[00:00:03] Speaker 03:
And whenever you're ready, I know you have to set up.

[00:00:06] Speaker 03:
Whenever you're ready, you may proceed.

[00:00:09] Speaker 02:
Thank you.

[00:00:10] Speaker 02:
Good morning, Your Honors, and may it please the Court.

[00:00:12] Speaker 02:
My name's David Gruen, and I'm here representing the Appellant AIDS Healthcare Foundation.

[00:00:18] Speaker 02:
I'd like to reserve four minutes of my time today.

[00:00:22] Speaker 02:
Your Honors, Apexis is a government contractor.

[00:00:25] Speaker 02:
that promised to provide sub-sealing drug pricing.

[00:00:28] Speaker 01:
That's funny that you should say that.

[00:00:30] Speaker 01:
Promised.

[00:00:31] Speaker 01:
Do we know what the promise is?

[00:00:33] Speaker 01:
In other words, do we have the operative contract in front of us?

[00:00:37] Speaker 01:
Is that the 2019 version or is it the 2015 version?

[00:00:42] Speaker 02:
It was signed in 2014, an applicable at least until 2019, so that falls within the statute of limitations period we're allowed to sue under.

[00:00:52] Speaker 02:
As far as the subsequent agreement, we did do a public records request at the time that we filed the lawsuit.

[00:00:59] Speaker 02:
But we were not able to get a copy in time to be able to attach it So what we're working on here is the provision that is in the 2014 and you didn't ask us to take judicial notice of it of the but are they different in in relevant in important relevant parts My understanding is the provision that we're seeking to enforce is the same.

[00:01:20] Speaker 02:
Oh Go ahead your honor So the point here is

[00:01:26] Speaker 02:
They're a government contractor that promised to provide sub-sealing drug price negotiation services on behalf of AIDS Healthcare Foundation and other safety net medical providers that really rely on these sub-sealing discounts to be able to use those savings to provide services to the indigent and the underprivileged.

[00:01:45] Speaker 02:
Now, PEXUS was not required by any statute.

[00:01:49] Speaker 02:
To provide these services this the negotiation services on subsealing pricing was something that had agreed to do contractually Why doesn't why doesn't counsel why doesn't Astra foreclose your your claim?

[00:02:02] Speaker 02:
Glad you mentioned that your honor.

[00:02:03] Speaker 02:
So there's

[00:02:05] Speaker 02:
really three main reasons that Astra does not foreclose the claim.

[00:02:10] Speaker 02:
And they're actually the reasons that Justice Ginsburg really points out are kind of the main things that need to be analyzed here.

[00:02:17] Speaker 02:
So one of the first points is Justice Ginsburg was concerned about a party trying to, on a third party basis, enforce a contractual provision that merely mirrors the statutory language of a statute

[00:02:34] Speaker 02:
that doesn't have a private right of action.

[00:02:37] Speaker 02:
Here, that's not a concern because AIDS Healthcare Foundation is not trying to enforce 340B.

[00:02:44] Speaker 02:
The statutory language does not mirror the contract that we are suing under.

[00:02:50] Speaker 02:
It does not mirror the contractual provision that we are focused on.

[00:02:55] Speaker 02:
Two, Justice Ginsburg even noted that there's really a distinction that would have been made here if

[00:03:03] Speaker 02:
the parties in the Astra case had been suing on a independent contractual provision that was not part of a statutory obligation.

[00:03:15] Speaker 02:
She notes that as an important distinction in the opinion.

[00:03:18] Speaker 02:
And here, again, we are suing exactly that, exactly that distinction.

[00:03:23] Speaker 02:
we're suing on a separate contractual provision that is not part of 340B.

[00:03:27] Speaker 02:
And then finally, the court in Astro was very concerned where there's no private right of action, particularly here with 340B, where you've got kind of a complicated calculation that can be best done by HRSA or CMS to have a third party kind of stepping in and enforcing that.

[00:03:45] Speaker 01:
Can you point to the statute that indicates the congressional intent that these third-party actions should proceed forward?

[00:03:55] Speaker 01:
I looked, and there are things I think that maybe indicate the opposite, don't they?

[00:04:04] Speaker 02:
I see the Court's point if you're looking towards the statute, but I'd ask the Court instead to really analyze the contractual provision here.

[00:04:13] Speaker 02:
I think the real question is,

[00:04:15] Speaker 02:
Was there was their intent here to benefit AIDS Healthcare Foundation and reading the actual contractual provision?

[00:04:23] Speaker 02:
And I think this is really important.

[00:04:25] Speaker 02:
The contractual provision says the purpose of it.

[00:04:28] Speaker 02:
The purpose of it is to provide all member entities the most advantageous subceiling pricing.

[00:04:34] Speaker 02:
So this goes beyond even the pharmaceutical pricing agreements.

[00:04:38] Speaker 01:
But I think with regards to the statute, I think that Congress was looking at it from the point of view of, you know, the entities and the manufacturers, right, the providers of the drugs.

[00:04:50] Speaker 01:
I don't think that they contemplated with regards to the prime vendors.

[00:04:55] Speaker 01:
I mean, I think that's the difference, which would require a third-party action.

[00:05:00] Speaker 01:
And that Congress did not sort of write into the statute, right?

[00:05:04] Speaker 02:
Well, going back to the Ninth Circuit case that was overturned by the Supreme Court in Astra, you know, the Ninth Circuit did an analysis of intended beneficiary and found that in the pharmaceutical pricing agreements, there could be really no other conclusion but to determine that they were intended beneficiaries.

[00:05:25] Speaker 02:
But to your point, the Supreme Court said,

[00:05:29] Speaker 02:
where the statutory language mirrors the contractual provision, that's the situation where we're not allowed to make that inference.

[00:05:37] Speaker 01:
Well, but they also said more than that.

