[00:00:00] Speaker 05:
I understand you're sharing time, so please watch the clock and leave when your time is up.

[00:00:07] Speaker 02:
I will, Your Honor, and the appellants would like collectively to reserve four minutes for rebuttal.

[00:00:12] Speaker 05:
All right.

[00:00:13] Speaker 02:
Good morning, Judge Akuta, and may it please the court.

[00:00:16] Speaker 02:
There's a lot going on in the briefing, so I want to start by stepping back and level setting a little bit about what my client does.

[00:00:24] Speaker 02:
As it's relevant here,

[00:00:25] Speaker 02:
PBMs like Caremark negotiate the net cost of drugs for their health plan clients with manufacturers.

[00:00:32] Speaker 02:
Those negotiations determine how much the government ultimately will pay for medicine government employees receive under Federal Employee Health Benefits Plan or FIBA plans.

[00:00:45] Speaker 02:
Caremark does not have separate negotiations for FIBA and non-FIBA plans.

[00:00:50] Speaker 02:
Instead, to maximize its leverage in negotiating with manufacturers, Caremark negotiates the net cost of drugs for multiple plans at the same time.

[00:01:01] Speaker 02:
During the relevant period, all insulin rebate negotiations that Caremark conducted for FIBA plans were also for non-FIBA plans too.

[00:01:13] Speaker 02:
Because California challenges, Caremark's rebate negotiations were at large.

[00:01:19] Speaker 02:
and because Caremark's FIBA and non-FIBA negotiations are plainly connected.

[00:01:24] Speaker 04:
Does the government in any way have any involvement in dictating or suggesting how rebate negotiations were to be conducted?

[00:01:32] Speaker 04:
Or is that like a pure business efficiency decision?

[00:01:36] Speaker 02:
The way that the actual negotiations are structured is to maximize leverage.

[00:01:43] Speaker 04:
the conduct of negotiations is left to the discretion sure it makes sense right but to what extent is the government involved in that well you could have a federal contract and it's it lays out specific terms and then in executing that contract you can make lots of business decision that makes sense in the real world right

[00:02:01] Speaker 02:
That's right, Your Honor, and it's similar actually to Gonzales, where FIBA and this extremely complicated contractual and regulatory regime does give some discretion to the entities that are performing this task for the federal government or federal plans in how best to perform the task, but that doesn't change the fact that the PBMs are performing a key task

[00:02:24] Speaker 02:
The best way to put it might be as a cog in this healthcare machinery of the government, and we're doing something that the government would have to do on its own were Caremark not doing the rebate negotiations for it.

[00:02:37] Speaker 05:
Based on the briefing, there's no direct contract between Caremark and the government, isn't that right?

[00:02:44] Speaker 02:
That's right, Your Honor.

[00:02:44] Speaker 05:
And so your contract is with FIBA.

[00:02:47] Speaker 05:
And then FIBA is told by the government to include contract terms in their contract with with Caremark.

[00:02:56] Speaker 02:
That's true, Your Honor.

[00:02:57] Speaker 02:
We are a subcontractor for FIBA plans.

[00:03:00] Speaker 02:
Now the government can audit us directly and those audits do have teeth in that the OIG, OPM, will come in and audit and as a result of those audits will essentially tell the FIBA plans they need to direct us to do A, B, or C.

[00:03:17] Speaker 02:
if we want to keep doing business.

[00:03:18] Speaker 02:
It's all part of the same complex regulatory regime that in Gonzales this court found created acting under jurisdiction.

[00:03:27] Speaker 02:
And also all of these factual questions do show you that there are facts around this defense that need to be resolved in the federal court.

[00:03:37] Speaker 05:
The only thing I saw in your briefs that was in the FIBA contract allowed the government to do the audits, required some transparency, and required some reporting.

[00:03:50] Speaker 05:
Is there anything else?

[00:03:52] Speaker 02:
Well, if you step back, Judge Akuta, there's also the fact of rebates that rebates are contemplated.

[00:03:58] Speaker 02:
So rebates are considered a benefit cost within the FIBA ecosystem.

[00:04:06] Speaker 02:
just the fact of negotiating rebates is something that is directly contemplated.

[00:04:11] Speaker 02:
And then you're right, there is specific guidance around the audits, there is specific guidance around reporting, but all of that comes in the context of broader standards for PBMs and in the context of broader guidance that PBMs are given in how to discharge this task.

[00:04:29] Speaker 05:
Is there a regulation or guidance document you're referencing?

[00:04:33] Speaker 02:
I'm sorry, Your Honor.

[00:04:34] Speaker 05:
Are you referencing a specific regulation or guidance document?

[00:04:39] Speaker 02:
No, what I'm referencing is there is the standard FIBA contract and then there are guidance letters which are actually cited in the Hawaii opinion denying the state's motion to remand on materially identical facts.

[00:04:51] Speaker 02:
I think the most recent of those was in February 2024 reiterating the standards that apply to PBMs.

[00:04:59] Speaker 02:
It's not like PBMs are

[00:05:01] Speaker 02:
like the firework company in Calabachi, or I hope I'm pronouncing that right, or the drone maker in Fidelitad, or for that matter, the gasoline companies in San Mateo, where a product is made beforehand and the government may buy it or not.

