January 2013 Newsletter

INSIDE THIS ISSUE

•  Scott+Scott Settles Case Against One Of Nation’s Largest Insurers

•  Scott+Scott Achieves Major Victory On Novel Liability Theory Against Trustees Of Mortgage-Backed Securities

•  U.S. Supreme Court Grants Certiorari In Pharmaceutical Reverse Payment Cases

•  4Q2012 Antitrust Developments

•  U.S. Conferences And Education Seminars

•  On The Record

Scott+Scott Settles Case Against One Of Nation’s Largest Insurers

Scott+Scott, along with co-counsel, has agreed, on behalf of the proposed class, with counsel for Defendant Aetna, Inc., to settle a case filed in 2008 in the U.S. District Court for the District of Connecticut against Aetna Health Inc., UnitedHealth Group, Inc., and Ingenix, Inc. (a subsidiary of UnitedHealth).  Pursuant to the settlement, Aetna will pay up to $120 million to reimburse Aetna individuals for losses incurred in relation to reimbursement for out-of-network medical services.

Scott+Scott first filed its complaint in early 2008, joining other complaints alleging similar conduct.  Those cases were consolidated into one action before the Honorable Stanley R. Chesler in the District of New Jersey under the heading In re Aetna UCR Litigation, MDL No. 2020, No. 07-3541.  The consolidated case was brought by the named plaintiffs (subscribers and providers to Aetna health insurance plans nationwide) on behalf of a class of persons who were affected by how Aetna calculated reimbursements for “out-of-network rates.”

As background, health insurance plans provide that individuals can go to providers “in” or “out” of a given network; in other words, they may go to providers that do or do not have contracts with Aetna.  If a patient chooses to go out of network, Aetna states that it will reimburse the subscriber for a percentage of the amount of the doctor’s bills or a percentage of the “usual, reasonable, and customary” (“UCR”) rate for the given service in that geographic area.  However, as alleged in the complaint, rather than provide a statistical, verifiable, and transparent method for calculating UCR rates, Aetna, instead, subscribed to a database that generated UCRs.  The case asserts that the database itself was rigged in that it was made up of data submitted by insurers to the database owner, Ingenix, a wholly-owned subsidiary of UnitedHealth.  The database generated UCR rates that were significantly lower than the true prices charged for the actual services.  By example, an individual may have an insurance contract with Aetna that states Aetna would pay 80% of the UCR and that the individual has a $25 co-pay.  If that individual went to the doctor and received a $125 bill for services, she would have already paid a $25 co-pay and, thus, be liable for either 20% of $100, or 20% of the UCR.  According to Ingenix, however, Aetna may state that the UCR for the same service was only $60.  Therefore, the patient would have to pay 20% of $60, or $12, in addition to the $25 co-pay for a total of almost $40, or almost one-third of the total bill.  By using the Ingenix Database and manipulating the UCR rates, as alleged in the complaint, Aetna was able to keep reimbursements artificially low and force customers to absorb a high share of costs for medical services.  As to UnitedHealth, it is the parent company of Ingenix and also contributed to and used the Ingenix Database.  In January 2009, UnitedHealth and Aetna agreed to stop using the Ingenix Database and to help fund a new database.  However, Aetna did not agree to reimburse individuals who had been harmed by its use of the Ingenix Database.

Scott+Scott and its co-counsel engaged in hotly contested proceedings.  Millions of pages of documents were produced and reviewed by Scott+Scott and co-counsel, and months of depositions commenced, including the two-day deposition of the CEO of Ingenix, as well as numerous depositions of high-ranking Aetna officers.  Scott+Scott led the discovery process, particularly in regards to UnitedHealth and Ingenix, and successfully disputed thousands of pages of allegedly privileged documents before a court-appointed special master.

The plaintiffs and Aetna came to a resolution in November 2012.  In the settlement, Aetna has agreed to pay $60 million into a general settlement fund, plus as much as $60 million based on the number of claims submitted.  Scott+Scott believes that the settlement is in the best interest of the proposed class, and, as stated by the Connecticut State Medical Society, would serve “as the springboard for renewed effort to improve the transparency and communication with physicians and patients in the health insurance claims process.”  The parties have applied to the court for preliminary approval of the settlement, including notice to the potential class members.  The court has scheduled a hearing on that application for January 23, 2013.