[00:05:39] Speaker 01:
They said that we have this dispute resolution provision, and that gives us an understanding of what Congress was thinking here.

[00:05:50] Speaker 01:
Why should we look at that provision and say exactly the same thing with regards to what you're trying to do?

[00:05:56] Speaker 02:
So I think the dispute resolution program that's been set up really highlights the issue here, which is the dispute resolution program.

[00:06:05] Speaker 02:
only covers ceiling pricing.

[00:06:08] Speaker 02:
Why is that?

[00:06:08] Speaker 02:
It covers ceiling pricing because that's the only thing that 340B is really regulating here.

[00:06:14] Speaker 02:
That's the only obligation that comes from 340B.

[00:06:17] Speaker 02:
And it's telling in Apexis's briefing, they admit that if AHF wanted to go and use the administrative dispute resolution process that's outlined and allowed by 340B,

[00:06:28] Speaker 02:
we would not be able to bring this claim there.

[00:06:31] Speaker 02:
And the reason we would not be able to bring this claim there is because we are not arguing about ceiling prices, which is the statutory obligation under 340B.

[00:06:39] Speaker 02:
What we're arguing about is the negotiation of subceiling pricing.

[00:06:44] Speaker 02:
Subceiling pricing is axiomatically not part of 340B.

[00:06:49] Speaker 03:
But if we think the subceiling price negotiation term in the HRSA APEX agreement

[00:06:58] Speaker 03:
is a statutory obligation, do any of your claims survive Astra?

[00:07:05] Speaker 03:
So how?

[00:07:07] Speaker 02:
Yeah, so the 17200 claim would still be able to survive, maybe not on the illegal component or unlawful component.

[00:07:19] Speaker 02:
But 17-200 claims also have two other components, a fraudulent component and an unfair component.

[00:07:27] Speaker 02:
And this claim could certainly survive on the unfair or the fraudulent component.

[00:07:33] Speaker 02:
The reason for that is this isn't simply the same as a breach of contract cause of action being kind of regurgitated into a 17-200 claim.

[00:07:44] Speaker 02:
What we have here is a government contractor that is not just not doing what it's supposed to do under the contract, it's actually working towards benefiting its parent company, and that's really the issue here.

[00:07:56] Speaker 02:
We have a government contractor that has agreed, and this is an important distinction going back to the actual contract,

[00:08:03] Speaker 02:
they've agreed to provide all member entities the most advantageous sub-sealing pricing.

[00:08:09] Speaker 02:
And the reason I think that's really important is this isn't a contractual provision where it just benefits the public generally, which I know is a concern, or even in the pharmaceutical pricing agreements where it benefits, clearly benefits, you know, the real issue here is they're acting kind of as an agent.

[00:08:27] Speaker 02:
What HRSA is saying is, hey, these entities on their own

[00:08:33] Speaker 02:
Why would a pharmaceutical company just agree to provide them sub-sealing pricing?

[00:08:38] Speaker 02:
The pharmaceutical company is not going to agree to provide one entity sub-sealing pricing, and 340B doesn't contemplate how you're actually going to be able to negotiate that.

[00:08:49] Speaker 02:
So what HRSA has done is contracted, only through a contract, not through 340B, with Apexis to act as an agent, to act as a broker on behalf of

[00:08:59] Speaker 02:
these safety net medical providers like AHF to negotiate on our behalf.

[00:09:03] Speaker 02:
So this is more than just an incidental benefit.

[00:09:05] Speaker 03:
Let me ask you that because it seems like Astra was concerned with the consequences of permitting a suit in a 340B context, particularly given the interrelated nature of 340B and the Medicaid drug rebate program.

[00:09:23] Speaker 03:
So if you could explain for me or play it out for me here,

[00:09:27] Speaker 03:
if every covered entity can sue the prime vendor for failing to negotiate lower prices, where does that lead?

[00:09:39] Speaker 02:
So if I can, I'd like to address that in kind of two different paths.

[00:09:42] Speaker 02:
First, I'll address it in the third-party beneficiary path, and then I'd also like the opportunity to address it on the 17-200 claim path.

[00:09:50] Speaker 02:
On the 340B, or on the third-party beneficiary path, the reason that this is less of a concern is

[00:09:58] Speaker 02:
The real concern for Congress, at least my reading of it, is that when it comes to calculating the ceiling price, this is information that the covered entities don't necessarily even have.

[00:10:12] Speaker 02:
This is information to figure this out that HRSA and CMS have.

[00:10:15] Speaker 02:
So to allow them to sue on a third-party beneficiary basis, how would they get this information?

[00:10:20] Speaker 02:
They'd be getting information that, at least at the time, you know, Congress was concerned the Congress did not really intend for them to have.

[00:10:28] Speaker 02:
In this context, again, we're not suing under 340B.

[00:10:34] Speaker 02:
We're suing under a simple contractual provision, where if Apexis was actually doing what it was supposed to be doing, there wouldn't be an issue here.

[00:10:41] Speaker 02:
So this isn't going to step on HRSA's toes, because HRSA and CMS are the experts in figuring out ceiling pricing.

[00:10:49] Speaker 03:
But the language in ASTRA was that they were concerned that permitting suits from 340B entities

[00:10:59] Speaker 03:
would undermine these efforts, HHS's efforts, to administer both Medicaid and Section 340B harmoniously and on a uniform nationwide basis, given the interdependent nature of the two program requirements.

[00:11:21] Speaker 03:
It seems like that means an adjudication of rights under one program must proceed, as Astra said, with an eye towards any implications for the other.

[00:11:33] Speaker 03:
So I'm trying to see how you get out from under that.

[00:11:36] Speaker 02:
So I think maybe I would agree with the court on that point if subceiling pricing was set by the 340B statute.

[00:11:44] Speaker 02:
But it's not.