[00:05:17] Speaker 02:
PBMs are part of a highly regulated, highly complicated system in which the government is intimately involved from step A to step Z.

[00:05:29] Speaker 04:
Can you address the district court's analysis in rejecting your indivisibility argument?

[00:05:34] Speaker 04:
And I'm referring specifically to ER 14 in the district court's order where it says that Caremark's argument taken to logical and essentially means

[00:05:44] Speaker 04:
you're nodding, you know the section I'm talking about, that if you take your argument to the logical end, and that means any private organizations where the work is performed on behalf of both private entities and the government can take advantage of the federal removal statute.

[00:06:03] Speaker 04:
And then the district court goes on to say, yet Caremark has not provided any authority for this proposition, nor has the court found any authority, especially under circumstances similar here,

[00:06:13] Speaker 04:
and paraphrasing to shorten it up, where plaintiff has repeatedly demonstrated that it does not seek to sue over any conduct performed on behalf of a federal entity.

[00:06:24] Speaker 04:
So how do you respond to that?

[00:06:25] Speaker 02:
What's your best argument?

[00:06:26] Speaker 02:
So a few answers, Your Honor.

[00:06:27] Speaker 02:
First of all, that understanding of the facts presupposes that the government's view of the facts is correct and that there is some way to pull apart and to sue only on behalf of

[00:06:41] Speaker 02:
not quote non-fiba conduct.

[00:06:44] Speaker 02:
We disagree with that factual dispute.

[00:06:46] Speaker 04:
Well, that's what the disclaimer is all about, right?

[00:06:48] Speaker 04:
They're, they're disclaiming, um, any, uh, efforts or attempt to recover based on the viva, fiba contract.

[00:06:56] Speaker 02:
The problem with that, your honor, is that to know which claims fall under the disclaimer, you would have to decide if it's possible somehow to pull apart our fiba and non-fiba negotiations.

[00:07:07] Speaker 02:
that those negotiations are under DeFiori at the very least connected and associated with each other.

[00:07:13] Speaker 02:
So you actually don't even need to get to the disclaimer.

[00:07:16] Speaker 02:
But if you were to get to the disclaimer, the question of whether and how you can pull apart FIBA negotiations is a core factual question.

[00:07:24] Speaker 02:
And to illustrate the point, Your Honor, insulin prices, the complaint alleges, stopped going up after 2019.

[00:07:30] Speaker 02:
If the government were to give a clean disclaimer,

[00:07:34] Speaker 02:
that actually said we are not pursuing any claims based on any negotiation involving a FIBA plan.

[00:07:41] Speaker 02:
So they really cut it out and there was no, or tried to, I'd still say connected associated with, but set that aside.

[00:07:48] Speaker 02:
There's really no FIBA negotiations still in the case.

[00:07:52] Speaker 02:
then all of our negotiations for Caremark PCS, so the negotiations that could be at issue here until 2020, involved both FIBA and non-FIBA plans, so the state's claim would just evaporate.

[00:08:05] Speaker 02:
In those circumstances, for the state's disclaimer to mean anything other than the state's claims against my client go away,

[00:08:12] Speaker 02:
you need to resolve the factual question of what FIBA, non-FIBA means.

[00:08:17] Speaker 02:
Now, I see I'm at 12 minutes.

[00:08:18] Speaker 02:
I want to be sure I respect my colleague.

[00:08:20] Speaker 02:
But I'm happy to answer any further questions on the bottle.

[00:08:24] Speaker 03:
All right.

[00:08:25] Speaker 02:
Thank you, Your Honor.

[00:08:33] Speaker 00:
May it please the court.

[00:08:35] Speaker 00:
My name is JR Scher.

[00:08:36] Speaker 00:
I represent

[00:08:37] Speaker 00:
Appellant Express Scripts, Inc., the pharmacy benefit manager engaged by the Department of Defense to administer the prescription drug benefit under the federal TRICARE program.

[00:08:50] Speaker 00:
The claims to which we are responding are not about some narrow-focused private action within California.

[00:08:58] Speaker 00:
The state brings a market-wide challenge on the theory that PBMs, like Express Scripts, are liable for manipulating the list price, something called the whack, of branded drugs, a price that is set by manufacturers, not by PBMs.

[00:09:20] Speaker 00:
knows that these claims impact federal duties.

[00:09:26] Speaker 00:
And so they disclaim in the complaint payments made by the federal government and co-payments made by beneficiaries under TRICARE, but not penalties.

[00:09:41] Speaker 00:
And then on removal, the state added

[00:09:44] Speaker 00:
or attempted to add an additional waiver, additional disclaimer that, well, we're not going after any Tricare conduct.

[00:09:53] Speaker 00:
And the problem is that the state's effort to carve out Tricare claims is inadequate to sever the nexus.

[00:10:01] Speaker 00:
Nexus is the key term here, not causal nexus, not causal connection, but the nexus, the connection between the challenge conduct and Express Script's delegated federal authority.

[00:10:13] Speaker 00:
Because the state's disclaimer does not and cannot foreclose liability for conduct that does and will and will continue to impact, it will have an effect on Express Script's performance of its obligations for the Department of Defense.

[00:10:33] Speaker 00:
And Express Scripts differs from Caremark in this respect.

