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Third Circuit to Revisit Administrative Feasibility Prong of Heightened Ascertainability Requirement


New Jersey Law Journal

December 9, 2021

The Third Circuit will once again address its strict ascertainability requirement for class certification in the case In re Niaspan Antitrust Litigation. In a renewed motion for certification that sought to address the district court’s ascertainability concerns, the End Payor Plaintiffs in Niaspan omitted consumers from their proposed class definition and excluded six categories of potential class members. However, in its second opinion denying class certification, the district court held that plaintiffs failed to prove a feasible methodology for identifying class members that would not require individualized fact-finding.

Though numerous district courts within the Circuit have addressed proving ascertainability in pharmaceutical pricing litigation, Niaspan will be the Third Circuit’s first foray into this area, which may offer more clarity on acceptable expert methodologies for identifying purchasers and payors of pharmaceutical drugs. The challenge for plaintiffs in these cases is creating reliable, feasible, and not prohibitively expensive methods for merging data from numerous sources and systematically applying the class definition and any exclusions.

The Third Circuit’s Ascertainability Requirement

The Third Circuit holds the most stringent standards for ascertainability as a prerequisite to class certification. This requirement, explained in a series of five decisions from the Third Circuit, is subject to the same “rigorous analysis of … evidence” as other Rule 23 requirements. Carrera v. Bayer Corp., 727 F.3d 300, 306 (3d Cir. 2013). In order to satisfy the ascertainability requirement, plaintiffs must demonstrate, by a preponderance of the evidence, that: “(1) the class is ‘defined with reference to objective criteria’; and (2) there is ‘a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’” Byrd v. Aaron’s Inc., 784 F.3d 154, 163 (3d Cir. 2015) as amended (Apr. 28, 2015).

“Administratively feasible” means “that identifying class members is a manageable process that does not require much, if any, individual inquiry.” Carrera, 727 F.3d at 307-08. That is, “‘[i]f class members are impossible to identify without extensive and individualized fact-finding or “mini-trials,” then a class action is inappropriate.’” Id. at 303-04 (quoting Marcus, 687 F.3d at 593). Notably, however, a plaintiff is not required “to identify all class members at class certification—instead, a plaintiff need only show that ‘class members can be identified.’” City Select Auto Sales v. BMW Bank of N. Am., 867 F.3d 434, 439 (3d Cir. 2017) (quoting Byrd, 784 F.3d at 163). The administrative feasibility requirement is unique to the Third Circuit and has not been formally adopted elsewhere, though other circuits may consider it as a factor in the ascertainability analysis.

The Third Circuit has noted the reasons for such a strict ascertainability requirement: First, ascertainability and a clear class definition allow potential class members to identify themselves for purposes of opting out of a class. Second, it ensures that a defendant’s rights are protected by the class action mechanism, and that those persons who will be bound by the final judgment are clearly identifiable. Finally, it ensures that the parties can identify class members in a manner consistent with the efficiencies of a class action.


In re Niaspan Antitrust Litigation

In Niaspan, a multidistrict litigation, the plaintiffs sought to certify a class of End-Payor Plaintiffs (EPPs) of the cholesterol drug Niaspan. In re Niaspan Antitrust Litig., 464 F.Supp.3d 678 (E.D. Pa. 2020) (“Niaspan I”). The EPPs contended that the defendant drug manufacturers of the brandname drug, Niaspan, and its generic equivalent entered into an unlawful “‘reverse payment’ settlement” in order to terminate a patent infringement litigation, thereby delaying generic entry and resulting in higher prices for Niaspan. Id. at 689. The EPPs alleged that the defendants’ conduct violated antitrust laws, consumer protection laws, unfair trade practices laws, and unjust enrichment laws in numerous states.

In June 2020, the district court denied the plaintiffs’ first motion for class certification, in part on the grounds that the plaintiffs had not satisfied the ascertainability requirement. Id. The court also expressed concern about the “economic feasibility of obtaining [the necessary] information and the ability of EPPs to identify class members in a reliable and administratively feasible manner.” Id. at 704.

In September 2020, the plaintiffs filed a renewed motion for class certification. In re Niaspan Antitrust Litig., No. 13-MD-2460, __ F.Supp.3d __, slip. op. at *4 (E.D. Pa. Aug. 17, 2021) (“Niaspan II”). The putative class of third-party payors (TPPs) excluded several groups of persons and entities, including government entities other than those with self-funded prescription drug plans, entities that purchased Niaspan for resale purposes, fully insured health plans, and pharmacy benefit managers, among others. The district court summarily found that the EPPs defined the proposed class with objective criteria, thereby satisfying the first prong of the ascertainability analysis.