[00:11:45] Speaker 02:
And again, our complaint isn't actually on the price.

[00:11:48] Speaker 02:
It's really that Apexis isn't doing its job under a contractual provision, which I think is, again, very different.

[00:11:55] Speaker 02:
But to hit the 17-200 point, the case law on this, and I think it's laid out pretty well in the Zang case, which we cited, when it comes to 17-200 claims, the reason that you're still allowed to bring these claims is it's an independent and direct cause of action.

[00:12:12] Speaker 02:
And the damages, there really are no damages, right?

[00:12:15] Speaker 02:
You're allowed to have injunctive relief, and you're allowed to have disgorgement.

[00:12:19] Speaker 02:
So the concern of all of these entities suing over pricing, it's not really an issue here.

[00:12:26] Speaker 03:
But if we think you're not an intended beneficiary of the HRSA APEX's contract, how do you have standing outside the contract?

[00:12:39] Speaker 02:
Again, two points, Your Honor.

[00:12:40] Speaker 02:
So with regard to who is an intended beneficiary, just looking again at federal law on this, I mean, we're supposed to be looking at the contract and the clear intent there.

[00:12:52] Speaker 02:
And again, this isn't just some incidental thing that we benefit from.

[00:12:57] Speaker 02:
they're actually, Apexis is supposed to be acting as our agent on our behalf to negotiate these prices.

[00:13:03] Speaker 01:
Isn't the lawsuit a different kind of a lawsuit, really, where you're more like an APA kind of a challenge.

[00:13:11] Speaker 01:
You're saying that, hey, you, agency, are not doing what you were authorized to do.

[00:13:15] Speaker 01:
You've gone sort of beyond that.

[00:13:16] Speaker 01:
You've delegated your authority to

[00:13:19] Speaker 01:
this prime vendor to negotiate, whereas you're supposed to negotiate this and there's no way to enforce.

[00:13:27] Speaker 01:
Isn't then that's a different kind of a case, isn't it?

[00:13:31] Speaker 02:
And I think it could be, and I think that goes back to the point of the court's dismissal of our case, the underlying court.

[00:13:37] Speaker 01:
Well, my point is that you're trying to put it into this other area where there's no sort of enforceability, it seems, perhaps, and there's no ability for these third-party actions.

[00:13:49] Speaker 02:
Well, taking the court at its hypothetical on the 17200 claim, again, it would still survive, because 17200 claims are not concerned

[00:13:58] Speaker 02:
necessarily about whether this is just a breach of contract and trying to reformulate it.

[00:14:03] Speaker 02:
70-200 is really about unfairness.

[00:14:06] Speaker 02:
It's a completely separate and direct theory of liability, and the case law on that supports that even where a statute does not provide a private right of action, if there is unfairness, if the public or entities here like AHF are being misled, that is an independent reason to be able to

[00:14:28] Speaker 03:
And you're forced the government contractor to in your best authority for that because it's just I'm just not sure that's enough I would say the Zan case.

[00:14:37] Speaker 02:
Like I said, I believe that that lays that out.

[00:14:39] Speaker 02:
Well Is a disgorgement

[00:14:43] Speaker 02:
I apologize.

[00:14:45] Speaker 03:
You wanted some time for a buttable.

[00:14:46] Speaker 03:
I wanted to ask you on the leave to a meant issue, how would the facts that you have indicated that you can allege support your UCL claim?

[00:15:00] Speaker 02:
Right.

[00:15:00] Speaker 02:
I think the facts that are laid out, the additional facts in the opposition to the 12b6 motion, really show this isn't just a breach of contract claim.

[00:15:13] Speaker 02:
This is a government entity that led the public to believe that they were a nonprofit, has since become a for-profit, is not just failing to negotiate on behalf of covered entities, but is actually kind of sitting on their hands.

[00:15:31] Speaker 02:
So that way, its parent company can benefit from that.

[00:15:35] Speaker 02:
We've got instances in there that have been mentioned in the facts.

[00:15:38] Speaker 02:
of abilities for them to be able to get pricing below VA level and just not acting on that.

[00:15:46] Speaker 02:
So again, that's not you didn't negotiate well enough, which I know Apexis keeps trying to frame it in that manner.

[00:15:51] Speaker 02:
It's not negotiating well enough.

[00:15:52] Speaker 02:
It's about actually just doing your job, period.

[00:15:55] Speaker 03:
But again- What would you add?

[00:15:56] Speaker 03:
What's the amend?

[00:15:59] Speaker 03:
What would you add to the amend?

[00:16:02] Speaker 03:
So if- Because you're restating, I think, your current claim.

[00:16:06] Speaker 02:
Right, so if the court looked at our opposition to the motion to dismiss, which is pages ER 35 to ER 37.

[00:16:18] Speaker 02:
We've got, you know, multiple pages of additional allegations that we would have made at that time, and there's even more we could make now.

[00:16:24] Speaker 02:
So again, I think the real idea here is cases should be determined on the merits, and we should be given the opportunity to obtain enough facts to be able to do that, to be able to plead this case and be able to have this heard on the merits.

[00:16:39] Speaker 03:
Did you want to reserve?

[00:16:41] Speaker 02:
Yes, thank you.

[00:16:55] Speaker 00:
Good morning.

[00:16:56] Speaker 00:
May it please the court, Karen Baumholt on behalf of the respondent, Apexis LLC.

[00:17:02] Speaker 00:
I think, let me begin by just playing out my argument.

[00:17:07] Speaker 00:
The key to understanding all aspects of this case is to understand the statutory scheme itself.

[00:17:13] Speaker 00:
So I'll address first all of the reasons why Astra, and even in the absence of Astra, there's no ability for a covered entity to enforce Apexis' contract with the government

[00:17:25] Speaker 00:
Because whether under Astra or the reasoning that led to Astra, there just cannot be, to your honor's point, 13,000 covered entities like AHF.