[00:10:36] Speaker 00:
We, Express Scripts, don't negotiate custom formularies for TRICARE.

[00:10:42] Speaker 00:
We did not remove on that basis.

[00:10:44] Speaker 04:
The state's disclaimer fails as to express scripts not because... I thought that they specifically said they're not going after recovery from manufacturers.

[00:10:54] Speaker 00:
In after removal, the state...

[00:10:57] Speaker 00:
added a waiver, purported waiver, that they were not going to go after manufacturers for TRICARE specific claims.

[00:11:06] Speaker 00:
But that just begs the question because the state insists that it is going after manufacturers for disgorgement, for unjust enrichment, for penalties, for violating what the state says are requirements of the UCL.

[00:11:22] Speaker 00:
And the state specifically alleges in paragraph 230 of the complaint that

[00:11:27] Speaker 00:
raising the list price and that maintaining a raised list price are violations of the UCL so how does one go about allocating how does one try to figure out what is federal about that and what is private if a manufacturer and everybody agrees that the list price is the same for the federal government as well as for private plants so

[00:11:55] Speaker 00:
Express Scripps has to adjudicate claims for TRICARE using that price.

[00:12:00] Speaker 00:
Express Scripps is compensated or at times penalized based on that price, based on whether Express Scripps negotiates pharmacy discounts that come in under or go above levels set by the federal government in respect to that price.

[00:12:16] Speaker 00:
And so this is part and parcel of what Express Scripps has to do for the federal government.

[00:12:21] Speaker 00:
So when we say, all right, we're going to try to credit the state's disclaimer that you're not really going after Tricare, what does that mean?

[00:12:32] Speaker 00:
Well, how much exactly of the list price that a manufacturer sets is driven by the fact that, say, hypothetically, the relevant market comprises 20% Tricare beneficiaries, let's say 20%

[00:12:47] Speaker 00:
of the members who purchase this drug are TRICARE beneficiaries.

[00:12:51] Speaker 00:
How does that contribute to the price that is set?

[00:12:54] Speaker 00:
Well, what if, of that 20%, maybe only 10% of the revenue comes from those beneficiaries?

[00:13:01] Speaker 00:
Or what if their copays, because they're set by the federal government, account for, say, 7.5% of the total copay dollars?

[00:13:07] Speaker 05:
What is it that you do for the government and for private entities that is, I guess, cannot be disconnected?

[00:13:17] Speaker 05:
What is it that Express Scripps does that—like, I understand Caremark's theory that their negotiations on behalf of their clients can't be disaggregated.

[00:13:29] Speaker 05:
Does Express Scripps have a similar argument?

[00:13:32] Speaker 00:
Well, yes, we do, Your Honor.

[00:13:34] Speaker 05:
And what is it that Express Scripps does that can't be for both the federal government and for private entities that can't be disaggregated?

[00:13:42] Speaker 00:
Well, Express Scripts has a mandatory obligation to use the price that the state alleges has been artificially inflated, that violates the UCL under the state's theory, to use that price to adjudicate claims under the DOD's healthcare program, under Tricare.

[00:14:02] Speaker 00:
And so, if you credit the state's theory, then every time Express Scripts uses that price, it violates the law.

[00:14:13] Speaker 00:
Every time Express Scripts negotiates a discount and has an incentive to get paid by the federal government relative to that price, it violates the law.

[00:14:23] Speaker 00:
But the question is, how does one determine it?

[00:14:26] Speaker 00:
This is a question of fact.

[00:14:28] Speaker 00:
So if we try to parse it out, if we just take the state's theory as it comes and say, okay, we're gonna try to pull out TRICARE claims.

[00:14:37] Speaker 00:
Well, that doesn't do it because the manufacturer's price is still the same price that applies to everyone.

[00:14:43] Speaker 00:
It's not claim specific.

[00:14:46] Speaker 00:
So this is the same point I was making in response to Judge Wem's question.

[00:14:50] Speaker 00:
That you have to make a judgment call that the judge the court has to evaluate on a case-by-case basis whether the responsibilities the tricare has which is using this mandatory price using these copays using the government's money to

[00:15:06] Speaker 00:
to adjudicate government claims on behalf of the government, how much of that is driven by the existence of the Tricare beneficiaries?

[00:15:22] Speaker 01:
or directing specifically what the outcome should be.

[00:15:26] Speaker 00:
Well, the government, thank you, Judge Bataglia, Bataglia, pardon me.

[00:15:31] Speaker 00:
The government dictates that in advance.

[00:15:35] Speaker 00:
The government says in the express groups contract at section G.11.1.4.1 that the price that we use in adjudicating claims

[00:15:51] Speaker 00:
has to be a particular price that is set with respect to the manufacturer list price.

[00:15:58] Speaker 00:
In section H1, the compensation that Express Scripts gets or the penalty that Express Scripts incurs is based on using that price in order to adjudicate TRICARE claims.

[00:16:12] Speaker 01:
The price set by the manufacturer.

[00:16:13] Speaker 00:
The price set by the manufacturer.

[00:16:15] Speaker 00:
Now, the state's theory is that the PBMs are responsible for that price in some way, that we have conspired or colluded or somehow contributed to manipulating that price.

