Last November we took note of a case where a federal court sought clarification from the Arkansas Supreme Court about the scope of claims for “illegal exaction.” Now we have the answer, and lo, it is good.
For those of you who do not commit our old posts to memory, here is a refresher on Arkansas v. Takeda Pharmaceuticals North America, Inc., 2013 U.S. Dist. LEXIS 160593 (W.D. La. Nov. 7, 2013). The plaintiff (named Bowerman) brought an action against Actos manufacturers/sellers to recover costs borne by Arkansas and its citizens for injuries allegedly caused by Actos. Bowerman never purchased or used Actos, but claimed standing simply by virtue of being an Arkansas taxpayer. The plaintiff sought a refund of money spent by the state to purchase Actos and to treat the injuries. The theory relied upon by the plaintiff is called “illegal exaction,” which arises under the Arkansas Constitution and is defined as “any exaction that is not authorized by law or is contrary to law.” That is broad language, but the theory was typically limited to allegations that public officials misappropriated public funds. Unfortunately, there was enough muddiness in Arkansas law to prompt the federal court to certify questions to the Arkansas Supreme Court as to whether the “illegal exaction” theory was so vast or elastic as to permit Bowerman’s case to proceed.
Last week, in Bowerman v. Takeda, 2014 Ark. LEXIS 500 (Sept. 25, 2014), the Arkansas Supreme Court said no, and we say yay. The Arkansas Supreme Court held that a claim for “illegal exaction” must allege an expenditure of state funds that was “illegal, misapplied, or arbitrary.” The use of state funds to reimburse for physician-prescribed drugs or to treat injuries is not illegal, misapplied, or arbitrary. The plaintiff did not allege that the state did anything wrong in paying such reimbursements. Rather, the plaintiff directed his ire at the manufactuers/sellers, asserting that they induced doctors to write Actos prescriptions that should never should have been written. As the Dude said in The Big Lebowski, "that's just, like, your opinion, man." It is the Court's opinion that matters, and it reasoned that because “the pharmaceuticals were prescribed by a physician, reimbursement for them cannot be said to be arbitrary.” Moreover, this is not a case where the state paid for something it did not get. Here, “the state paid reimbursement for exactly the drug that was prescribed.”
In short, the plaintiff had overreached, the federal court declined to overreach with a bad Erie guess, and the Arkansas Supreme Court restored clarity and order to the “illegal exaction” theory.