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Scott+Scott Achieves Major Victory On Novel Liability Theory Against Trustees Of Mortgage-Backed Securities

Scott+Scott recently won a significant victory on behalf of investors who have suffered damages from mortgage-backed securities, surviving a motion to dismiss in a case entitled Policemen’s Annuity and Benefit Fund of the City of Chicago v. Bank of America, et al, No. 12-cv-2865, in the U.S. District Court for the Southern District of New York.  Many of the lawsuits involving mortgage-backed securities have been brought against their sponsors and underwriters.  But, while those parties certainly played a considerable role in creating and selling such securities, they could not have harmed investors without the cooperation and misconduct of trustees.

Scott+Scott has taken the lead in bringing claims against mortgage-backed securities trustees for failing to protect investors.  Earlier in the year, a federal court upheld another case it brought against a mortgage-backed securities trustee over that trustee’s motion to dismiss.  In both of these cases, the plaintiffs argued that mortgage-backed securities trustees had to perform critical duties, and that they failed to do so, thereby injuring investors.

For example, trustees had to make sure that the trusts received all of the necessary documents to take title to and, if necessary, foreclose on the mortgage loans underlying the securities.  This is because mortgage-backed securities are debt instruments that pay their holders with the principal and interest from the underlying mortgage loans.  If, for example, a mortgage loan defaults, and the trust cannot foreclose on the property, the revenue owed to mortgage-backed securities investors on that property will simply be lost.

Similarly, mortgage-backed securities trustees had to provide notice of underlying mortgage loans that breached the representations and warranties concerning their quality, and, under the prevailing circumstances, force the sponsors to cure, substitute, or repurchase mortgage loans that were in breach.  Again, because mortgage-backed securities are debt instruments, their quality depends in large part on the quality of their collateral, namely the underlying mortgage loans.  The representations and warranties served as a verification that the mortgage loans were of the necessary minimum quality to repay mortgage-backed securities investors.

It is critical that mortgage-backed securities trustees perform these duties, because the contracts that govern the trusts, typically called “pooling and servicing agreements,” make it difficult for investors to protect themselves.  Further, because the sponsors often originate the underlying mortgage loans and play other important roles in the trusts, the other parties to the trusts have an incentive to hide their misconduct from investors.  Thus, mortgage-backed securities investors are dependent on their trustees to protect their interests.  Significantly, the courts held that mortgage-backed securities trustees have obligations to protect investors from document deficiencies and breaches of representations and warranties under both the governing agreements and a federal statute called the Trust Indenture Act of 1939.

The two trustee cases involve mortgage-backed securities sponsored by Countrywide and by Washington Mutual.  There is ample evidence indicating that the trustees for mortgage-backed securities sponsored by these companies, as well as by other companies, failed to discharge the duties described above, and, thereby, harmed investors.  Scott+Scott continues to investigate such misconduct, and can assist mortgage-backed securities investors in assessing their damages and legal options.

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U.S. Supreme Court Grants Certiorari In Pharmaceutical Reverse Payment Cases

The U.S. Supreme Court recently granted the Federal Trade Commission’s (“FTC”) petition for certiorari in FTC v. Watson Pharmaceuticals, Inc., 677 F.3d 1298 (11th Cir. 2012).  The Court will review the Eleventh Circuit Court of Appeals’ decision to affirm dismissal of the FTC’s antitrust case against Solvay Pharmaceuticals, Inc. and three generic drug manufacturers.  The Court of Appeals’ decision was handed down on April 25, 2012, and the Supreme Court granted the appeal petition on December 7, 2012.

The FTC’s case concerned the prescription pharmaceutical AndroGel, a topical gel that treats low testosterone in men.  In 1995, Solvay bought an exclusive license to supply AndroGel throughout the United States.  Upon FDA approval of the gel, Solvay further acquired patent protection for the gel, granting the company market exclusivity on its sale in the United States.  The exclusivity is due to expire in August 2020.

Prior to that date, competing drug manufacturers began developing generic versions of Androgel; a process under which they are allowed to file an Abbreviated New Drug Application (“ANDA”) based on the scientific research and development undertaken by the original patent holder.  In order to market generic drugs prior to a branded drug’s patent expiry, however, generic manufacturers must certify that the branded drug’s patent is invalid or not infringed by the generic versions.  Typically, the branded drug manufacturer will file patent infringement litigation upon receiving notification of the generic ANDAs and this certification.

