Will a Class Action Fairness Act (CAFA) notice of settlement bind a state as an absent class member? A Pennsylvania federal district court recently offered guidance on this issue.

The case involved allegations that the defendant pharmaceutical company illegally delayed the introduction of a cheaper, generic version of its nasal inflammation drug Flonase by filing a sham citizen petition with the Food and Drug Administration. In June 2013, the court approved a classwide settlement requiring the pharmaceutical company to pay $35 million to indirect purchasers of the drug in exchange for releases of all of their claims. The settlement class excluded “… State governments and their agencies and departments, except to the extent that they purchased … Flonase or its generic equivalent … for their employees or others covered by a government employee health plan.”

In December 2014, Louisiana filed suit in state court “in its proprietary and/or sovereign capacity” to recover for its purchases of the drug.  The pharmaceutical company moved to enforce the settlement agreement in the district court that had approved the settlement and to enjoin Louisiana’s lawsuit. Louisiana argued in response that the district court lacked jurisdiction because it had not waived its Eleventh Amendment sovereign immunity.

The court concluded that Louisiana’s complaint “encompasses the types of claims covered by the Settlement Agreement – namely, the State’s purchase of [Flonase or its generic equivalent] for its employees and other beneficiaries of government employee health plans.”  It then analyzed the argument that sovereign immunity under the Eleventh Amendment shielded Louisiana from being bound by the settlement.

The court focused on the narrow issue of whether Louisiana’s receipt of the CAFA notice – coupled with its failure to respond to the notice – was sufficient to find consent and waiver of sovreign immunity. It concluded that the “stringent” test for waiver was not met, reasoning that “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 found this lack of clarity fatal to the pharmaceutical company’s argument that by not opting out in response to the CAFA notice Louisiana had unequivocally and voluntarily chosen to have its claims resolved by the settlement agreement.

In re Flonase Antitrust Litig., No. 08-3301 (E.D. Pa. Dec. 21, 2015).