The opinion of the court was delivered by: JOHN FACCIOLA, Magistrate Judge
Plaintiffs are Blue Cross Blue Shield of Minnesota and of
Massachusetts, the Federated Mutual Insurance Company, and the Health
Care Service Corporation (hereafter collectively called "the Blues").
They opted out of a settlement, premised on antitrust violations by the
defendant, Mylan Laboratories (hereafter "Mylan"), and their complaint
has now survived Mylan's motion to dismiss.
In the complaint filed on December 22, 1998, ten states and the Federal
Trade Commission charged the defendants with entering into illegal
agreements to monopolize the
markets for the generic anti-anxiety drugs, lorazepam and clorazepate.*fn1
The "Scandalous" Allegations
The Blues filed their own complaint alleging that (1) patients were
endangering their health by being forced to forego the lorazepam and
clorazepate they needed, and (2) Mylan employees were engaging in
"insider trading." Mylan also protested that the complaint contained
"inflammatory media sound bites." Mylan moved to strike these allegations
as immaterial but the Blues insisted that "each of the allegations is
necessary to demonstrate the nature and scope of Defendants' scheme to
drive up the prices for Lorazepam and Clorazepate which anti-competitive
scheme resulted in direct injury to Plaintiffs." Memorandum Opinion of
Oct. 4, 2002, quoting Plaintiffs Blue Cross Blue Shield of Minnesota.
Blue Cross Blue Shield of Massachusetts and Federated Mutual Insurance
Company's Memorandum of Points and Authorities in Opposition to
Defendants Mylan Laboratories, Inc. and Mylan Pharmaceuticals Inc.'s
Motion to Strike Portions of Plaintiffs' Second Amended Complaint ("Pls'
Opp.") at 2.
In the Opinion just quoted, Chief Judge Hogan denied Mylan's motion.
Noting that motions to strike are so disfavored that courts require a
showing that the material to be stricken is immaterial and prejudicial or
scandalous, the Chief Judge carefully concluded:
[W]hile by no means having reached a decision on the
merits of this case, the Court finds that the
paragraphs in question may very well be relevant to
Plaintiffs' ability to establish that an antitrust
violation has occurred under pertinent state laws.
Id. at 3-4.
The Blues Are Not Entitled to Insider Trading
The Blues read Judge Hogan's statement as an endorsement of their
theory that learning about Mylan's insider trading is relevant to their
claims and defenses. They, therefore, have demanded all documents "during
the relevant time period" related to insider stock ownership or transfers
of interest. More specifically, they want documents (broadly defined)
pertaining to (1) the adoption by Mylan's Board of Directors of a 1997
Incentive Stock Option Plan, (2) the exercise of options from January
1996 to the present, and (3) Mylan Insider Trading Policies and
communications relating to stock ownership or purchases from January 1996
to the present.
I first find the Blues's interpretation of the Chief Judge's October 4,
2002 order as expressly authorizing this kind of search to be a stretch.
The Chief Judge was dealing with several allegations in the Second
Amended Complaint, including allegations about insider trading that were
claimed to be "prejudicial or scandalous." His determination that all of
these allegations were neither prejudicial nor scandalous is hardly a
ringing endorsement of the theory that insider trading in 2004 has
something to do with a lawsuit predicated on events that occurred in the
winter of 1997-1998. Because the question of whether the information
sought is relevant to any claim or defense under Fed.R.Civ.P. 26 is
open, I have considered it and will resolve it against plaintiffs.
Interestingly, there is a Third Circuit opinion that deals with insider
trading in Mylan stock that occurred contemporaneously with the price
increases at issue in this case and the FTC investigation that led to
this lawsuit. leradi v. Mylan Laboratories, Inc., 230 F.3d 594 (3d Cir.
2000). In that decision, the court indicated that Mylan entered into
"agreements with Profarmco and Gyma that gave it exclusive access" to the
raw materials used to manufacture lorazepam and chlorazepate in November
1997. Id. at 596. Mylan raised its prices on chlorazepate on Janaury
12, 1998 and its prices on lorazepam on March 3, 1998. By June 19, 1998,
Mylan was reporting to the SEC that its revenues had increased 37% and
its net earnings 132%. Id. On July 4, 1998, however, Mylan had to report
to the SEC that the FTC was investigating whether the price increases
were the result of a restraint of trade. Id. According to the Third
Circuit, this report depressed the price of Mylan stock. Id.
It would, therefore, appear that a Mylan insider who knew what the
market did not-that Mylan was going to increase its prices and thereby
gain more revenue-had a window of opportunity to exploit this insider
information from November 1997, the date Mylan entered into agreements
with Profarmco and Gyma, until the price increases in January and March
1998. Once the world knew what the insider did-that substantial price
increases in a market Mylan dominated would increase revenue and enhance
stock prices-the playing field was level and the insider would gain
nothing from the information he had. Given this brief window of
opportunity, the Blues's demand for insider trading "to the present,"
i.e., January 2004, is fatally overbroad. I appreciate that the Blues
want to compare insider trading in what I would call the insider's widow
of opportunity with insider trading thereafter. But, what would that
comparison prove? That insiders traded more at one point and traded less
at another proves nothing. The price of a commodity is a function of
supply and demand and the price of a stock may be affected by the general
demand for stocks as opposed to bonds and other investments. In a bear
market, all stock prices are depressed save for those few contrarian
stocks that buck the market trend. Knowing that several Mylan insiders
bought Mylan stock before the price increases but that other Mylan
insiders sold it when the entire market became bearish proves absolutely
nothing except the obvious-those who play the market try to buy low and
sell high and, on occasion, cut their losses.
To derive some conclusion from the economic behavior of Mylan insiders in
1997-1998 compared with their behavior at a later point in time, when so
many variables are affecting that behavior, is akin to drawing some vast
conclusion about apples and oranges because they are both spherical.
Finally, the Blues's burden in this case is to show that Mylan's price
increases were the result of a restraint of trade and that they were
damaged thereby. Taking the Blues's best case, that the insiders knew the
increases were illegal and were nevertheless trying to profit from them,
does not make it any more likely that the ...