[00:16:24] Speaker 00:
But that's exactly the problem.

[00:16:26] Speaker 00:
Because that's the state's theory, it cannot sever that theory from what we are obligated to do for the federal government.

[00:16:34] Speaker 00:
And I see that we've gotten into our reserve time, so I'll reserve further comment from my colleague.

[00:16:59] Speaker 03:
Good morning and may it please the court.

[00:17:01] Speaker 03:
Darcy Tilly on behalf of the plaintiff appellee, the people of the state of California.

[00:17:06] Speaker 03:
The district court correctly concluded that the appellant's arguments for removal fail.

[00:17:11] Speaker 03:
The central issue in the causal nexus inquiry of the federal officer removal statute is whether a federal officer directed the defendant to take the challenge action.

[00:17:23] Speaker 03:
That is unmet here.

[00:17:25] Speaker 03:
For my argument, I will start with Caremark explaining why it cannot meet either the acting under or the causal connection prongs of the causal nexus element.

[00:17:36] Speaker 03:
I will then go through the same with Express Scripts.

[00:17:39] Speaker 03:
In time permitting, I will discuss the colorable federal defenses.

[00:17:42] Speaker 03:
I acknowledge given the overlap between Express Scripts and Caremark, there will be some discussion of both of their arguments in the Caremark discussion.

[00:17:51] Speaker 03:
To start with Caremark,

[00:17:53] Speaker 03:
and the acting under prong.

[00:17:54] Speaker 03:
I want to start.

[00:17:55] Speaker 03:
Can you adjust the microphones so your voice is a bit louder?

[00:17:58] Speaker 03:
Sorry.

[00:17:59] Speaker 03:
Starting with acting under prong, I'm going to start with the Supreme Court's decision in Watson.

[00:18:04] Speaker 03:
There, the Supreme Court stated that to meet the acting under prong, a defendant must show federal direction of the acts that are the subject of the plaintiff's complaint.

[00:18:17] Speaker 03:
Caremark has not done so here.

[00:18:19] Speaker 03:
There is nothing in the FIBA standard contract

[00:18:22] Speaker 03:
that Caremark linked in its notice of removal that reflects that the Office of Personnel Management directs or controls Caremark's non-FEBA plan.

[00:18:33] Speaker 03:
Can I stop you there?

[00:18:34] Speaker 03:
Go ahead.

[00:18:35] Speaker 04:
Well, I wanted to stop you there because you mentioned the acting under.

[00:18:39] Speaker 04:
Yes.

[00:18:39] Speaker 04:
The focus of the arguments below was very much on the causal nexus.

[00:18:45] Speaker 04:
Was the acting under

[00:18:48] Speaker 04:
Prong, if you will, preserved and argued below?

[00:18:50] Speaker 03:
So we did argue with respect to acting under below that Caremark and Express Scripts were not acting under federal authority when they were doing their non-federal conduct.

[00:19:05] Speaker 03:
And I can cite the page number of our brief from the Caremark record.

[00:19:10] Speaker 03:
And that would be ER 137.

[00:19:14] Speaker 03:
We stated, simply put, just because Caremark acts under the direction of OPM for some of its activities, that does not bring all of the company's prior and subsequent actions under the umbrella of federal authority.

[00:19:29] Speaker 03:
But I also do want to state that we're dealing with federal subject matter jurisdiction, which is never waived.

[00:19:37] Speaker 03:
identify that in the case of Fidelatad versus Insitu, that case made it all the way to summary judgment.

[00:19:44] Speaker 03:
And then on appeal, the court reversed and sent it back to state court after summary judgment.

[00:19:49] Speaker 03:
So the issue of federal subject matter jurisdiction can be raised at any time, including by court.

[00:19:57] Speaker 03:
I also do want to identify that the issue of Caremark negotiating FIBA and non-FIBA rebates at the same time

[00:20:05] Speaker 03:
was not in the notice of removal.

[00:20:07] Speaker 03:
That was a fact that came into the record via their opposition to our motion to remand.

[00:20:14] Speaker 04:
And I'll ask you the same question I asked Council is to what extent does the federal government have any involvement in or dictate the negotiation of rebates?

[00:20:22] Speaker 04:
How does that fit into the whole contracting scheme?

[00:20:26] Speaker 03:
The federal government does not dictate how Caremark negotiates rebates.

[00:20:32] Speaker 03:
What Caremark identified from the federal contract that it linked in its notice of removal was that it must credit rebates that it obtains to the FIBA plans.

[00:20:43] Speaker 03:
If they're for FIBA plans, they must go to the benefit of the FIBA plans.

[00:20:47] Speaker 03:
And it must provide information regarding rebates

[00:20:50] Speaker 03:
And it must allow it to be audited regarding the amounts charged for its services.

[00:20:56] Speaker 03:
But the provision of information, the auditing relates to financial terms.

[00:21:01] Speaker 03:
It is not substantive direction or control regarding how Caremark negotiates rebates.

[00:21:11] Speaker 03:
Caremark's attempt to address the fact that it is negotiating rebates at the same time

[00:21:21] Speaker 03:
or Caremark's attempt to address the fact that it does not show in the FEBA standard contract that OPM controls its non-FEBA conduct, it discusses the fact that it negotiates both at the same time.

