Opinion
NO. 2013-CA-001679-MR
06-05-2015
PURDUE PHARMA L.P.; PURDUE PHARMA, INC.; and THE PURDUE FREDERICK COMPANY, INC. d/b/a THE PURDUE FREDERICK COMPANY APPELLANTS v. COMMONWEALTH OF KENTUCKY, ex rel. JACK CONWAY, ATTORNEY GENERAL APPELLEE
BRIEF FOR APPELLANTS: John M. Famularo Mark R. Overstreet Daniel E. Danford Lexington, Kentucky BRIEF FOR APPELLEE: Sean Riley Mitchel Denham LeeAnne Applegate Frankfort, Kentucky
NOT TO BE PUBLISHED APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 07-CI-00740
OPINION
VACATING AND REMANDING
BEFORE: COMBS, KRAMER, AND TAYLOR, JUDGES. KRAMER, JUDGE: The above-captioned appellants (hereinafter referred to collectively as "Purdue") assert that the Franklin Circuit Court misinterpreted the terms of a consent judgment and consequently erred in determining that a release incorporated within the consent judgment did not bar certain claims the Commonwealth filed against them in Pike Circuit Court. For the reasons discussed below, we vacate the Franklin Circuit Court's judgment and direct the Franklin Circuit Court to dismiss Purdue's underlying action.
The circuit court's opinion and order, which is the subject of our review, correctly summarized the factual and procedural history of this case as follows:
This dispute arises out of the Consent Judgment entered into in the above-captioned case between the Commonwealth of Kentucky and Purdue Pharma, L.P., et al. ("Purdue") on May 8, 2007. In oral arguments, the Commonwealth stated the Consent Judgment was drafted in litigation brought by Attorneys General in multiple states, as is evident on the front page listing the settling state Attorneys General. The Consent Judgment was an agreement entered into by Purdue in Franklin Circuit Court to avoid litigation on the issue of whether the company violated state consumer protection laws by misleading health care providers, consumers, and government officials regarding the risks of addiction associated with the prescription drug OxyContin. See In re Oxycontin Antitrust Litigation, 821 F.Supp.2d 591 (S.D.N.Y. 2011). The agreement discussed in greater detail below includes a number of provisions, specifically excluding from settlement Medicaid issues related to Purdue.
The Attorney General and Pike County subsequently filed a lawsuit against Purdue for Medicaid fraud in Pike County. Commonwealth of Kentucky ex rel. Stumbo v.
Purdue Pharma L.P., No. 07-CI-1302 (Pike Cir.). Purdue sought removal of the suit to Federal Multi-District Litigation, and after much delay Kentucky requested and was granted remand to Pike County. Purdue, for the first time, now asserts that the Consent Decree previously entered in Franklin Circuit bars this action. Purdue has brought this motion before the Court to "enjoin the Commonwealth from pursuing, and directing the Commonwealth to dismiss with prejudice, those claims in the Pike County action that paragraph 22 of the Consent Judgment prohibits it from bringing." Purdue claims paragraph 22 prohibits the claims in this new suit entirely because they are the same or similar to those covered under the release in the Consent Decree. Purdue argues it is not really asking this Court to enjoin Pike County Circuit Court, but rather the Commonwealth and Pike County from bringing the suit. After oral arguments were conducted in this case, Pike County settled its claims with Purdue, but the Attorney General's claims on behalf of the Commonwealth were not part of that settlement, and accordingly, the matter remains ripe for decision.
Before proceeding, we pause to emphasize a number of important points. First, Purdue characterized its action in Franklin Circuit Court as a "motion to enforce" the above-described consent judgment it had previously entered with the Commonwealth; but, its action essentially sought a legal interpretation and binding declaration of rights between itself and the Commonwealth with respect to the consent judgment. Specifically, the parties disputed the scope and effect of paragraph 22, which provided:
The obligations of Purdue under this Judgment shall be prospective only. No Signatory Attorney General shall institute any proceeding or take any action against Purdue under its State Consumer Protection Laws or any similar state authority, or under this Judgment, based on
Purdue's prior promotional or marketing practices for OxyContin.