[00:17:36] Speaker 00:
who can individually bring lawsuits all at once.

[00:17:39] Speaker 03:
Then I'll speak.

[00:17:41] Speaker 03:
So I understand that our president is skeptical of allowing third party beneficiary lawsuits seeking to enforce obligations in government contracts.

[00:17:55] Speaker 03:
But here, it seems like we can infer

[00:17:59] Speaker 03:
an intent to benefit covered entities, because that seems to be the sole purpose of the sub-sealing pricing term.

[00:18:10] Speaker 03:
So why is that wrong?

[00:18:11] Speaker 00:
Sure.

[00:18:12] Speaker 00:
And let me come at that a few ways, Your Honor.

[00:18:14] Speaker 00:
First, I think it would run directly contrary to Astra.

[00:18:17] Speaker 00:
So let me start with that.

[00:18:19] Speaker 01:
Can you answer part of a question first, though?

[00:18:22] Speaker 01:
Sure.

[00:18:22] Speaker 01:
You agree that they are the intended beneficiaries, correct?

[00:18:25] Speaker 00:
I agree that they are incidental beneficiaries.

[00:18:30] Speaker 00:
I do not, and what Astra said is that there is a critical distinction and contrary to this court's holding in County of Santa Clara that is Astra, a critical distinction between an intention to benefit a third party like the 13,000 covered entities that were at issue in Astra and that are at issue here.

[00:18:52] Speaker 00:
There are 13,000 covered entities more than.

[00:18:56] Speaker 00:
And a distinction between that, an intention to benefit them and an intention to give each of those third parties the right to enforce that intention.

[00:19:04] Speaker 00:
That's the language of Astra at page 118.

[00:19:08] Speaker 00:
And where we got to in Astra, although admitted.

[00:19:13] Speaker 04:
Council, let me.

[00:19:13] Speaker 04:
I apologize for interrupting, but I have a specific question related to what Astra held.

[00:19:19] Speaker 04:
Astra, I'm sorry.

[00:19:20] Speaker 04:
I know that it states that the third party beneficiary suit in that case did not allege the manufacturer and, quote, violated any independent substantive obligation arising only from the contract between the manufacturer and HRSA.

[00:19:37] Speaker 04:
Council has already stated that that's what he's hinging his position on that Astra doesn't apply because here that's exactly what AHS is trying to do so or AHF Why is that not?

[00:19:53] Speaker 00:
Accurate and the reason why is that we have to look through the statutory scheme the statutory scheme actually requires HHS to set up a prime vendor program and the prime vendor contract itself

[00:20:07] Speaker 00:
states this is the way in which HHS is enacting that program.

[00:20:14] Speaker 00:
They could have done it by regulations.

[00:20:16] Speaker 00:
They could have done it by contract.

[00:20:18] Speaker 00:
the whole thing arises from that subsection of section 340B that required the development of the prime vendor program.

[00:20:27] Speaker 01:
Where does it allow it to delegate its authority to negotiate the prices?

[00:20:32] Speaker 00:
Where's the authority that it... Oh, so that's a really important point, Your Honor.

[00:20:38] Speaker 00:
The ceiling price is set by the regulations and the statutes.

[00:20:43] Speaker 00:
To get to a sub-sealing price, you first have to determine what the ceiling price is.

[00:20:49] Speaker 00:
And the same process to determine what the ceiling price is is going to apply here.

[00:20:53] Speaker 00:
It's going to apply under Astra to the manufacturers.

[00:20:56] Speaker 00:
It's a regulatory scheme that Astra said is a very complex enterprise.

[00:21:04] Speaker 00:
You still have to do that here.

[00:21:05] Speaker 00:
The question is not that there was a delegation to get sub-sealing pricing.

[00:21:11] Speaker 00:
What the prime vendor agreement does is make our client the prime vendor.

[00:21:16] Speaker 00:
And to your honor's question earlier, the 2019 contract is actually in the record.

[00:21:23] Speaker 00:
It's at SER 11 to 21.

[00:21:25] Speaker 00:
The entire contract?

[00:21:28] Speaker 00:
The entire 2019 contract.

[00:21:30] Speaker 00:
And it requires Apexis agreed with the government to be the prime vendor and to develop, maintain, and coordinate a program capable of distribution

[00:21:41] Speaker 00:
facilitation and other activities in support of the Section 340B program.

[00:21:46] Speaker 00:
It goes on then to talk about negotiating services with the purpose of providing all member entities the most advantageous pricing on outpatient covered drugs that may not exceed the 340B ceiling.

[00:21:59] Speaker 00:
You cannot get to sub-ceiling pricing.

[00:22:02] Speaker 00:
without determining the ceiling pricing.

[00:22:04] Speaker 00:
And to your honor's point earlier about Astra and all of the concerns that led Astra to conclude that you can't have 13,000 individual suits by covered entities, it was because there was this very complex enterprise

[00:22:20] Speaker 00:
determining it.

[00:22:22] Speaker 00:
Council how are prime vendors held responsible then if they don't do their job?

[00:22:25] Speaker 00:
There's only one prime vendor here your honor and I want to be clear the prime vendor program arises out of section 340 B and the answer to your question of how does HRSA who regulates this entire scheme hold Apexis accountable they have regular contact regular audits there is an ability to enforce ceiling pricing under the entire

[00:22:49] Speaker 00:
2010 amendment that that then led to later regulations Astra spoke to that in part and HRSA have they really done that

[00:22:59] Speaker 03:
I mean, have they done what you just said, like their obligation to oversee and have them do that?

[00:23:08] Speaker 00:
Yes, absolutely.

[00:23:09] Speaker 00:
HRSA is in contact with our client all the time.

[00:23:12] Speaker 00:
They run audits.

