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Wednesday, August 8, 2012

Skilstaf v. CVS: Ninth Circuit Affirms Dismissal Where Claims Alleged Were Released in Prior Class Action

Skilstaf, Inc. v. CVS Caremark Corp., ---F.3d --- (9th Cir. 2/9/12) presents an unusual fact pattern. 

Skilstaf, Inc., was a member of a certified class in an action filed in Massachusetts district court against  McKesson Corporation, alleging a conspiracy to violate RICO.  The case resolved after certification, with McKesson paying a substantial settlement.  

Skilstaf filed a "limited objection" in the Massachusetts action, arguing that the release language proposed in the settlement was overly broad.  Under the release provision, the class members, including Skilstaf, not only released their claims against the McKesson, but also agreed not to sue "any other person seeking to establish liability based, in whole or in part," on the claims released.  The Massachusetts district court overruled Skilstaf's objection, but gave Skilstaf a second opportunity to opt out of the settlement.  Skilstaf declined to do so.  

Skilstaf instead pursued a separate action in California district court, alleging that other entities had conspired with McKesson to violate RICO, as alleged in the Massachusetts action.  Skilstaf sued on behalf of the same class certified and settled in the Massachusetts action.  

The California district court dismissed Skilstaf's claims under Federal Rule of Civil Procedure 12(b)(6) "on the basis that they were precluded by the covenant not to sue that the Massachusetts court had approved as part of the settlement agreement in [the earlier action] and included in the final judgment."  Skilstaf appealed.  
Skilstaf raises three arguments on appeal. First, Skilstaf argues that the district court erred by dismissing the case on the pleadings without allowing discovery. Skilstaf contends that California law on contract interpretation mandates discovery when a party claims that extrinsic evidence makes a contract ambiguous; when third parties—like the retailpharmacy defendants—seek to benefit from a contract; or when a party asserts the defense of mutual mistake to the enforcement of a contract. Second, Skilstaf argues that by limiting the due process analysis to the issue of whether the covenant not to sue was enforceable against Skilstaf, the district court failed to provide what the final judgment entered in New England Carpenters promised: the right to have the California district court determine the enforceability of the covenant not to sue against all members of the Massachusetts class, not just Skilstaf. And third, Skilstaf argues that even if the district court properly limited its due process analysis to whether the covenant not to sue was enforceable against Skilstaf, due process was not met merely by providing Skilstaf, the objector, with a second opt-out opportunity. 
The Ninth Circuit rejected each of these arguments and affirmed the dismissal.  

The opinion is available here.  

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