For its part, the Commonwealth argued paragraph 22 should be interpreted to only prohibit it from asserting claims against Purdue under the purview of Kentucky's Consumer Protection Act (KCPA), codified in Kentucky Revised Statutes (KRS) 367.110 et seq. Purdue, on the other hand, argued this provision should be interpreted broadly enough to include the claims that the Commonwealth subsequently filed against it in Pike Circuit Court because those claims, it contended, were simply a repackaging of claims that could have been asserted under the purview of the KCPA.
The Commonwealth's claims against Purdue in Pike Circuit Court also related to Purdue's promotion and marketing of OxyContin in Kentucky, but instead sounded in fraud, product liability, and public nuisance.
In other words, Purdue sought to invoke the Franklin Circuit Court's authority under the general declaratory action act, KRS 418.040 et seq. (DJA). See Board of Ed. of Compbellsville Independent School Dist. v. Faulkner, 433 S.W.2d 853, 855 (Ky. 1968) (explaining "a judgment always is open to construction by any court that is asked to give effect to it," and that judgments are to be interpreted in the same manner as "deeds, contracts, wills and other writings[.]"); Island Creek Coal Co. v. Wells, 113 S.W.3d 100, 103 (Ky. 2003) (A consent judgment is a type of contract and, as such, is governed by contract law); Absher v. Illinois Cent. R. Co., 371 S.W.2d 950, 953 (Ky. 1963) (explaining the rights and duties of parties in a contractual relationship is the proper subject of a declaratory judgment action).
Second, Purdue was arguing that by virtue of agreeing to the consent judgment, the Commonwealth had made a legally enforceable promise to abandon the claims the Commonwealth had asserted against it in Pike Circuit Court. Thus, despite offering verbiage to the contrary over the course of its several pleadings below, Purdue was arguing that the consent judgment operated as a release. See Beech v. Deere & Co., 614 S.W.2d 254, 256 (Ky. App. 1981) (defining a "release," as used in this context, "as the giving up or abandoning of a claim or right to the person against whom the claim exists or the right is to be enforced or exercised." (Citing 66 Am.Jur.2d, Release, § 1)).
Insisting that its "motion to enforce consent judgment" was not an assertion of a "release" defense, Purdue explained over the course of its pleadings that it was actually asserting an "added layer of protection" or "positive covenant" contained in the consent judgment that was capable of "stopping" the Commonwealth's Pike Circuit Court action "in its tracks." Taken objectively, this is a distinction without a difference.
Third, it bears repeating that Purdue was asking Franklin Circuit Court to enjoin the Commonwealth from prosecuting a pending action in Pike Circuit Court.
With that said, the Franklin Circuit Court ultimately made the following determinations in its opinion and order: Franklin Circuit Court was the proper forum to determine whether paragraph 22 of the consent decree barred the Commonwealth from asserting the claims that the Commonwealth had asserted against Purdue in Pike Circuit Court; paragraph 22 of the consent decree did not bar those claims; and, although the "prospective provisions of a consent decree operate as an injunction,"
[t]he Consent Decree is limited to settling claims only under the KCPA. Whether the Consent Decree is similar enough to the current claims brought in Pike County to raise a collateral estoppel or res judicata claim is an issue for Pike County Circuit Court. Any issue of claims previously litigated and settled is an affirmative defense properly brought before Pike Circuit Court. This Court's Consent Decree, while operating prospectively as an injunction, is limited to preventing the Commonwealth from bringing Consumer Protection Act claims against Purdue for marketing and sales of OxyContin. . . .
Lastly, the circuit court determined that "even if Purdue's entire argument is accepted, its claim should be barred by laches."