[00:23:13] Speaker 00:
And as the Supreme Court pointed out in Astra, before there was enforcement scheme to deal with the PPAs,

[00:23:23] Speaker 00:
HRSA and HHS were doing that on an informal basis.

[00:23:27] Speaker 00:
That's the language of Astra there.

[00:23:29] Speaker 00:
And the reason, no, Your Honor, thank you.

[00:23:33] Speaker 00:
Everything that Your Honor said earlier about Astra and its reasoning, that you have to, that the reason why Astra came out the way it did was because the court at 119 and 120 said Congress did not intend to spread the enforcement burden to 13,000 covered entities and that

[00:23:51] Speaker 00:
the courts were not equipped in the way that HRSA was to balance the competing interests on the Medicaid program.

[00:23:56] Speaker 03:
And that's an important point, but I'm trying to figure out if that point outweighs whether or not

[00:24:06] Speaker 03:
AHF is within the class of clearly intended beneficiaries, and I don't know if you answered that yes or no.

[00:24:17] Speaker 00:
Well, the answer is that were they intended to benefit from?

[00:24:21] Speaker 00:
Sure, but- Because it's hard.

[00:24:24] Speaker 03:
Just for me, it's hard to discern a purpose of the sub-sealing price provision other than to benefit covered entities.

[00:24:35] Speaker 00:
Well, in just the same way, all of the people who were intended to be benefited were the covered entities by the PPAs.

[00:24:45] Speaker 00:
There was an intent in both cases to benefit all of these safety net providers, not just AHF, but all of the other safety net providers that the program serves.

[00:24:56] Speaker 00:
But what Astra said is you have to distinguish between an intent to benefit

[00:25:01] Speaker 00:
which was clearly the case in Astra, and probably clearly the case here, and an intent to allow enforcement.

[00:25:10] Speaker 00:
And what Astra came out as, the reason why Astra came out as it did is it said, all of this is for HRSA and AHS, excuse me.

[00:25:23] Speaker 03:
But Astra, would you agree, focused on the fact that Santa Clara County's suit alleged only that the manufacturers charged more than the statutory ceiling price, not that they violated any independent substantive obligation arising only from the contract at issue?

[00:25:51] Speaker 03:
the subsidy price negotiation provision, and independent substantive obligation?

[00:25:57] Speaker 00:
Sure.

[00:25:57] Speaker 00:
And the answer is, yes, I agree with you that Astra focused on that because those were the facts of Astra.

[00:26:03] Speaker 00:
No question.

[00:26:04] Speaker 00:
But all of the reasoning of Astra, and then to further answer your question, Your Honor, at least five independent reasons why it still applies here.

[00:26:13] Speaker 00:
First, as I mentioned earlier, on its face,

[00:26:16] Speaker 00:
Section 340B required HHS to develop this program.

[00:26:22] Speaker 00:
And second, as I mentioned earlier, on the face of the PVP contract, it's a term in this contract that this is how HHS is going to develop that program.

[00:26:33] Speaker 00:
Astra said the programs were sourced in Section 340B, and for that reason, a private right of action was barred.

[00:26:41] Speaker 00:
Third, and maybe most importantly,

[00:26:44] Speaker 00:
The very reason why all of Astra's reasoning has to apply here is that to enforce the purported obligation to negotiate sub-sealing pricing, you have to determine what the ceiling is.

[00:26:57] Speaker 00:
And that is, under Astra, for HHS and HRSA to decide.

[00:27:02] Speaker 01:
But here the argument is that you all have agreed to do something more, and that's what they're trying to enforce.

[00:27:09] Speaker 00:
Well sure, but the first step in that would be to say we didn't get sub-ceiling pricing.

[00:27:14] Speaker 00:
And the first step in that would be to determine what's the ceiling.

[00:27:18] Speaker 00:
And what Astra explained, and these regulations are very complex, is it's a very complex enterprise to even start to determine what that ceiling price is.

[00:27:27] Speaker 00:
Because there's all kinds of ways that you deal with the manufacturing price and you get there.

[00:27:33] Speaker 00:
So to even talk about whether or not there was

[00:27:37] Speaker 00:
not a sub-ceiling price.

[00:27:39] Speaker 00:
You have to start with whether there's a ceiling price.

[00:27:42] Speaker 03:
Fourth- What is the remedy?

[00:27:44] Speaker 03:
I think this is what Judge Mendoza was asking previously, but what is the remedy when the prime vendor fails to fulfill its statutory obligations?

[00:27:53] Speaker 00:
HRSA is the answer, Your Honor.

[00:27:55] Speaker 00:
Again, is this all the people who are contacting

[00:27:59] Speaker 00:
HRSA runs this entire program just as it runs the entire PPA program.

[00:28:04] Speaker 00:
HRSA has the ability to audit and to tell Apexis to do different things.

[00:28:09] Speaker 00:
AHF has the ability to bring this to HRSA, to bring it to Apexis, which they have done in the past as they plead and footnote in their complaint.

[00:28:18] Speaker 00:
They raised a concern and Apexis responded.

[00:28:22] Speaker 00:
Apexis will not get another prime vendor contract if it's not doing what HRSA wants it to do.

[00:28:31] Speaker 00:
part of this record, but when Apexis was re-awarded the contract, the only covered entity to have complained was AHF.

[00:28:40] Speaker 00:
They complained.

[00:28:41] Speaker 00:
HRSA heard that complaint and decided to go forward.

[00:28:45] Speaker 00:
Let me come back to your question about Astra, just one more thing.

[00:28:50] Speaker 00:
Astra also reasoned that Section 340B's ban on disclosure of pricing information was wholly incompatible with a private right of action for the 13,000 covered entities because Congress would not have made that confidential if they were intending for the very information necessary to determine whether their asserted rights have been violated to be kept confidential.

