Citations
- 341 F. Supp. 3d 475
Full opinion text
Goldberg, District Judge.
The question before me is whether a Memorandum of Understanding ("MOU") pertaining to a $125 million antitrust resolution constitutes a binding settlement agreement.
This dispute arises from several antitrust claims, brought pursuant to FTC v. Actavis, Inc., 570 U.S. 136, 133 S.Ct. 2223, 186 L.Ed.2d 343 (2013), involving reverse settlement payments between the brand name manufacturer of the drug Provigil ® and various generic drug manufacturers. On June 1, 2015, I denied class certification for the end-payor plaintiffs in the case of Vista Healthplan v. Cephalon, Inc., et al., Civil Action No. 06-1833. Thereafter, the putative class plaintiffs and a separate group of third-party payers-of which Defendant United Healthcare Services, Inc. ("United") was a part-reached a settlement agreement, memorialized in an MOU, with brand manufacturer Cephalon, Inc. and two generic manufacturers Teva Pharmaceutical Industries/Teva Pharmaceuticals USA, Inc. and Barr Pharmaceuticals, Inc. (collectively, the "Cephalon Parties"). United has renounced the settlement, claiming that the terms set out in the MOU did not constitute a binding and enforceable contract and that its lawyers were not authorized to enter into such an agreement. The Cephalon Parties have sued to enforce the agreement.
In an opinion issued April 20, 2018, I determined that the MOU contained the essential terms of a settlement and constituted a binding, enforceable, and unambiguous contract. Teva Pharm. Indus., Ltd. v. UnitedHealthcare Servs., Inc., No. 16-4870, 2018 WL 1898911 (E.D. Pa. Apr. 20, 2018). Thereafter, from April 23-27, 2018, a bench trial was held on the issues of (a) whether United's attorneys were cloaked with either express or apparent authority to sign the MOU, and (b) whether UHS's actions subsequent to the signing of the MOU constituted a ratification of the MOU. Upon consideration of the evidence presented at trial and additional videotaped depositions and documentary evidence entered into the trial record, I conclude that the settlement is binding upon United.
I. FINDINGS OF FACT
A. Pertinent Procedural Background of the Provigil® Litigation
1. Beginning in May 2006, over sixteen lawsuits (including putative class actions) alleging antitrust violations were filed against the Cephalon Parties and other generic drug manufacturers relating to the branded drug Provigil ®. (Stipulation of Facts ("SOF") ¶ 1.)
2. Pursuant to an August 8, 2006 case management order, these antitrust lawsuits were collectively captioned In re Modafinil Antitrust Litigation and consolidated in a collective docket in the United States District Court for the Eastern District of Pennsylvania. (SOF ¶ 2.) The actions encompassed by the case management order included:
a. The direct purchaser class cases, brought by putative classes consisting of companies that directly purchased Provigil ® from Cephalon for re-distribution, consolidated into King Drug Company of Florence, Inc. et al. v. Cephalon, Inc., et al., No. 2:06-cv-1797 (Id. ¶ 3(a) );
b. The end-payor class cases brought by putative classes consisting of individuals, insurance companies, and other entities that purchased Provigil ® indirectly, consolidated into Vista Healthplan, Inc., et al. v. Cephalon, Inc., et al., No. 2:06-cv-1833; (Id. ¶ 3(b) ); and
c. An action brought by the Federal Trade Commission ("FTC"), captioned as Federal Trade Commission v. Cephalon, Inc., No. 2:08-cv-2141. (Id. ¶ 3(c).)
3. In May 2015, Cephalon, Inc. and Teva Pharmaceuticals Ltd. settled the FTC action. (Id. ¶ 4.) The settlement was announced in a press release issued by the FTC on May 28, 2015, and memorialized in a Stipulated Order for Permanent Injunction and Equitable Monetary Relief that this Court entered on June 17, 2015. (Id. ¶ 5.)
4. The FTC settlement required Cephalon, Inc. to deposit $1.2 billion, less amounts already paid out in related case settlements, into an FTC-administered account.
The FTC Settlement was to be held in trust to satisfy the amount of any settlement or judgment regarding other Provigil ® claims. (No. 2:08-cv-2141, ECF No. 405.)
5. Jay Lefkowitz, Esq. from the law firm of Kirkland & Ellis LLP, represented Cephalon in settlement negotiations relating to the Provigil ® antitrust claims. (Notes of Testimony ("N.T.") 4/23/18, 123:18-24.) Greg Skidmore, Esq. from Kirkland & Ellis, also worked on the Provigil matter, including settlement, on behalf of Cephalon. (N.T. 4/24/18 108:18-109:25.)
