The court in In re Flonase Antitrust Litigation, No. 08-3301, 2015 WL 9273274 (E.D. Pa. Dec. 21, 2015) recently held that it could not enjoin the state of Louisiana from pursuing claims that, on their face, fell within the terms of an approved class settlement agreement and release. Even though Louisiana did not object or opt out of the settlement class after receiving both the settlement agreement and settlement notice, the court held that Louisiana was not adequately notified that it could be bound as a class member because the state was not on direct notice; instead, the state received the settlement documents as part of a Class Action Fairness Act (CAFA) Notice. The decision is a stark reminder of the importance of giving adequate settlement notice to class members, including state or federal governments with sovereign immunity.

The underlying class litigation arose from allegations that a pharmaceutical company illegally delayed the introduction of a cheaper, generic version of the allergy drug Flonase, resulting in overcharges to the drug’s indirect purchasers. The claims appeared to be resolved after the court conditionally certified a class, which included state governments that purchased Flonase, for settlement purposes and preliminarily approved a settlement agreement for the pharmaceutical company to pay $35 million to indirect purchasers in exchange for a full release. The court ordered the pharmaceutical company to mail postcard settlement notices to the class members; the settlement notices included the settlement terms and advised members of their right to object or opt out of the settlement agreement. Pursuant to CAFA, the pharmaceutical company also served CAFA Notices to certain state officials; the CAFA Notices included the settlement agreement and the settlement notice sent to other class members. Although the state of Louisiana properly received the CAFA Notice and its attachments, it did not receive the postcard settlement notice and attachments that were separately mailed to the class members. Louisiana did not opt out or object to the settlement agreement, and the court ultimately issued final approval of the settlement class and settlement agreement.

More than a year after the settlement agreement received final approval, Louisiana’s attorney general filed suit in his home state against the pharmaceutical company seeking to recover for purchases of the drug by Louisiana. After the Louisiana litigation was stayed, the pharmaceutical company moved to enforce the settlement agreement in the Eastern District of Pennsylvania; Louisiana moved to dismiss, arguing that the federal court lacked jurisdiction because Louisiana had not waived its sovereign immunity. The court acknowledged that whether states may be bound as so-called “absent class members” (i.e., class members who failed to opt out) under Rule 23(b)(3) is an open question, but it did not resolve the question and instead reached its holding on a separate issue.

The court agreed that, on the face of Louisiana’s complaint, it was a member of the settlement class and its claims fell within the settlement agreement. But the court rejected the pharmaceutical company’s primary argument that Louisiana’s failure to opt out after receiving the CAFA Notice constituted consent to the court’s jurisdiction. The court reasoned that the purpose of CAFA is to allow states the opportunity to determine whether any action should be taken to protect their citizens’ interests, rather than the states’ own. While “it [was] certainly possible that the state could have learned that it was included as a class member by reviewing the settlement agreement attached to the CAFA Notice,” the court nonetheless found that Louisiana may have considered these documents with a view to protecting the interests of its citizens and not its own. “In short, it is not clear that upon receipt of the CAFA Notice, Louisiana would have been aware that the state itself was a class member and that, if it did not opt out, it would be bound by the settlement agreement.” The court opined that “[t]his lack of clarity [was] fatal to [the pharmaceutical company’s] argument.”

The decision is on appeal to the Third Circuit.