[00:29:18] Speaker 00:
And so if I can wrap up ASTRA this way and then move on to the UCL, we agree that ASTRA wouldn't permit AHF to come in here and sue AHF to enforce the ceiling.

[00:29:31] Speaker 00:
But it would be very incongruous with ASTRA to hold that they could come in here and enforce a sub-ceiling price.

[00:29:41] Speaker 00:
So with that, unless the... Well, let me ask you.

[00:29:44] Speaker 03:
So it seemed like ASTRA

[00:29:46] Speaker 03:
pointed to HRSA's dispute resolution authority, but it seems like that authority is limited to resolving disputes between drug manufacturers and covered entities.

[00:30:03] Speaker 03:
So how would the suit here disrupt HRSA's authority?

[00:30:09] Speaker 00:
Sure.

[00:30:10] Speaker 00:
At the time of Astra, that dispute resolution process was not yet in effect.

[00:30:16] Speaker 00:
At the time of Astra, and Astra, the Supreme Court points this out, at the time Astra was decided, it was still a very informal process by HRSA to decide how to deal with these things.

[00:30:27] Speaker 00:
And in response to deal with the complaints about ceiling pricing not being met, and in response to that, Congress amended

[00:30:36] Speaker 00:
the statute in 2010 to provide for a more robust regulatory scheme.

[00:30:43] Speaker 00:
So under Astra, the informal process, and the whole point of Astra was this is all within the scope of HHS and HRSA.

[00:30:52] Speaker 00:
You can't have, and this is no different, all of these covered entities going into all these different courts all over the country and saying, I want Apexis to have done

[00:31:03] Speaker 00:
one more negotiation here or one more negotiation there to have gotten below the ceiling price that is set by regulation.

[00:31:10] Speaker 00:
All of the reasoning of Astra, whether Astra was technically focused on the identity of language, which by the way, there's no identity of language in the PPAs, but to enforce the statutes, the same reasoning applies with equal force here.

[00:31:29] Speaker 04:
Give me an example of a case that you think would fit under the Astra, what I'm going to call the Astra exception, that is an independent substantive obligation.

[00:31:38] Speaker 00:
Their haircutting example, something that does not arise from the actual statute, that is not about enforcing the Section 340B program.

[00:31:48] Speaker 00:
And what Section 340B says is that there has to be a development of a prime vendor program, and that

[00:31:55] Speaker 00:
Prime vendor program, I read the language earlier, the 2019 contracts is that we will do these things for the purpose of providing the most advantageous pricing that does not exceed the Section 340B ceiling.

[00:32:14] Speaker 00:
If I could turn to the UCL briefly.

[00:32:17] Speaker 00:
Thank you, Your Honor.

[00:32:18] Speaker 01:
First.

[00:32:20] Speaker 01:
I'm sorry.

[00:32:20] Speaker 01:
Before she does that, I do have a question.

[00:32:22] Speaker 01:
It's going back to what you said earlier.

[00:32:25] Speaker 01:
You said that if there's an issue, we talk all the time, HRSA and our company talk all the time.

[00:32:32] Speaker 01:
What happens when there's a dispute between the two?

[00:32:35] Speaker 01:
What happens?

[00:32:36] Speaker 01:
Let's say that the agency says we need you to do X and you don't.

[00:32:43] Speaker 01:
What happens?

[00:32:44] Speaker 00:
Well, I think a couple of things could happen.

[00:32:46] Speaker 00:
One is, HRSA would not re-award the contract later.

[00:32:53] Speaker 01:
How long are those contracts?

[00:32:57] Speaker 00:
That's a good question.

[00:32:57] Speaker 00:
I think it's five years.

[00:32:59] Speaker 01:
Okay, let's assume five years.

[00:33:00] Speaker 01:
Let's say it happens on day one of the fifth year.

[00:33:03] Speaker 01:
So that's their option?

[00:33:04] Speaker 00:
We, well, no, we would work, I mean, our client works with HRSA all the time in terms of what needs to happen.

[00:33:10] Speaker 01:
No, right.

[00:33:10] Speaker 01:
Let's say you don't agree.

[00:33:12] Speaker 01:
Let's say you are not in agreement.

[00:33:13] Speaker 01:
They ask you to do X. You're not going to do X. What happens?

[00:33:18] Speaker 01:
What do you do at that point?

[00:33:21] Speaker 00:
I mean, what in practice gets done is they just continue to work it out.

[00:33:25] Speaker 00:
What could HRSA do?

[00:33:26] Speaker 00:
I... Go to court?

[00:33:31] Speaker 00:
Perhaps.

[00:33:32] Speaker 01:
Then why can't these other people go to court as well?

[00:33:35] Speaker 00:
Because they are not in privity of contract and they are not intended beneficiaries enabled to enforce the contract under Astra and all of the cases that led there.

[00:33:47] Speaker 03:
So there is possibility in some other slightly different context that they could bring soon.

[00:33:54] Speaker 00:
You know, Your Honor, I haven't given a lot of thought to that, so I'm a little bit uncomfortable, but I mean, it is a contract between HRSA and Apexis, and if HRSA thought that there was no, that we were not breaching our obligations, presumably HRSA would have the ability to enforce that.

[00:34:13] Speaker 00:
Now, this is not unlike lots of other government programs.

[00:34:17] Speaker 00:
A lot of times, there are government programs that benefit lots of other people, and they're intended to benefit lots of other people.

[00:34:24] Speaker 00:
But the question is not whether it's intended to benefit someone.

[00:34:27] Speaker 00:
It's whether they're intended to have the right to enforce.

[00:34:31] Speaker 03:
I would like for you to get to the UCL.

[00:34:32] Speaker 00:
Sure.

[00:34:33] Speaker 00:
Thank you, Your Honor.

[00:34:33] Speaker 00:
And so there I have three main points I'd like to cover very briefly first.