B. United's Corporate Structure and Legal Departments
6. UnitedHealth Group ("UHG") is a holding company with two subsidiary business units: (a) United Healthcare Services, Inc. ("United Healthcare"), which provides health insurance services to third parties, and (b) OptumInsight ("Optum"), which provides information and technology-enabled health related services. (N.T. 4/25/18, 34:3-18; N.T. 4/27/18, 33:8-13.)
7. During the relevant time period, Marianne Short, Esq. was general counsel of UHG and the most senior lawyer in the organization. (N.T. 4/27/18, 65:11-15.) Matthew Shors, Esq. was UHG's head of litigation and reported to Short. (N.T. 4/27/18, 33:2-4.) Heather Redmond, Esq. was a deputy general counsel for intellectual property and litigation at UHG and reported to Shors. (Redmond Dep. 9:21-23; N.T. 4/27/18, 29:22-25.)
8. During the relevant time period, Chris Zaetta, Esq. was head of litigation for United Healthcare. (N.T. 4/27/18, 4:6-11.) Andrea Boado, Esq. was Deputy General Counsel and oversaw a group of lawyers who provided legal support for UHS's commercial pharmacy business. (N.T. 4/26/18, 9:18-25, 47:3-5.) Both Zaetta and Boado reported to Thad Johnson, Esq. who was United Healthcare's General Counsel. (N.T. 4/26/18, 44:24-45:4; 33:17-20.) Jeremy Johnson, Esq. was a senior associate general counsel who reported to Zaetta. (N.T. 4/26/18, 91:1-92:11.) Laurie Wolfe, Esq. was a senior associate general counsel reporting to Boado. (Wolfe Dep. 16:19-21:6.)
9. During the relevant time period, Matthew Klein, Esq. was the head of litigation for Optum. (N.T. 4/25/18, 28:5-7.) Elizabeth (Betsy) Schmiesing, Esq. was a litigation manager tasked with overseeing a team of lawyers. (Klein Dep. 20:5-10.) Klein supervised four lawyers, including Schmiesing. Schmiesing had an additional five lawyers that reported directly to her. (Klein Dep. 19:11-16.)
10. Optum handled "national recovery matters" for the entire UnitedHealth Group. (N.T. 4/25/18, 29:1-4, 38:9-14.) National recovery matters are those that mostly involve claims against medical device manufacturers or pharmaceutical companies to recover some fraction of the costs or the "spend" for the device or drug, and generally take the form of either a mass tort action or an antitrust pricing-type case. (N.T. 4/25/18, 29:5-17.) Schmiesing was the individual at Optum responsible for handling the national recovery cases for UnitedHealth Group. (N.T. 4/25/18, 39:3-7.)
11. The Provigil ® matter was one such national recovery case and fell within Schmiesing's responsibilities. (N.T. 4/25/18, 39:8-15.)
12. To summarize, the in-house counsel for United involved with the Provigil matter include the following:
NAME UNITED BRANCH POSITION Marianne Short UHG General counsel Matthew Shors UHG Head of litigation Heather Redmond UHG Deputy general counsel for intellectual property & litigation Thad Johnson United Healthcare General counsel Andrea Boado United Healthcare Deputy general counsel Chris Zaetta United Healthcare Head of litigation Jeremy Johnson United Healthcare Senior associate general counsel Laurie Wolfe United Healthcare Senior associate general counsel Matt Klein Optum Head of litigation Betsy Schmiesing Optum Litigation manager
C. United's Retention of Outside Counsel to Handle Provigil ® Matters
13. On April 20, 2012, Schmiesing signed an engagement letter, on behalf of United, retaining Robert Rhoad, Esq. of Crowell & Moring LLP ("Crowell") and Mark Sandmann, Esq. of Gibson & Sharps ("Gibson") "in resolving potential claims United has against Cephalon, Inc. ("Cephalon") in the pending matter captioned as In Re Modafinil Antitrust Litigation, No. 06-CV-01797-RBS (E.D. Pa.) ... as a result of Cephalon's alleged anticompetitive conduct in connection with its marketing and sale of Provigil ®." (Trial Exhibit ("TX") 2; N.T. 4/25/18, 32:1-18.)
