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In re Lorazepam & Clorazepate Antitrust Litigation

January 16, 2004


The opinion of the court was delivered by: John M. Facciola United States Magistrate Judge

Case No. 01-2646 (TFH/JMF) Case No. 02-1299 (TFH/JMF) Misc. No. 99-276 (TFH/JMF)


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 anticompetitive 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 Information

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. Ieradi 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 ...

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