[00:34:40] Speaker 00:
There was no argument about the UCL in the district court in opposition to our motion to dismiss.

[00:34:46] Speaker 00:
They point in their reply brief here to one throwaway line.

[00:34:49] Speaker 00:
It's just they never developed any argument.

[00:34:53] Speaker 00:
And I think this court is aware there are three prongs to California's unfair competition law.

[00:34:59] Speaker 00:
unfair which CELTEK that the parties have cited to you held was essentially like an antitrust analysis.

[00:35:05] Speaker 00:
You can't just say, oh, it's unfair.

[00:35:07] Speaker 00:
I think that what they're doing is unfair.

[00:35:08] Speaker 00:
There's a whole analysis that would have needed to have been done in the district court and to this court to argue that they have stated a claim under the UCL.

[00:35:19] Speaker 00:
The fraudulent prong requires rule 9b, pleading, misrepresentation upon which they relied.

[00:35:26] Speaker 00:
They never even try to allege this, much less argue it in the district court, much less argue it here.

[00:35:33] Speaker 04:
Do you think they don't have the facts to be able to do that if we were to allow them to amend?

[00:35:38] Speaker 00:
I don't, and here's why.

[00:35:41] Speaker 00:
First.

[00:35:42] Speaker 00:
The case law is very clear and we've given the court this in our respondents brief that to the extent that they're talking about a breach of contract, which this is, it's one albeit that arises from the statutory scheme, but a breach of contract cannot form the basis of a UCL claim.

[00:35:57] Speaker 00:
The case law is very clear and we've given you all of those cases.

[00:36:01] Speaker 00:
Now, I think I heard counsel say that they are not asserting the unlawfulness prong of

[00:36:07] Speaker 00:
the UCL.

[00:36:09] Speaker 00:
I was prepared to address that, but it sounds like I don't need to.

[00:36:12] Speaker 00:
But simply, Celltech held that while the mere absence of a private right of action would not bar a UCL claim,

[00:36:22] Speaker 00:
where there is a statutory scheme that bars a private right of action, you cannot dress it up like a UCL claim.

[00:36:29] Speaker 00:
So if the court agrees, as I believe it should with the district court and with Apexis here, that there's no private right of action for these covered entities to enforce the Section 340B pricing,

[00:36:42] Speaker 00:
Then sell tech and all of these other cases that have been cited to you tells tell you that a UCL claim can't work in and render out that all of the cases that they've cited in their briefing to this court dealt with cases dealt with statues where there was a private right of action in the underlying.

[00:36:59] Speaker 00:
So, for that reason and all of the reasons we've discussed previously, a UCL claim would not survive even if they had made the argument, which, I mean, it's absent from the district court briefing.

[00:37:15] Speaker 00:
They cite section 17-200.

[00:37:17] Speaker 00:
but they never develop it.

[00:37:19] Speaker 00:
If I may, I see I'm out of time, but if I may just have a couple of minutes to wrap up.

[00:37:23] Speaker 00:
We've also, of course, given the court other reasons to affirm that we're not dealt with in the district court and I won't propose to spend

[00:37:31] Speaker 00:
too much time on this.

[00:37:34] Speaker 00:
But nothing they've said about leave to amend in their briefing here would cure any of the defects that exist under Twombly, Iqbal, Astra, all of those things.

[00:37:46] Speaker 00:
And we've also given you, and I won't cover it in any great length, but what they left out of their complaint in which we provided with the district court and the district court overruled their objections to, to be clear in footnote

[00:38:01] Speaker 00:
one, was the contract between Apexis and AHF, which waived any liability.

[00:38:09] Speaker 00:
And so that is another reason to affirm.

[00:38:12] Speaker 00:
And just in conclusion, Apexis deals with 150 drug manufacturers, more than 13,000 covered entities, and thousands and thousands of drugs.

[00:38:23] Speaker 00:
It is in constant contact with HRSA, and as Astra said, it would be

[00:38:29] Speaker 00:
in sharp conflict with congressional intent to say that any covered entity could individually sue AHF for not enforcing that portion of Section 340B, which is the prime vendor program.

[00:38:44] Speaker 00:
There's no way to square allowing AHF to claim that it thinks Apexis should have done something different with the reasoning in Astra.

[00:38:54] Speaker 00:
and this court's jurisprudence on incidental and intended beneficiaries.

[00:38:58] Speaker 00:
So unless the court has further questions, we would submit.

[00:39:01] Speaker 03:
Thank you.

[00:39:01] Speaker 00:
Thank you.

[00:39:08] Speaker 03:
So Mr. Gruen, you have basically three and a half minutes on the clock.

[00:39:12] Speaker 03:
Because I gave Ms.

[00:39:13] Speaker 03:
Broomhold an extra minute and 45 seconds, if you need it, you can have that.

[00:39:18] Speaker 02:
We definitely appreciate it, Your Honor.

[00:39:19] Speaker 03:
OK, thank you.

[00:39:20] Speaker 02:
Thank you.

[00:39:21] Speaker 02:
First, I wanted to address your honor's point here.

[00:39:23] Speaker 02:
Apexas has had this contract for nearly 20 years.

[00:39:26] Speaker 02:
They've got pretty much a monopoly here, which is really the problem is they get to just keep doing what they're doing and nobody is really enforcing this or trying to stop them.

[00:39:34] Speaker 02:
Council also pointed out, you know, keeps mentioning that this sub-sealing pricing negotiation comes from 340B.

[00:39:41] Speaker 01:
Well, they say that they can go to court themselves when they have a disagreement with the agency.

[00:39:47] Speaker 02:
But they don't.

[00:39:48] Speaker 02:
And I think an important point here is HRSA, if they had a problem with us, you know, trying to have the suit, could have stepped in in this action and did not.