14. The "Scope" provision of the engagement letter stated:
In conjunction with its representation of United in this Matter, Crowell & Moring and Gibson & Sharps will pursue settlement of claims on behalf of United against Cephalon based on alleged violations of state antitrust/consumer protection statutes and common law due to Cephalon's alleged anticompetitive conduct in connection with its marketing and sale of Provigil. The representation in this Matter will pertain to efforts to obtain recovery for United through settlement negotiations with Cephalon. It is not anticipated at this time that active litigation will be required to achieve recovery on United's claims. If it is ultimately determined by Crowell & Moring, Gibson & Sharps or United that active litigation (i.e., opting-out of the class and filing a complaint on your behalf) is required to adequately address United's claims, it is agreed that the parties to this Retention Agreement may withdraw (pursuant to the provisions contained herein) or negotiate revised terms.
(Trial Exhibit ("TX") 2.) Schmiesing understood this provision to mean that she was authorizing Crowell and Gibson to conduct settlement negotiations on behalf of United. (N.T. 4/25/18, 33:23-34:2.) Rhoad likewise understood that he had been retained to negotiate a settlement on behalf of United in the Provigil matter. (N.T. 4/25/18, 173:12-16.)
15. At the time of the execution of this letter and thereafter, Rhoad understood that Schmiesing was his main point of contact at United for the Provigil matter. (N.T. 4/24/18, 171:5-172:2.) From 2012 to March 2016, Schmiesing remained the primary point of contact for the Provigil matter. (N.T. 4/25/18 41:5-10.)
16. In September 2015, Sandmann left Gibson and joined the Hill Hill Carter firm ("Hill Hill"), but continued to represent United in the Provigil matter. At that point in time, Pamela Slate, Esq., another Hill Hill lawyer, began working on the Provigil matter on behalf of United. (Sandmann Dep. 42:7-9, 42:18-43:2, 44:1-5.)
17. This was not the first time Sandmann, Slate, and Rhoad (collectively "outside counsel" or "United outside counsel") had represented United. Rhoad had represented United in approximately ten to twenty cost recovery matters between 1999 and 2015, and had previously worked with Schmiesing. (N.T. 4/24/18, 16:16-169:3, 172:3-10.) Likewise, Sandmann represented United between 2012 and 2015 in at least six settlements related to defective hip implants, and Schmiesing was his primary contact. (Sandmann Dep. 20:10-21:19, 27:5-27:10.) Finally, Slate represented United on approximately a half dozen health care cost recovery matters before September 2015. (Slate Dep. 35:8-35:21.)
D. The End-Payor Litigation and Coordination of Settlement Talks
18. A punitive class action was brought by the end-payors of Provigil ("end-payor plaintiffs") in Vista HealthPlan, Inc. et al. v. Cephalon Inc. , et al., No. 06-1833. I denied class certification on June 1, 2015.
19. Following the FTC settlement, the end payors were the only group that had not yet settled with the Cephalon Parties. (N.T. 133:15-20.)
20. Members of the putative class continued to be represented by attorney John Macoretta, Esq. for purposes of continuing settlement talks with the Cephalon Parties. (N.T. 4/24/18, 35:24-36:3.)
21. On June 4, 2014, the Cephalon Parties' lead attorney, Jay Lefkowitz, received an email from Richard Cohen, Esq. of the Lowey Dannenberg ("Lowey") firm. Cohen indicated that he represented a number of end payors that did not want to participate in the class settlement-including "Aetna, Humana, the Blue Cross Association and others"-and inquired whether Lefkowitz would be interested in settling. (TX 4; N.T. 4/23/18, 128:16-23.)
22. The two spoke and Lefkowitz explained that he was only interested in settling if he was going to get "global peace" with all of the end payors through a single lump sum payment. (N.T. 4/23/18, 133:4-134:2.)
23. Cohen provided some insight as to why the individual health plans elected to settle separately from the class. He explained that class actions are designed for constituents whose claims are not large enough to make sense to litigate individually. By contrast, the larger health plans have claims that are quite significant, giving them multiple incentives to negotiate, sue, and settle apart from a class. These incentives include lower attorneys' fees, the ability to get a "quick pay" of settlement funds without seeking court approval, and more independence to negotiate their claims. (N.T. 4/24/18, 32:10-35:11.)
24. On June 29, 2015, Cohen sent Lefkowitz another email with a spreadsheet showing "clients' respective covered lives." He indicated that he expected to add to the list "as more health insurers retain us." (TX 8.)