[00:21:34] Speaker 03:
That creates an additional problem for Caremark, because it shows that for the Office of Personal Management, with respect to FEBA plans, Caremark is providing an off-the-shelf service.

[00:21:47] Speaker 03:
And there, that does not meet the acting under prong because there is no federal subjugation, direction, or control.

[00:21:57] Speaker 03:
The word under in acting under needs to have meaning.

[00:22:00] Speaker 03:
It's not acting for the federal government.

[00:22:02] Speaker 03:
It is acting under the federal government.

[00:22:05] Speaker 03:
And in the context of rebate negotiation, the federal government is relying on its care mark and not the other way around.

[00:22:17] Speaker 03:
To compare with Goncalves, because it was discussed earlier, Goncalves was challenging a very specific act.

[00:22:26] Speaker 03:
It was the filing of a lien on a state court potential judgment.

[00:22:31] Speaker 03:
So it wasn't manufacturing agent orange, which is a complicated thing.

[00:22:35] Speaker 03:
It was a filing of a lien.

[00:22:37] Speaker 03:
And there was specific federal direction from OPM to FIBA plans, saying you must take reasonable steps

[00:22:47] Speaker 03:
to subrogate.

[00:22:49] Speaker 03:
So the plaintiff was saying, the plaintiff was seeking to expunge the lien, was challenging, saying what the FIBA plan did was illegal, and the FIBA plan was required to do that by OPM.

[00:23:05] Speaker 03:
That is simply not the case here.

[00:23:07] Speaker 03:
There is no direction or control.

[00:23:10] Speaker 03:
from the federal government to care mark on how it negotiates, fever rebates, and definitely not with respect to non-fever rebates.

[00:23:18] Speaker 05:
How does your acting under argument apply to Express Scripts?

[00:23:25] Speaker 03:
So with Express Scripts, we're not making an off-the-shelf argument with respect to Express Scripts.

[00:23:31] Speaker 03:
But with respect to Express Scripts, our argument is that there is no direction from the Department of Defense

[00:23:39] Speaker 03:
regarding how Express Scripts negotiates its non-tricare rebates.

[00:23:45] Speaker 03:
I will point to, on the Express Scripts record in its notice of removal, so it's 2ER124 to 128, Caremark's entire discussion of the acting under prong is discussing the Department of Defense's control over tricare rebates

[00:24:04] Speaker 03:
It does not discuss non-tricare conduct.

[00:24:07] Speaker 03:
That should be dispositive as to the removal issue as to Express Scripts.

[00:24:11] Speaker 03:
Express Scripts has not met Watson, the Supreme Court decision, because Express Scripts has not tied federal direction to the conduct that is at issue in the complaint.

[00:24:24] Speaker 03:
There's also Fidelity Tad, where

[00:24:27] Speaker 03:
is another case that we've cited that references a defendant cannot use federal direction over federal conduct to meet the acting under prong as to non-federal conduct.

[00:24:45] Speaker 04:
Can I ask you a question about your choice of language in the disclaimer?

[00:24:52] Speaker 04:
Yes.

[00:24:52] Speaker 04:
There was a lot of debate and discussions about that.

[00:24:55] Speaker 04:
It says the complaint doesn't challenge the creation of custom formularies for federal officers.

[00:25:01] Speaker 04:
such as the FIBA or Tricare Governing Health Benefits Plan.

[00:25:06] Speaker 04:
And then furthermore, it does not seek to recover monies paid.

[00:25:10] Speaker 04:
So is that to be construed as a disclaimer on recovery as well as with the first sentence, an affirmative disclaimer of claims?

[00:25:20] Speaker 03:
So I would direct your honor to the final sentence of the disclaimer, which is the complaint does not seek relief from any PBM defendants that is governed by or available pursuant to any claims involving a federal officer associated with any federal employee health benefit act or Tricare governed health plan.

[00:25:40] Speaker 03:
So we're disclaiming relief related to FIBA and Tricare health plans.

[00:25:46] Speaker 03:
We clarify the meaning of this disclaimer through our briefing with the district court, both in our opening brief and our reply and in the oral argument.

[00:25:54] Speaker 03:
We are not seeking relief from the PDMs, from the manufacturers related to FIBA plans and Tricare plans.

[00:26:03] Speaker 03:
turn into the causal connection prong.

[00:26:07] Speaker 03:
And I'm going to address Caremark's argument that, in its briefing, that it can meet the causal connection prong even if the disclaimer is valid.

[00:26:19] Speaker 03:
This is incorrect for three reasons.

[00:26:23] Speaker 03:
First, the language of the causal connection test that this court uses in Goncalves and in De Fiori, it comes from

[00:26:33] Speaker 03:
a long line of Supreme Court precedent starting in 1926 with Maryland versus Soper.

[00:26:38] Speaker 03:
And it reflects a situation where the defendant's only connection to the injury was through their federal work.

[00:26:47] Speaker 03:
So in the Supreme Court case of Willingham versus Morgan, which is one of Caremark's cases, the defendants worked at a federal prison.

[00:26:56] Speaker 03:
The plaintiff was a federal prisoner.

