complaint
`alleged a “‘sustained course of action in selling the Adulterated Meal as high-quality and single-
`ingredient chicken or turkey meal for four years’”); Obermeyer Hydro, 2015 WL 506896, at *3
`(considering a claim under the Texas DTPA, noting that the statute does not define “project” or
`“transaction,” and holding that it “was of no importance that Plaintiff engaged in ‘discrete purchase
`orders’” because the “ ‘project’ must be defined in relation to both parties”).
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`separately from Novo Nordisk drugs and Sanofi-Aventis U.S. drugs? Are they even the same type
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`of drugs? 2 Do they provide the same health benefits to Harris County employees? The court finds
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`that, in this case, it is inappropriate to attempt to resolve these questions without an evidentiary
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`record. Cf. Cotton Patch Café, Inc. v. Micros Sys., Inc., No. MJG-09-3242, 2012 WL 5986773, at
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`*8 (D. Md. Nov. 27, 2012) (determining that there were issues of material fact regarding whether
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`purchases of computer software for all Cotton Patch restaurants was a “series of purchases” over
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`$500,000 “relating to the same project” under the Texas DTPA or whether each restaurant location
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`was a separate project). The motion to dismiss based on section 17.49(g) is DENIED.
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`B.
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`Purchased for Harris County’s Benefit or Incidental
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`The court next considers whether Harris County is a “consumer” under the DTPA that
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`purchased goods for its own benefit or whether it is not a “consumer” because the benefits of the
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`purchase of the goods (diabetes medications) were only incidental to the County. Under the
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`DTPA, a “consumer” is “an individual, partnership, corporation, this state, or a subdivision or
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`agency of this state who seeks or acquires by purchase or lease, any goods or services, except that
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`the term does not include a business consumer that has assets of $25 million or more, or that is
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`owned or controlled by a corporation or entity with assets of $25 million or more.” Tex. Bus. &
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`Com. Code Ann. § 17.45(4). “‘[T]he key principle in determining consumer status is that the
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`goods or services purchased must be an objective of the transaction, not merely incidental to it.’”
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`Villarreal v. Wells Fargo Bank, N.A., 814 F.3d 763, 768 (5th Cir. 2016) (quoting Maginn v.
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`Norwest Mortg., Inc., 919 S.W.2d 164, 166 (Tex. App.—Austin 1996, no writ)).
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`2 For instance, Harris County alleges in the second amended complaint that Eli Lilly’s diabetes
`medications include Humulin N, Humulin R, Humalog, Trulicity, and Basaglar. Dkt. 68. Sanofi-
`Aventis U.S.’s insulins and diabetes medications paid for by Harris County and relevant to this
`case are Lantus, Toujeo, Soliqua, and Apidra. Id. Novo Nordisk’s are Novolin R, Novolin N,
`Novolog, Levemir, Tresiba, Victoza, and Ozempic. Id.
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`The defendants argue that, to the extent the County bases its DTPA claims on subsidizing
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`its employees’ purchases of diabetes medications, the County is a third party whose benefit from
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`the purchases was merely incidental. Dkt. 76. The defendants assert that the County’s employees
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`are the consumers, and the purchases were for their benefit, not the County’s. Id.
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`Harris County asserts that because it has a self-funded plan, it paid for the drugs and was
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`overcharged, and each purchase directly benefitted the County because it improved the health and
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`well-being of its employees. Dkt. 78. Harris County points out that the second amended complaint
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`does not state that the County is a third party to these transactions and that the benefits to it are
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`merely incidental; instead, the second amended complaint states that the County benefitted from
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`the transactions because it prioritizes the health and well-being of its employees. Id. Harris County
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`notes that there can be multiple consumers in one transaction, and the County’s employees were
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`only involved in the transactions with these defendants because they participated in the County’s
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`self-funded healthcare plan. Id.
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`In reply, the defendants argue that “consumer” status requires the County to be a direct
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`beneficiary and that the asserted benefit to the County of healthy employees is entirely derivative
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`of the benefit to the employees themselves. Dkt. 80. They assert that this derivative benefit is at
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`best incidental to the actual consumers who made prescription drug purchases. Id.
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`In Wellborn v. Sears, Robuck & Co., the Fifth Circuit considered whether a fourteen-year-
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`old boy who was killed when an automatic garage door opener malfunctioned met the DTPA’s
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`definition of “consumer.” 970 F.2d 1420, 1426 (5th Cir. 1992). The case had been tried to a jury,
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`the plaintiff won, and the defendants appealed. Id. The defendants argued that the boy was not a
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`consumer under the DTPA because he was an incidental user of the garage door opener, as he did
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`not even drive and thus could not use it for its primary purpose. Id. The Fifth Circuit noted that
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`“[d]irect contractual privity between an individual and the defendant is not a consideration in
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`determining an individual’s status as a consumer under the DTPA.” Id. Instead, the court must
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`determine whether a litigant has standing as a consumer by considering the person’s “‘relationship
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`to the transaction.’” Id. (quoting Birchfield v. Texarkana Mem. Hosp., 747 S.W.2d 361, 368 (Tex.
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`1987)). Consumer status is not confined to the purchaser of the product at issue. Id. (citing
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`Kennedy, 689 S.W.2d at 892 (finding that an employee whose employer purchased a group
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`insurance policy was a consumer in relation to the policy even though he did not actually purchase
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`it himself)). In Wellborn, the Fifth Circuit concluded that even though the boy did not purchase
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`the garage door opener or enter into a contractual relationship relating to it, one of the reasons his
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`mother purchased it was for extra security for the boy, who regularly used it, and he therefore
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`“acquired the garage door opener and the benefits it provided.” Id. He qualified as a consumer
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`under the DTPA. Id.
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`The court finds that it is plausible, given the County’s relationship to the transactions at
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`issue here, that the benefits it derives from the purchases of diabetes medication for is employees
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`is not merely incidental to the overall benefit to the employees. While the County obviously did
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`not use the drugs, it is plausible that the employees purchased the drugs, in part, so they would be
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`able to continue working as healthy employees of the County and that, in a way, the medications
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`were partially purchased for the County’s benefit, much like the plaintiff in Wellborn purchased
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`to garage door opener for her son’s benefit. The extent to which these medications benefitted the
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`County likely will be revealed through discovery. It would thus be premature to dismiss this claim
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`at this stage. The motion to dismiss the DTPA claim because the County is only an incidental
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`beneficiary and thus not a consumer under the DTPA is DENIED.
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`C.
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`Conspiracy
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`The court’s final consideration is whether Harris County’s conspiracy to violate the DTPA
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`claim survives. The defendants argue that the County does not plausibly allege an underlying
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`DTPA violation to support the alleged conspiracy and that the court should therefore dismiss the
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`claim for conspiracy to violate the DTPA. Dkt. 76 at 9. The court, however, has found that the
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`County plausibly pled an underlying claim. Therefore, this argument has no merit. The motion to
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`dismiss the conspiracy claim is DENIED.
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`IV. CONCLUSION
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`The defendants’ motion to dismiss Harris County’s DTPA claims is DENIED.
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`Signed at Houston, Texas on March 25, 2021.
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`_________________________________
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` Gray H. Miller
` Senior United States District Judge
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`13
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