25. Lefkowitz had no concerns about Cohen negotiating on behalf of a group of health insurers. In his experience, "[i]t's very commonplace to rely on lead negotiators who are speaking on behalf of a broad group of people, which could include their own clients and others who are similarly aligned ... it's perfectly normal in my practice to have a negotiation with one person." (N.T. 4/23/18, 148:1-12.) Skidmore, Lefkowitz's colleague, confirmed that "it's not uncommon when you have that many different parties that all want to reach a kind of global settlement to appoint a lead negotiator to talk on their behalf." (N.T. 4/24/18, 113:8-19.)
E. United's Decision to Join the Settlement Talks Led by Cohen
26. Shortly after the FTC settlement, Schmiesing reached out to Rhoads and requested an update on Provigil ® and how the FTC settlement would impact United. (TX 18, at p. 3.)
27. Rhoad's co-counsel, Sandmann, emailed back indicating that outside counsel were collectively discussing the possibility of United and other health plans entering into a tolling agreement with Cephalon and that they were working on determining the "proper course of action." (TX 18, at p. 2.)
28. On July 8, 2015, Rhoad e-mailed Schmiesing to note that things were "progressing rapidly in the Provigil recovery matter" and that immediate action would be necessary. (TX 12.)
29. Around the same time, Cohen (the lead negotiator for the health plans) reached out to an attorney named Mark Fischer, Esq., knowing that Fischer's firm had a relationship with United. At Cohen's request, Fischer contacted United regarding representation in the Provigil case and was told, by someone at United, that Sandmann was going to represent United in that matter. Based on that information, Cohen called Sandmann to explain what Cohen's group was trying to accomplish in terms of settlement and determine whether United would want to be part of that effort. Sandmann, responding on behalf of United, said that he wanted to be involved. (N.T. 4/24/18, 40:14-41:19.)
30. According to Gerald Lawrence, Esq., Cohen's partner, Sandmann and Rhoad specifically told him that they had been retained by United to represent United in this matter and that United had authorized them to join the negotiating group headed up by Cohen in order to make global settlement demands of the Cephalon Defendants. (Lawrence Dep. 34:3-36:1.)
31. Subsequent to this conversation, Cohen wrote to Lefkowitz, stating that "we have brought into our fold the lawyers representing the most of the rest of the major health insurers. So we will be able to come to the table with UnitedHealthcare , Massachusetts Minnesota and North Carolina Blue Cross, Assurant and several others." (TX 13 (emphasis added).) In Cohen's July 20, 2015 e-mail to Skidmore, he indicated that "we've made peace with the Macoretta class action group, so we expect to be able to negotiate for virtually all endpayers." (TX 14.)
32. It was significant to Lefkowitz that United was part of this group because he knew United was the major end payor. Lefkowitz understood the e-mails to mean that Cohen was going to be able to negotiate on behalf of United and others, not that Cohen was counsel for United. Notably, he remarked that if he thought that United was not involved, he may not have settled. (N.T. 4/23/18, 134:20-137:7, 158:18-159:12.)
33. In the meantime, Cohen and Skidmore began negotiating a tolling agreement to preserve the claims of the end payors pending the settlement discussions. The agreement provided Schedules A, B, and C to capture the majority of U.S. insured covered lives (i.e. , the majority of people and their dependents enrolled in a health insurance program) and end payor purchases of Provigil over the relevant period. (TX 14.)
34. The tolling agreement listed United as a Schedule B plaintiff. (TX 17.) On July 21, 2015, Sandmann and Rhoad executed the tolling agreement on behalf of Schedule B plaintiffs. (TX 17.) The agreement included a "Consent and Authority" provision that, "[e]ach person executing this Tolling Agreement in a representative capacity on behalf of either of the Parties expressly represents and warrants that he or she is fully empowered and authorized by such Party to execute the Tolling Agreement on its behalf." (TX 17, ¶ 11.)
35. Rhoad testified that the tolling agreement was explained to Schmiesing before it was signed and that she gave him authority to execute it. Schmiesing corroborated this statement and confirmed that she authorized the tolling agreement. (N.T. 4/25/18, 179:11-180:9; see also N.T. 4/25/18, 53:9-55:10.)