In Watson, despite having spent years building a case that the AndroGel patent was invalid, the generic drug manufacturers entered into a settlement agreement with Solvay on the eve of the district court’s summary judgment decision in the patent infringement suit.  As part of the settlement, the generic manufacturers accepted money in exchange for their agreement to postpone market entry of a generic AndroGel product until August 31, 2015, unless another generic manufacturer launched one before them.  Such agreements—in which a branded manufacturer pays generics to stay out of the market—are termed “reverse payment” agreements.  This reverse payment simultaneously allowed the generic manufacturers to make more money than they would have if they had launched a competing generic AndroGel product, and allowed Solvay to continue to reap monopoly profits off AndroGel without the fear that generic versions would cut into its sales.  The FTC alleged that the agreement violated the antitrust laws, because it was likely that the generic manufacturers would have prevailed in the patent infringement litigation and could have entered the market well before the agreed-upon entry date.

The district court agreed with the FTC, denying the defendants’ motion to dismiss on the basis that the reverse payment constituted a per se violation of the antitrust laws.  On appeal, the Eleventh Circuit overturned this decision.  The court of appeals determined that the FTC’s allegation regarding the likelihood of Solvay’s failure in the patent infringement litigation was insufficient.  The Eleventh Circuit declared that determining whether a “reverse payment” agreement violates antitrust law, requires an “evaluation of whether the settlement agreements contain provisions that restrict competition beyond the scope of the exclusionary potential of the patent.”  The court held that the FTC needed to have alleged that the agreement between the drug manufacturers was beyond the scope of the original patent—that is, beyond their right to exclude competitors on the basis of their lawful patent.

The FTC appealed the decision, and was granted certiorari before the U.S. Supreme Court.  The decision will resolve a conflict between the Eleventh Circuit’s decision and the Third Circuit’s holding in In re K-Dur Antitrust Litigation, 686 F.3d 197 (3d Cir. 2012), in which the Third Circuit held that reverse payment agreements are presumptively anticompetitive under the federal antitrust laws.

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4Q2012 Antitrust Developments

Supreme Court Grants Review of American Express Arbitration Ruling

The U.S. Supreme Court granted certiorari in American Express Co. v. Italian Colors Restaurant, No. 12-133, to address the following question: “Whether the Federal Arbitration Act [(“FAA”)] permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.”  The American Express action arose when a restaurant filed a federal antitrust class action complaint against American Express in the U.S. District Court for the Southern District of New York.  Plaintiffs in the action are merchants alleging a Sherman Act tying claim against American Express for its alleged practice of requiring merchants to accept American Express credit cards and debit cards as a condition of accepting American Express charge cards at higher rates than competing credit cards and debit cards.  American Express, based on an arbitration clause that included a waiver of class arbitration, subsequently moved to compel arbitration of the restaurant’s claim on an individual basis.  The district court enforced the agreement, but the Second Circuit reversed on appeal, ruling that American Express cannot enforce the arbitration agreements.  The Second Circuit held that enforcement of the class action waivers would preclude the merchants’ ability to bring antitrust claims because individually arbitrating the claims would be cost-prohibitive, effectively depriving the merchants of the protection of the antitrust laws.

Supreme Court to Review Legality of Reverse Payment Settlements in Pharmaceutical Industry

The U.S. Supreme Court granted certiorari in FTC v. Watson Pharmaceuticals, Inc., No. 12-416.  The Court will review the Eleventh Circuit Court of Appeals’ decision to affirm dismissal of the FTC’s anticompetitive reverse payment allegations against Solvay Pharmaceuticals, Inc. and three generic drug manufacturers over market entry of generic forms of AndroGel, a topical gel that treats low testosterone in men.  The Supreme Court’s decision will likely resolve a conflict between the Third and Eleventh Circuits’ opinions in In re K-Dur Antitrust Litigation, 686 F.3d 197 (3d Cir. 2012), in which the Third Circuit held that reverse payment agreements are presumptively anticompetitive under the federal antitrust laws.

DOJ and California Sue eBay Over No-Solicitation Agreement with Intuit

            The U.S. Department of Justice (“DOJ”) and the State of California sued eBay, Inc. claiming that the company had a pact with Intuit not to recruit or hire Intuit’s employees between 2006 and 2009.  eBay is the seventh Silicon Valley company sued by the DOJ over recruitment practices.  The DOJ sued Intuit, Adobe, Apple, Google, Intel, and Pixar in September 2010, alleging similar recruitment pacts between these companies.