On appeal, Purdue's arguments are that the Franklin Circuit Court misinterpreted the scope of paragraph 22 of the consent judgment; misinterpreted the proper standard for granting an injunction; and abused its discretion in applying the doctrine of laches.
Purdue's arguments, however, merely underscore why the circuit court's judgment must be vacated and why Purdue's action should have been dismissed. To explain, we begin by emphasizing that a release of claims—like res judicata and collateral estoppel—is an affirmative defense. Kentucky Rule of Civil Procedure (CR) 8.03. CR 8.03 further provides that affirmative defenses must be pled in response to a claim for relief. Accordingly, what the Franklin Circuit Court understood (as stated in its order) with regard to res judicata and collateral estoppel should have applied with equal force to the release contained in the consent judgment: when Purdue decided to rely upon it as a bar to the Commonwealth's claims in Pike Circuit Court, the proper procedure would have been for Purdue to have asserted the release in a responsive pleading in Pike Circuit Court as an affirmative defense and as a basis for declaratory relief.,
Incidentally, this is exactly what Purdue did after the Franklin Circuit Court entered its judgment in this matter.
As dicta, we also note that if the Pike Circuit Court rejected the release as a defense, Purdue could also have filed an immediate appeal so long as the Pike Circuit Court's decision in that respect complied with CR 54.02. See Preferred Risk Mut. Ins. Co. v. Kentucky Farm Bureau Mut. Ins. Co., 872 S.W.2d 469, 470 (Ky. 1994).
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Rather than following this procedure, however, Purdue asserted the release via a declaratory action in Franklin Circuit Court, apparently under the belief that the release's incorporation into the consent judgment entered in Franklin Circuit Court transmogrified it into a basis for requesting prospective injunctive relief from that separate forum. This was improper for two reasons.
First, a release of claims that has been incorporated into a consent judgment is not a basis for prospective injunctive relief. This is because a court does not "get to dictate to other courts the preclusion consequences of its own judgment." 18 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 4405, p. 82 (2d ed. 2002). Thus, while the Franklin Circuit Court may have retained jurisdiction to enforce the consent judgment between Purdue and the Commonwealth, that fact did not deprive any other court of jurisdiction to apply its terms and preclusion consequences. See Faulkner, 433 S.W.2d at 855 (explaining "a judgment always is open to construction by any court that is asked to give effect to it." (Emphasis added)).
Second, and in a similar vein, by adjudicating the viability of Purdue's "release" defense, the Franklin Circuit Court acted to determine the substantive rights of Purdue and the Commonwealth in the pending suit in Pike Circuit Court. In doing so, the Franklin Circuit Court disregarded a limitation upon its authority. As explained by the Kentucky Supreme Court in Mammoth Medical, Inc. v. Bunnell, 265 S.W.3d 205, 210 (Ky. 2008):
Although the scope of the Kentucky DJA is liberal and wide, there are, however, limits. Declaratory judgment does not fit every occasion and does not replace the existing system of remedies and actions. For example, an action for a declaratory judgment cannot be instituted to secure a determination of substantive rights involved in a pending suit. Gibbs v. Tyree, 287 Ky. 656, 154 S.W.2d 732, 733 (1941).(Emphasis added.)
In short, the Franklin Circuit Court should have declined Purdue's invitation to make any declaration of rights regarding the effects and consequences of the release incorporated in the consent judgment. We therefore VACATE the Franklin Circuit Court's decision and REMAND with directions for the Franklin Circuit Court to DISMISS Purdue's declaratory action. See KRS 418.065.
TAYLOR, JUDGE, CONCURS.
COMBS, JUDGE, CONCURS IN RESULT ONLY. BRIEF FOR APPELLANTS: John M. Famularo
Mark R. Overstreet
Daniel E. Danford
Lexington, Kentucky
BRIEF FOR APPELLEE: Sean Riley
Mitchel Denham
LeeAnne Applegate
Frankfort, Kentucky