36. On July 22, 2015, Sandmann forwarded the tolling agreement, executed by Sandmann and Rhoad on United's behalf, to Schmiesing. In the accompanying email, Sandmann informed Schmiesing that,
We are working with Lowey/Rawlings and are talking to the "class." The intent is to have a discussion and make a unified demand on Cephalon for payment out of the disgorgement fund. Cephalon has indicated (n[o]t surprisingly) that they need "global peace", meaning something with us, the independently represented plans and a "class" to act as the "clean-up" for any potential remaining parties. We plan to present a united front to Cephalon (our respective firms and the class). The next step (mentioned above), and which will occur next week, is to get all the groups together and begin discussing what we would like to collectively present as our demand.
(TX 18.)
37. Schmiesing understood from this e-mail that United was one of the members of the group that would be making a unified demand on the Cephalon Parties to settle Provigil. (N.T. 4/25/18, 51:21-25.) In response to this e-mail, Schmiesing never provided Sandmann or Rhoad direction as to a minimum share that United would need to receive as part of this global group. (N.T. 4/25/18, 52:11-15.) Nor did Schmiesing ever ask Sandmann for any information about the nature of the coordination with the Lowey firm in connection with the settlement negotiations. (N.T. 4/25/18, 67:21-25.)
38. Skidmore signed the tolling agreement on behalf of the Cephalon Parties on August 10, 2015. (TX 25.)
F. Summary of Counsel Negotiating the MOU
39. The following chart summarizes the attorneys involved with negotiation of the settlement and MOU:
NAME FIRM/COMPANY CLIENT Jay Lefkowitz Kirkland & Ellis Cephalon Parties Greg Skidmore Kirkland & Ellis Cephalon Parties John Macoretta Spector, Roseman, Kodroff & Putative End Payor Class Willis, P.C. Members Richard Cohen Lowey Firm Lead negotiator for Third-Party Payors (later known as "SHPs") Gerald Lawrence Lowey Firm Lead negotiator for Third-Party Payors (later known as "SHPs") Robert Rhoad Crowell & Moring, LLP United ("outside counsel") Mark Sandmann Hill, Hill, Carter, Franco, United ("outside counsel") Cole & Black, P.C. Pamela Slate Hill, Hill, Carter, Franco, United ("outside counsel") Cole & Black, P.C.
G. United Provides Confidential Purchase Data for the Settlement Negotiations
40. Upon returning the fully-executed tolling agreement to Cohen, Skidmore asked Cohen's partner Lawrence for Provigil purchase data. (TX 24.) Skidmore testified that the reason for this request was:
[W]hen you do a settlement in a case like this, the kind of Hatch-Waxman overcharged type case, the damages all stem from the amount of Provigil purchases that are made. And that is kind of your starting point. And so to evaluate the demands that they were making and to determine our own side what our risk was, what our exposure was, we needed their purchase data.
(N.T. 4/24/18, 122:21-123:3.)
41. This type of information is not publicly available and had to be obtained from the health plans themselves. (N.T. 4/23/18, 138:15-21, 153:3-12.)
42. On August 26, 2015, Sandmann e-mailed Schmiesing and Connie Redden, a non-attorney member of United's legal department, requesting United's purchase data for Provigil and its generic from June 1, 2006 to September 30, 2015, because they were "starting negotiations with the Defendants in the Provigil antitrust matter." (TX 27.) Schmiesing understood the purpose of this request was to facilitate settlement negotiations. (N.T. 4/25/18, 61:10-13.) The following day, Redden provided this data to Sandmann. (TX 29.) Sandmann, in turn, forwarded the information to the Lowey firm. (Sandmann Dep. 81:6-16.)
43. On September 17, 2015, Lawrence sent Lefkowitz a chart containing the purchase data for most of the health plans in the global negotiating group, including United. (TX 30; see also TX 34.)
44. Lefkowitz indicated that receipt of this data confirmed for him that Cohen was, in fact, negotiating on behalf of the whole group of health plans, including United, because he would not have otherwise been able to obtain this confidential data. (N.T. 4/23/18, 138:15-139:15, 154:11-155:3.) Skidmore drew the same conclusion. (N.T. 4/24/18, 114:21-116:8.)
45. United's outside counsel Rhoad and Sandmann then signed an amended tolling agreement, dated September 30, 2015, relating to United's Provigil claims. (TX 32; SOF ¶ 7.) Schmiesing did not dispute that outside counsel were authorized to sign that agreement. (N.T. 4/25/18, 68:8-19.) A second amended tolling agreement was subsequently signed by counsel for the Cephalon Parties and the health plans, extending the tolling period through November 30, 2015. (TX 43; SOF ¶ 8.)