The district court denied class certification, however, because the EPPs failed to satisfy the second prong of the analysis, i.e., that there is a “reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition,” as well as the exclusions. Id. at *3, 18. This concerned whether the EPPs could distinguish between class members and those excluded from the class―for example, government plans or mere intermediaries in drug transactions (e.g., fully insured plans, third-party administrators [TPAs], etc.). Id. at *9.

With respect to government plans, the court first held that the plaintiffs presented an administratively feasible methodology, through testimony from an expert, to identify federal and state government plans that are excluded from the class since pharmacy benefit managers (PBMs) “can exclude state and government payors prior to producing data.” Id. at *13. With respect to mere intermediaries like fully insured plans and TPAs, the court observed that distinguishing between class members and excluded intermediaries was “not de minimis,” and the court was not persuaded that distinguishing between class members and mere intermediaries, which were excluded from the class, would not “‘require[] consideration of the individual contractual relationships underlying each transaction.’” Id. at *13, 14.

In particular, the court found that the evidence showed that the data and standards relied on by the EPPs’ expert is not designed to identify the plans with the consistent level of detail needed. Id. at *15. The plaintiffs’ expert proffered four examples from PBM data that she claimed identified fully insured plans (exclusions) in a data field, but the defendants presented contradicting publicly available data. Id. at *15-16. “EPPs may not adopt a methodology that changes as defendants test its reliability and, in the end, fails to accomplish what is required.” Id. at *19. The court held that the expert did not “provide a systematic method for identifying mere intermediaries, which are not class members,” and her “ad hoc approach for identifying and excluding non-class members falls far short of a reliable and administratively feasible mechanism.” Id. at 16, n.8.

Notably, the EPPs relied on favorable decisions from district courts in the First, Second, and Fourth Circuits, each of which held that certain plans could be excluded from the proposed class. Id. at *17. However, the court rejected the EPPs’ reliance on the out-of-circuit cases as “not persuasive” because they did not follow the Third Circuit’s ascertainability standard, which has “the unique requirement that a class be ‘administratively feasible.’” Id.

In light of these facts, the court in Niaspan II again concluded that the EPPs “failed to provide a methodology to systematically apply the class exclusion for fully insured health plans.” Id. at *19. Because the EPPs could not satisfy the ascertainability requirement, class certification was denied. Id. at *20. The EPPs appealed to the Third Circuit, and briefing is currently underway.

Potential Effect on Class Actions in New Jersey

The Niaspan appeal represents the first ascertainability case in the Third Circuit that focuses on the pharmaceutical industry and the ability to identify, through expert testimony, who paid for prescription drugs. As Niaspan demonstrates, this is a difficult, fact-intensive inquiry that requires expert opinions.

Depending on the claims and the proposed class (e.g., a consumer class or class of payors), several issues may arise. In order to show administrative feasibility, plaintiffs present testimony from an industry expert who will opine that the multiple sources of data available will allow for identification of one or more classes of purchasers. Various data sources need to be considered, including pharmacy and retail records, PBM transaction data, consumer receipts or other proof of payment during the proposed class period, health insurance plans, and health insurer’s data. But, given the scope of an often putative multistate class, hundreds if not thousands of non-party retail pharmacies would be the source of purchases by putative class members, further complicating the ability to identify them in an “administratively feasible” manner. Ultimately, the methodology chosen to satisfy the ascertainability requirement will need to demonstrate that the objective evidence (e.g., pharmacy records, insurance policies, receipts) can be synthesized in a way that would allow identification of class members. This raises concerns about the cost of such a methodology, as recognized in Niaspan I.

In addition, the key issues precluding certification in Niaspan I were centered on the presence of individual consumers in the EPP class. The EPPs then removed consumers from the proposed class. Inclusion of individual consumers creates a level of complexity that is magnified, in part because their identity is protected by law and most payors do not have specific identifying information about such individuals.

The Third Circuit might focus on whether the EPPs created a need for a structured, multi-step, individualized fact-finding process in order to determine which individuals fall within the class definition and which fall in an exclusion. As the EPPs argued, however, such strict requirement applied by the district court would make it near impossible to ever certify an antitrust or pharmaceutical pricing class action. So it is possible that the circuit court may loosen the second prong and allow an avenue for the plaintiffs to proceed though their experts did not demonstrate a perfect method of administrative feasibility.

Certainly, narrowing or eliminating the administrative feasibility requirement would bring the Third Circuit more in line with its sister circuits and make certification a more easily obtained trophy for plaintiffs. Given the consistency with which the Third Circuit has applied its administrative feasibility requirements, that result is unlikely. Rather, based on prior decisions, it seems more likely that the Third Circuit would remain consistent in applying an administrative feasibility standard while noting the availability of affidavits in certain circumstances to fill gaps.

Reprinted with permission from the December 13, 2021 issue of the New Jersey Law Journal. © 2021 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. For information, contact 877-257-3382 or reprints@alm.com or visit www.almreprints.com.