[00:26:57] Speaker 03:
And the Supreme Court stated that the

[00:27:01] Speaker 03:
Reason they could, to remove, all they had to do was, or to, sorry, to meet the causal connection test, all they had to do was show that their only connection with the plaintiff was through their federal duties.

[00:27:14] Speaker 03:
In De Fiori, similar situation, the defendant's only connection with the plaintiff, the defendant's only reason for being in a rock was federal duties.

[00:27:23] Speaker 03:
That's simply not the case here.

[00:27:25] Speaker 03:
CareMart cannot say that its only connection to insulin rebates is for fibroplants.

[00:27:31] Speaker 03:
My second reason why Caramark's argument here is incorrect is Caramark cannot say that negotiating FIBA rebates is part of its OPM duties.

[00:27:44] Speaker 03:
And third, Caramark's proposed construction of the causal connection prong would read out the acting under prong.

[00:27:54] Speaker 03:
This court in San Mateo versus Chevron quoted a House report on the 2011 amendments to FIBA.

[00:28:01] Speaker 03:
And the quote is, removal is only allowed when the acts of the federal defendants are essentially ordered or demanded by federal authority.

[00:28:10] Speaker 03:
And that is not present here.

[00:28:15] Speaker 03:
in performance of its official duties for OPM are simply not the basis for the people's lawsuit.

[00:28:21] Speaker 05:
So if Caremark says we only do one negotiation, so let's just simplify the situation.

[00:28:28] Speaker 05:
I'm sure it's much more complicated than that.

[00:28:30] Speaker 05:
Caremark says we do one negotiation on behalf of all of our clients.

[00:28:35] Speaker 05:
And so if California brings a claim as to how we conduct the negotiation, then it relates to as associated with one of our clients, the federal government.

[00:28:50] Speaker 05:
So why doesn't that argument work?

[00:28:51] Speaker 05:
They say there's no way to disaggregate because we're only doing a single, indivisible negotiation.

[00:28:59] Speaker 03:
So it doesn't matter how much connection exists if there is no acting under.

[00:29:04] Speaker 03:
Well, I'm looking at the causal connection.

[00:29:07] Speaker 03:
I'm starting there.

[00:29:08] Speaker 03:
If they fail the acting under, it doesn't matter how much connection they meet.

[00:29:12] Speaker 03:
But as to that, Caremark doesn't say, and there is relationship between the two prongs.

[00:29:19] Speaker 03:
CareMart doesn't say that OPM orders it to do anything with respect to the non-fever rebates.

[00:29:25] Speaker 05:
But that's not the test under the causal connection, right?

[00:29:29] Speaker 05:
It's whether the claims of California are related to their relationship to the federal officer.

[00:29:37] Speaker 03:
I'm trying to get there, Your Honor.

[00:29:39] Speaker 03:
That is my question.

[00:29:42] Speaker 03:
I understand you're acting under argument.

[00:29:45] Speaker 03:
It's the wind up for my argument.

[00:29:50] Speaker 03:
Even if the argument, if the negotiations are all at once, they're still for non-FEBA plans, right?

[00:29:57] Speaker 03:
The non-FEBA plans are still getting rebates.

[00:30:00] Speaker 03:
The non-FEBA plans are still subject to it.

[00:30:02] Speaker 03:
But they're for both.

[00:30:03] Speaker 03:
That's their argument.

[00:30:04] Speaker 03:
It's for both.

[00:30:04] Speaker 05:
And so the claims and claiming the specific acts you're doing in your negotiation

[00:30:12] Speaker 05:
are unfair competition, or at least in part, due to their negotiations for one class of their clients, the federal government, because according to Caremark, you can't differentiate it.

[00:30:27] Speaker 05:
They act on behalf of all of them.

[00:30:30] Speaker 03:
But it doesn't mean that that negotiation only relates to FIBA.

[00:30:35] Speaker 05:
It doesn't have to only relate to FIBA, right?

[00:30:37] Speaker 03:
As long as it relates to FIBA, that's enough.

[00:30:40] Speaker 03:
The basis of the lawsuit has to be the conduct due to the federal duty.

[00:30:51] Speaker 03:
So there's not a connection between the basis of the lawsuit, which is the people's

[00:30:58] Speaker 03:
or is the non-FEBA plan conduct, and it's federal duties.

[00:31:03] Speaker 03:
So the basis is limited to the non-federal conduct.

[00:31:11] Speaker 03:
Okay.

[00:31:12] Speaker 03:
Turning to the disclaimer, we recognize in our briefing that this court has not published a decision on a disclaimer in the federal officer removal context.

[00:31:23] Speaker 03:
The Third, Fourth, and Fifth Circuit have.

[00:31:25] Speaker 03:
We cited those in our brief.

[00:31:27] Speaker 03:
Respecting disclaimers is consistent with

[00:31:31] Speaker 03:
federal authority that recognizes that a plaintiff does not need to assert all the claims that it might have.

[00:31:39] Speaker 03:
Respecting a disclaimer is also consistent with De Fiore, Goncalves, and Fidel Atad because when a plaintiff disclaims a defendant's federal conduct and focuses its lawsuit at non-federal conduct, it means the defendant's federal conduct is not the basis of the lawsuit.

[00:31:59] Speaker 03:
turning to Caremark and Express Scripts arguments that causation should be decided by a federal court and not a state court.