Three GE Executives Sentenced to Serve Prison Time for Bid Rigging Municipal Bond Contracts

            Three former executives of General Electric Co. (“GE”) were sentenced by a federal judge for their roles in a bid-rigging conspiracy involving investment contracts for proceeds of municipal bond offerings.  At trial, the DOJ asserted that the executives corrupted the bidding process for dozens of investments, depriving municipalities of competitive interest rates for the bond proceeds, which were used to fund various public works projects, including the building and repair of schools, roads, and hospitals.  Defendant Dominick P. Carollo was sentenced to serve 36 months in prison and to pay a $50,000 criminal fine.  Defendant Steven E. Goldberg was sentenced to serve 48 months in prison and to pay a $90,000 criminal fine.  Defendant Peter S. Grimm was sentenced to serve 36 months in prison and to pay a $50,000 criminal fine.  These convictions are the result of investigations by President Obama’s Financial Fraud Enforcement Task Force (“FFETF”), which was formed to investigate and prosecute financial crimes.  Since FFETF’s founding in November 2009, the DOJ has filed more than 10,000 financial fraud cases.

DOJ Continues to Collect Fines for Price Fixing in Auto Parts Industry

            The DOJ announced another guilty plea in connection with the global cartel investigation in the automotive parts industry.  Hirosi Yoshida, a Japanese national, agreed to plead guilty, serve 366 days in a U.S. prison, pay a $20,000 fine, and cooperate with the DOJ’s ongoing investigation.  Yoshida is the first to be charged in connection with anti-vibration rubber parts.  To date, the ongoing investigation has led nine companies and 12 individuals to plead guilty to criminal antitrust charges.  The DOJ has obtained more than $786 million in fines.

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U.S. Conferences And Education Seminars

 

+January 8-10, 2013

Public Funds Summit by Opal Financial Group

The Phoenician

Scottsdale, AZ

More than 100 U.S. public and foreign government and municipal funds generally attend the 3-day conference.  The conference offers presentations, panels, and networking with industry peers where discussions will focus on the state of the U.S. retirement system, new styles and strategies for investing, challenges facing public pension plans, and choosing the right service provider.  There will be several plan fiduciary sessions designed particularly for pension and Taft-Hartley representatives, trustees, administrators, commissioners, and staff members.

 

+January 12-14, 2013

National Institute of Pension Administrators (NIPA) Annual Business Management Conference

Sanctuary Camelback Mountain

Paradise Valley, AZ

“NIPA’s 2013 Business Management Conference (2013BMC) will provide insight into the evolution and lifecycle of successful TPA business management. Featuring high-impact keynotes and peer-to-peer knowledge exchange, this one-of-a-kind event is an open forum for TPA business owners to examine the latest industry developments and challenges affecting your business and day-to-day work. The 2013BMC will allow you to: Network with fellow TPA business owners from around the country; Learn new ideas, strategies and best practices from industry thought-leaders; Identify ways to effectively drive growth and maximize efficiency within your firm.”

 

+January 27-29, 2013

National Conference on Public Employee Retirement Systems (NCPERS) Legislative Conference

Capital Hilton Hotel

Washington, DC

“This year’s keynote speaker will be Mara Liasson, national political correspondent for National Public Radio (NPR).  With President Barrack Obama re-elected, Mrs. Liasson will give her perspective on the outcome on the national elections and what can be expected on the legislative agenda for 2013.  She will also review her predictions made at the 2012 Public Safety Conference in October and analyze what she got right and what she got wrong and why.”


On The Record

“Fairness is what justice really is.”

U.S. Supreme Court Associate Justice Potter Stewart (Jan. 15, 1915 – Dec. 7, 1985)

Source of Quote Unknown

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Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firmrepresents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.

Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client  relations is a proven method for institutional investors and their trustees to successfully

  • Monitor their investment portfolios  
  • Identify losses arising from corporate fraud    
  • Consider what level of participation any given situation requires   
  • Recover funds obtained on their behalf through investor litigation action  

To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please contact:    David R. Scott + Toll Free: 800.404.7770     email: drscott@scott-scott.com + UK Tel: 0808.234.1396