CVS 2011 Annual Report Download - page 74

Notes to Consolidated Financial Statements
CVS CAREMARK 72 2011 ANNUAL REPORT
and C&C, Inc. d/b/a Big C Discount Drugs, Inc. filed a puta-
tive class action complaint in Alabama federal court against
Caremark and two PBM competitors, seeking treble dam-
ages and injunctive relief. The North Jackson Pharmacy case
against two of the Caremark entities named as defendants
was transferred to Illinois federal court, and the case against
a separate Caremark entity was sent to arbitration based on
contract terms between the pharmacies and Caremark. The
Bellevue arbitration was then stayed by the parties pending
developments in the North Jackson Pharmacy court case.
In August 2006, the Bellevue case and the North Jackson
Pharmacy case were both transferred to Pennsylvania fed-
eral court by the Judicial Panel on Multidistrict Litigation
for coordinated and consolidated proceedings with other
cases before the panel, including cases against other
PBMs. Caremark appealed the decision which vacated the
order compelling arbitration and staying the proceedings in
the Bellevue case and, following the appeal, the Court of
Appeals reinstated the order compelling arbitration of the
Bellevue case. Motions for class certification in the coordi-
nated cases within the multidistrict litigation, including the
North Jackson Pharmacy case, remain pending. The con-
solidated action is now known as the In Re Pharmacy Benefit
Managers Antitrust Litigation.
In August 2009, the Company was notified by the Federal
Trade Commission (“FTC”) that it was conducting a non-pub-
lic investigation under the Federal Trade Commission Act into
certain of the Company’s business practices. In March 2010,
the Company learned that various State Attorneys General
offices and certain other government agencies were con-
ducting a multi-state investigation of the Company regarding
issues similar to those being investigated by the FTC. At this
time, 28 states, the District of Columbia, and the County of
Los Angeles are known to be participating in this multi-state
investigation. On January 3, 2012, the FTC accepted for
public comment, subject to final approval, a consent order.
The proposed consent order would prohibit the Company
from misrepresenting the price or cost of Medicare Part D
prescription drugs, or other prices of costs associated with
Medicare Part D prescription drug plans. The proposed order
would also require the Company to pay $5 million in con-
sumer redress, to be distributed to impacted RxAmerica
Medicare Part D beneficiaries. The proposed order contains
no allegations of antitrust law violations or anti-competitive
behavior related to the Company’s business practices or its
products or service offerings. In addition, the Company has
received a formal letter from the FTC closing all other aspects
of the investigation. With respect to the multi-state investiga-
tion, the Company continues to cooperate in this investiga-
tion. The Company is not able to predict with certainty the
timing or outcome of the multi-state investigation. However,
it remains confident that its business practices and service
offerings (which are designed to reduce health care costs
and expand consumer choice) are being conducted in com-
pliance with the antitrust laws.
In March 2009, the Company received a subpoena from the
OIG requesting information concerning the Medicare Part D
prescription drug plans of RxAmerica, the PBM subsidiary
of Longs Drug Stores Corporation which was acquired by
the Company in October 2008. The Company continues to
respond to the request for information and has been produc-
ing responsive documents on a rolling basis. The Company
cannot predict with certainty the timing or outcome of any
review by the government of such information.
Since March 2009, the Company has been named in a series
of putative collective and class action lawsuits filed in fed-
eral courts around the country, purportedly on behalf of cur-
rent and former assistant store managers working in the
Company’s stores at various locations outside California. The
lawsuits allege that the Company failed to pay overtime to
assistant store managers as required under the Fair Labor
Standards Act (“FLSA”) and under certain state statutes. The
lawsuits also seek other relief, including liquidated damages,
punitive damages, attorneys’ fees, costs and injunctive relief
arising out of the state and federal claims for overtime pay.
The Company has aggressively challenged both the merits
of the lawsuits and the allegation that the cases should be
certified as class or collective actions. In light of the cost and
uncertainty involved in this litigation, however, the Company
has reached an agreement with plaintiffs’ counsel to settle
the series of lawsuits. The court preliminarily approved the
settlement in December 2011 and the Company anticipates
that final court approval will be granted in the second quarter
of 2012. The Company has established legal reserves related
to these matters to cover fully the settlement payments.
In November 2009, a securities class action lawsuit was filed
in the United States District Court for the District of Rhode
Island purportedly on behalf of purchasers of CVS Caremark
Corporation stock between May 5, 2009 and November 4,
2009. The lawsuit names the Company and certain officers as
defendants and includes allegations of securities fraud relat-
ing to public disclosures made by the Company concerning
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