[00:32:09] Speaker 03:
That argument should be rejected because causation is not answering

[00:32:15] Speaker 03:
the acting under prong or the causal connection prong.

[00:32:20] Speaker 03:
If a defendant could remove only to litigate the issue of causation, which is an element of the plaintiff's affirmative case, it would mean that, again, they're removing without acting under and removing without causal connection.

[00:32:38] Speaker 03:
Only causation in federal court would not further the purposes of the federal officer removal statute.

[00:32:46] Speaker 03:
If the litigation is focused on non-federal conduct, there is no prejudice to a federal program.

[00:32:52] Speaker 03:
If the focus of the lawsuit is non-federal conduct, there's not an impeding of federal law enforcement.

[00:32:58] Speaker 03:
And again, if it's non-federal conduct that is at issue in the lawsuit, a person who is acting under a federal officer is not being deprived

[00:33:08] Speaker 03:
of a federal forum.

[00:33:11] Speaker 05:
We couldn't miss the headlines that the FDCE is suing the same defendants or some of them on the similar theory.

[00:33:20] Speaker 05:
Is that going to have any effect on the state's lawsuit?

[00:33:24] Speaker 03:
So Your Honor, I think to respect to my opposing counsel, I don't think we've briefed this issue.

[00:33:33] Speaker 03:
And I've seen the news reports, but that's all I've seen.

[00:33:37] Speaker 03:
So I do not believe so.

[00:33:40] Speaker 03:
Our litigation will proceed in state court.

[00:33:43] Speaker 03:
As I think we've put in our brief, state court federal court coordination is possible.

[00:33:51] Speaker 03:
The manual of complex litigation recognizes that.

[00:33:54] Speaker 03:
So if there is overlap in discovery, there are ways that state courts and federal courts can go through informal coordination.

[00:34:00] Speaker 03:
And I don't think our opposing counsel, we've represented to our opposing counsel in the court that we're open to informal coordination with the MDL that is currently proceeding in New Jersey.

[00:34:12] Speaker 03:
Thank you.

[00:34:14] Speaker 03:
Turning to express scripts, turning to express scripts.

[00:34:20] Speaker 03:
Because the Express Scripts does not claim that its duties for the Department of Defense include non-tricare plan conduct, it cannot meet the causal connection test.

[00:34:38] Speaker 03:
Express Scripts is not making the same argument as CareMarket.

[00:34:42] Speaker 03:
It's not saying that its conduct is indivisible.

[00:34:45] Speaker 03:
It's focusing on the price of insulin

[00:34:49] Speaker 03:
claiming that there is only one price.

[00:34:51] Speaker 03:
But to remove, again, the defendant has to say that they are acting under federal authority and that there's a causal connection with both of those missing care marks or express scripts argument about the price of insulin does not allow it to meet the removal requirement under the causal nexus prong.

[00:35:14] Speaker 03:
Okay, we haven't talked about how to plead a disclaimer yet.

[00:35:20] Speaker 03:
There's over a decade of district court decisions on how to plead a disclaimer.

[00:35:26] Speaker 03:
The Fourth Circuit decision, Wood v. Crane, talks about it needs to be fact-based.

[00:35:33] Speaker 03:
District court decisions, again, align with that.

[00:35:38] Speaker 03:
Our disclaimer was fact-based, and therefore it is, we believe, properly pled the district court

[00:35:44] Speaker 03:
reached the correct decision on that.

[00:35:46] Speaker 03:
And Caremark and Express Scripts haven't said that they work for a federal authority besides TRICARE or the Office of Personal Management.

[00:35:55] Speaker 03:
So there's nothing left of their federal conduct outside of our disclaimer.

[00:36:02] Speaker 03:
And unless the court has further questions.

[00:36:07] Speaker 03:
Apparently not.

[00:36:08] Speaker 03:
We respectfully request that the court affirm the district court's order remanding the case to the Los Angeles Superior Court.

[00:36:14] Speaker 03:
Thank you.

[00:36:16] Speaker 05:
You have a few minutes for rebuttal.

[00:36:23] Speaker 02:
Thank you, Your Honor.

[00:36:24] Speaker 02:
I'd like to make three quick points and then leave Mr. Scherr a little bit of time.

[00:36:27] Speaker 02:
First, going back to Judge Wynn's question, just to give a full answer, this isn't really a case about immunizing all acts by a company.

[00:36:35] Speaker 02:
It's really a case about keeping acts that are all part of the same nexus or, to use DeFiori's language, are connected or associated with each other.

[00:36:42] Speaker 02:
in federal court and the distinction I think is well illustrated by San Mateo or by the climate change cases.

[00:36:49] Speaker 02:
where a plaintiff says there's fraud, a defendant says, well, we sold gas to the government, and the courts say no.

[00:36:56] Speaker 02:
That's not this case.

[00:36:57] Speaker 02:
Here we are a key cog in the federal, in FIBA.

[00:37:00] Speaker 02:
We negotiate rebates, which by the way, the state does for itself.

[00:37:03] Speaker 02:
The state does too.

[00:37:04] Speaker 02:
So rebate negotiation is a fundamental part of providing health insurance.

[00:37:09] Speaker 02:
FIBA's entire purpose is to make sure that federal and private plans are on the same footing.