[00:39:59] Speaker 04:
Council, let me ask for clarification.

[00:40:01] Speaker 04:
The question has become, are you an intended or an incidental beneficiary?

[00:40:07] Speaker 04:
What are you and what supports that?

[00:40:09] Speaker 02:
I think we're clearly, to me,

[00:40:12] Speaker 02:
an intended beneficiary.

[00:40:14] Speaker 02:
And again, that's reading the actual language here.

[00:40:17] Speaker 02:
This is not just that we get some benefit from it.

[00:40:21] Speaker 02:
Council admitted that we get benefit from it and we're an intended beneficiary.

[00:40:26] Speaker 02:
But I think the distinction she's trying to make is, well.

[00:40:28] Speaker 02:
No, she said incidental is what she said.

[00:40:30] Speaker 02:
OK, my apologies.

[00:40:31] Speaker 02:
Maybe I misheard.

[00:40:32] Speaker 02:
But again, they're supposed to be acting as our agent here.

[00:40:36] Speaker 02:
This goes above and beyond most contracts where the government enters into something.

[00:40:41] Speaker 02:
and you get some benefit from it.

[00:40:43] Speaker 02:
It's not simply that we're the public getting a benefit, or even that we're clearly, from reading the language, an intended beneficiary.

[00:40:49] Speaker 02:
They're supposed to be acting as our agents here, negotiating on our behalf, using the power of the federal government to try to negotiate subceiling pricing in ways that individual entities are simply not going to be able to do on their own.

[00:41:05] Speaker 02:
So I also want to jump to, you know... I'm not sure you answered her question.

[00:41:11] Speaker 01:
I'm sorry.

[00:41:11] Speaker 01:
Her question was why are you the intended beneficiary?

[00:41:17] Speaker 01:
Then you said, well, they're supposed to act as our ancients.

[00:41:19] Speaker 01:
Is there any other possible intended beneficiary?

[00:41:24] Speaker 02:
Looking at federal case law, Your Honor, again, no, there's no other beneficiary.

[00:41:29] Speaker 02:
There is no other beneficiary.

[00:41:32] Speaker 02:
I mean, reading the language of the contract is the way that the federal courts, or at least the cases, say that it should be analyzed.

[00:41:40] Speaker 02:
And again, from the language there, there would be no other beneficiary but for the covered entities here.

[00:41:47] Speaker 02:
I hope that answers your honor's question.

[00:41:50] Speaker 04:
If it doesn't, I'm happy to- Well, I was just asking simply because Council for Apex keeps referring to AHF as an incidental beneficiary.

[00:42:01] Speaker 02:
Right, which personally I don't think is supported by the contract, I guess would be my response.

[00:42:07] Speaker 02:
I think any reasonable person reading the contract, again, this is my personal view, I think you read that.

[00:42:12] Speaker 02:
It's pretty clear that we're not only the intended beneficiary, but they're supposed to be operating on our behalf.

[00:42:20] Speaker 02:
Just in terms of the waiver argument that they raised, one, it's extrinsic evidence.

[00:42:30] Speaker 02:
to the extent that the court wanted to consider extrinsic evidence, we should have been given the opportunity to conduct discovery on that.

[00:42:36] Speaker 02:
It should have been converted to a motion for summary judgment.

[00:42:39] Speaker 02:
We were not given that opportunity.

[00:42:41] Speaker 02:
But more importantly, even if the court does decide to look at the language here, I mean, it simply doesn't apply.

[00:42:46] Speaker 02:
I think it's very misleading what Apexis is trying to do here.

[00:42:49] Speaker 02:
They're using a waiver provision that uses the term

[00:42:54] Speaker 02:
340B prime vendor agreements and trying to imply that 340B prime vendor agreements means the agreement between HRSA and Apexis, and it does not.

[00:43:04] Speaker 02:
And the way that we know that is it's actually a defined term in this agreement.

[00:43:07] Speaker 02:
If we go to the whereas sections on the front page, the third whereas says that it is, the definition of it, it's essentially to the pharmaceutical pricing agreements.

[00:43:22] Speaker 02:
So it's the agreements between Apexis and the pharmacies.

[00:43:27] Speaker 02:
It's a completely different contract, I guess is my point.

[00:43:30] Speaker 02:
So this whole waiver argument is kind of, I think it's very misleading, I guess would be my point on that.

[00:43:38] Speaker 02:
And I'd ask the court to check the definition section and recognize that it simply doesn't apply here.

[00:43:43] Speaker 04:
What page is that on?

[00:43:46] Speaker 02:
SER6.

[00:43:48] Speaker 02:
The third whereas, it says, whereas 340B Prime Vendor is authorized to directly or through its agents to execute 340B Prime Vendor agreements, here and after referred to as 340B Prime Vendor agreements.

[00:44:01] Speaker 02:
And then in the examples of the actual waiver, which is F, it's concerning failures of the vendor to furnish the drugs.

[00:44:09] Speaker 02:
In other words, if the pharmaceutical company that Apexis enters into a contract with does not vend the drugs in the way that they're supposed to or do what they're supposed to, AHF is not going to be able to sue them.

[00:44:21] Speaker 02:
But that's not what this is about.

[00:44:22] Speaker 02:
This is about suing Apexis for it not doing its job.

[00:44:35] Speaker 02:
Unless the court has any other questions.

[00:44:38] Speaker 03:
Thank you very much Mr. Gruen and Miss Bumhold for your oral argument presentations here today.

[00:44:46] Speaker 03:
This case the AIDS Healthcare Foundation versus Apexis LLC is now submitted and that concludes our oral argument calendar for today and so we are adjourned.

[00:45:01] Speaker 03:
Thank you very much.

[00:45:02] Speaker 03:
Thank you Your Honor.

[00:45:18] Speaker 04:
This court for this session stands adjourned.