CVS 2007 Annual Report Download - page 66

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62 I CVS Caremark
Caremark’s subsidiary Caremark Inc. (now known as Caremark,
L.L.C.) has been named in a putative class action lawsuit filed
in July 2004, in Tennessee federal court by an individual named
Robert Moeckel, purportedly on behalf of the John Morrell
Employee Benefits Plan, which is an employee benefit plan
sponsored by a former Caremark client. The lawsuit, which seeks
unspecified damages and injunctive relief, alleges that Caremark
acts as a fiduciary under ERISA and has breached certain alleged
fiduciary duties under ERISA. In November 2007, the court
granted Caremark Inc.’s motion for partial summary judgment
finding that it is not an ERISA fiduciary under the applicable
PBM agreements and that the plaintiff may not sustain claims
for breach of fiduciary duty.
In 2004, Caremark received Civil Investigative Demands or
similar requests for information relating to certain PBM business
practices of its Caremark Inc. (now known as Caremark, L.L.C.)
and AdvancePCS, (now known as CaremarkPCS, L.L.C.) subsidiar-
ies under state consumer protection statutes from 28 states plus
the District of Columbia. On February 14, 2008, Caremark
entered into a settlement concluding this investigation. Caremark
agreed to pay $12 million in settlement on behalf of AdvancePCS,
$10 million in settlement on behalf of Caremark Inc., $16.5 million
in state investigative costs and up to $2.5 million to reimburse
certain medical tests. In addition, Caremark entered into a
consent order requiring it to maintain certain PBM business
practices. Caremark has expressly denied all wrongdoing and
entered into the settlement to avoid the uncertainty and expense
of the investigation.
Caremark was named in a putative class action lawsuit filed
on October 22, 2003 in Alabama state court by John Lauriello,
purportedly on behalf of participants in the 1999 settlement
of various securities class action and derivative lawsuits against
Caremark and others. Other defendants include insurance
companies that provided coverage to Caremark with respect to
the settled lawsuits. The Lauriello lawsuit seeks approximately
$3.2 billion in compensatory damages plus other non-specified
damages based on allegations that the amount of insurance
coverage available for the settled lawsuits was misrepresented
and suppressed. A similar lawsuit was filed on November 5, 2003,
by Frank McArthur, also in Alabama state court, naming as
defendants Caremark, several insurance companies, attorneys
and law firms involved in the 1999 settlement. This lawsuit was
subsequently stayed by the court as a later-filed class action.
In 2005, the trial court in the Lauriello case issued an order
allowing the Lauriello case to proceed on behalf of the settlement
class in the 1999 securities class action. McArthur then sought to
intervene in the Lauriello case and to challenge the adequacy of
Lauriello as class representative and his lawyers as class counsel.
The trial court denied McArthur’s motion to intervene, but the
Alabama Supreme Court subsequently ordered the lower court
to vacate its prior order on class certification and allow McArthur
to intervene. Caremark and other defendants filed motions
to dismiss the complaint in intervention filed by McArthur. In
November 2007, the trial court dismissed the attorneys and
law firms named as defendants in the McArthur complaint in
intervention and denied the motions to dismiss that complaint
filed by Caremark and the insurance company defendants. In
January 2008, Lauriello filed a motion to dismiss McArthur’s
complaint in intervention, appealed the court’s dismissal of the
attorney and law firm defendants and filed a motion to stay
proceedings pending his appeal.
Various lawsuits have been filed alleging that Caremark and its
subsidiaries Caremark Inc. (now known as Caremark, L.L.C.) and
AdvancePCS (now known as CaremarkPCS, L.L.C.) have violated
applicable antitrust laws in establishing and maintaining retail
pharmacy networks for client health plans. In August 2003,
Bellevue Drug Co., Robert Schreiber, Inc. d/b/a Burns Pharmacy
and Rehn-Huerbinger Drug Co. d/b/a Parkway Drugs #4, together
with Pharmacy Freedom Fund and the National Community
Pharmacists Association filed a putative class action against
AdvancePCS in Pennsylvania federal court, seeking treble damages
and injunctive relief. The claims were initially sent to arbitration
based on contract terms between the pharmacies and AdvancePCS.
In October 2003, two independent pharmacies, North Jackson
Pharmacy, Inc. and C&C, Inc. d/b/a Big C Discount Drugs, Inc.
filed a putative class action complaint in Alabama federal court
against Caremark, Caremark Inc. AdvancePCS and two PBM
competitors, seeking treble damages and injunctive relief. The
case against Caremark and Caremark Inc. was transferred to
Illinois federal court, and the AdvancePCS case was sent to
arbitration based on contract terms between the pharmacies
and AdvancePCS. The arbitration was then stayed by the parties
pending developments in Caremark’s court case.