[00:37:13] Speaker 02:
For that to happen,

[00:37:15] Speaker 02:
it's an essential service for rebates to be negotiated.

[00:37:18] Speaker 02:
So this case falls in that line.

[00:37:21] Speaker 02:
Second, my friend on the other side argued that we don't act under a federal officer because we are not specifically directed to negotiate rebates in any particular way.

[00:37:30] Speaker 02:
First of all, as Your Honor pointed out, the acting under prong wasn't challenged below.

[00:37:34] Speaker 02:
That candidly wasn't a surprise given that every court to have considered whether a FIBA plan acts under a federal officer or whether a PBM,

[00:37:45] Speaker 02:
whose subcontracts with the FIBA plan acts under a federal officer had held, but at that point until the decision below, that the acting under prong was met.

[00:37:55] Speaker 02:
That includes this court in Gonzales, the Fifth Circuit in the St.

[00:38:00] Speaker 02:
Charles cases, the Eighth Circuit in Jax, the Eleventh Circuit in the Anesthesiology Associates cases, and of course the Fourth Circuit in the County of Arlington case in the specific context of PBMs.

[00:38:11] Speaker 02:
All those courts held that FIBA plans act under OPM.

[00:38:19] Speaker 02:
as Gonzalez puts it at 1247, based on FIBA as a whole, based on this complex scheme.

[00:38:24] Speaker 02:
The courts, including this court in Gonzalez, also have consistently held that the government does not need to direct a specific act.

[00:38:32] Speaker 02:
Discretion does not prevent federal officer removal.

[00:38:35] Speaker 02:
There has to be some direction to do the thing overall, which there is in that it is contemplated that rebates will be negotiated.

[00:38:42] Speaker 02:
But in terms of directing the actual thing, you must include federal and non-federal conduct.

[00:38:48] Speaker 02:
In addition to Gonsalves, which says that's not a requirement, more in the First Circuit.

[00:38:53] Speaker 02:
Isaacson in the Second Circuit, motion to appoint counsel in the Third Circuit, Sawyer in the Fourth Circuit, St.

[00:38:59] Speaker 02:
Charles in the Fifth Circuit, I can go on.

[00:39:01] Speaker 02:
The courts routinely say that is not required.

[00:39:03] Speaker 02:
And of course, Acker in the Supreme Court makes the same point in Justice Ginsburg's response to Justice Scalia's dissent.

[00:39:10] Speaker 02:
Finally, as to the FTC action, last thing I would point out, at a bare minimum, we obviously there hasn't been briefing on this, at a bare minimum, the

[00:39:21] Speaker 02:
The district court credited the state's post removal disclaimers, which means that it should have conducted a balancing as to whether to keep the case in federal court.

[00:39:30] Speaker 02:
It never did that balancing.

[00:39:31] Speaker 02:
Under that balancing, things like the FTC action, the existence of an MDL making the same claims on behalf of state attorney generals would be relevant.

[00:39:39] Speaker 02:
So for all those reasons, we'd ask that you reverse and remand, or at a minimum, remand for further proceedings with instructions to recall the case from state court.

[00:39:48] Speaker 05:
We'll give you a minute for your rebuttal.

[00:39:54] Speaker 00:
Thank you, Your Honor.

[00:39:56] Speaker 00:
The district court never considered the existence of a non-causal nexus.

[00:40:03] Speaker 00:
It's a standard that she just simply did not address.

[00:40:06] Speaker 00:
And likewise, the state in its briefing does not address relating to as distinct from its assertion that a because of standard should apply.

[00:40:17] Speaker 00:
But indeed, this court has addressed in an analogous context what it means

[00:40:23] Speaker 00:
for one statute or for one topic to relate to another.

[00:40:28] Speaker 00:
And in particular, I'll direct the court to the Mateo III or the San Mateo v. Chevron case in which, after dispensing in an acting under analysis,

[00:40:39] Speaker 00:
with the energy company's efforts to remove what the court determined to be arm's length, on the basis of arm's length contracts, the court then entertained the energy defendant's alternative removal argument under 28 USC 1452A.

[00:40:55] Speaker 00:
This was an argument that the claims were related to federal bankruptcy cases under Title 11.

[00:41:03] Speaker 00:
And the Mateo III court said that in that context, a proceeding is related to a bankruptcy case when, quote, the outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy.

[00:41:21] Speaker 00:
And respectfully, I would submit that a similar concept applies here.

[00:41:25] Speaker 00:
that one should look at the test.

[00:41:28] Speaker 00:
Is it related or is it not?

[00:41:30] Speaker 00:
Is there an impact?

[00:41:32] Speaker 00:
Is there an effect on ongoing obligations such as the 15-year term by which Express Scripts has to discharge its obligations for the federal government?

[00:41:42] Speaker 05:
You're over time, so please.

[00:41:44] Speaker 00:
Thank you, Your Honor.

[00:41:45] Speaker 05:
Thank you.

[00:41:46] Speaker 05:
The case of California versus Caremark and Eli Lilly and Company is submitted.

[00:41:54] Speaker 05:
And for this session, we stand adjourned.

[00:41:58] Speaker 00:
Call rise.

[00:42:10] Speaker 05:
This court for this session stands adjourned.