46. The Cephalon Parties' lawyers concluded from the attorney signatures on these tolling agreements that Cohen had been authorized by United's representatives to negotiate on its behalf. (N.T. 4/23/18, 144:12-15; N.T. 4/24/18, 114:21-115:17.)
H. Settlement Discussions Leading Up to the October 22, 2015 Phone Call
47. Over the ensuing weeks, settlement discussions occurred both between Lefkowitz and Cohen, and between Cohen and the various health plans.
48. During the entire period of these negotiations, neither Lefkowitz nor Skidmore had any direct communications with in-house lawyers or outside counsel for United regarding the Provigil matter. (N.T. 4/23/18, 170:4-9; N.T. 4/24/18, 146:12-25.) Nonetheless, Cohen explained that he made numerous phone calls to counsel for each of the groups of health plans to keep them apprised of discussions between himself and Lefkowitz. Cohen stated that he would not have discussed a settlement number with Lefkowitz without all counsel who signed the tolling agreements being consulted and approving that number. According to Cohen, he and the other counsel on the tolling agreement had "robust discussions, disagreements and ultimately consensus on each number that we communicated to [Lefkowitz] and on the final number to which we agreed." (N.T. 4/24/18, 59:2-16.)
49. Sandmann, Slate, and Rhoad all extensively participated in these discussions. (N.T. 4/24/18, 59:17-60:18, 191:13-21.) None of United's outside counsel ever suggested that they had limited authority to negotiate on United's behalf or indicated that United required a minimum share of any settlement. (N.T. 4/24/18, 60:24-61:3; Lawrence Dep. 36:3-38:8, 652-25.) It was Cohen's understanding and impression throughout the Provigil settlement negotiations that outside counsel had full authority to negotiate a settlement for United. (N.T. 4/24/18 61:4-11.)
50. The Cephalon Parties understood (a) that Cohen had full authority from counsel for the various health plans to make demands on their behalf, and (b) that Cohen was having multiple conversations with the health plans' attorneys and with Macoretta on behalf of the class. (N.T. 4/23/18, 148:23-149:16; N.T. 4/24/18, 78:12-17, 113:24-115:8, 118:25-119:21.)
51. Sometime in the first half of October, Lefkowitz signaled to Cohen what number it would take for them to reach an agreement. (N.T. 4/23/18, 157:12-23.)
52. On October 22, 2015, Lefkowitz and Cohen had a five to six-minute telephone conversation during which they agreed to "global peace" via a settlement for $125 million, which included all of the health plans and the Macoretta group. (N.T. 4/23/18, 157:12-158:7; N.T. 4/24/18, 63:10-64:5.) In that conversation, Cohen affirmatively represented that the $125 million would allow for full releases by all of the indirect purchasers, both from the Macoretta group and from the third-party health plans. (N.T. 4/23/18, 159:13-24.)
53. Cohen believed that the oral agreement reached on October 22, 2015 was a binding settlement agreement. (N.T. 4/24/18, 64:6-19.) Cohen further stated that the $125 million settlement he reached with Lefkowitz was approximately $10 million higher than what he and the lawyers for the other health plans had agreed they would be willing to take. (N.T. 4/24/18, 79:3-12.)
54. Sandmann, Slate, and Rhoad all assented to the settlement terms reached on October 22, 2015. (N.T. 4/24/18, 192:17-23.)
55. The trial testimony was somewhat inconsistent as to whether United authorized outside counsel to commit to the $125 million settlement. Rhoad "distinctly recall[ed]" he, Sandmann, and Slate having a conversation with Schmiesing, on or around October 22, 2015, wherein they told Schmiesing that negotiations were at a point where they were about to agree to settlement terms. According to Rhoad, they outlined those terms for her, and Schmiesing orally committed to the terms and authorized outside counsel to commit to those terms. (N.T. 4/24/18, 192:24-194:17.) Schmiesing, on the other hand, could not recall having any phone call with Rhoad between August 28, 2015 and December 1, 2015, in which she told him he could approve United's participation in a settlement of Provigil claims. (N.T. 4/25/18, 189:9-190:3.)
56. The day after the Cohen/Lefkowitz phone conversation, Macoretta and Lefkowitz telephoned the Court to advise that the parties had reached a settlement. (N.T. 4/27/18, 95:12-18.)
I. Discussions Among the Parties Between the October 22, 2015 Phone Call and the December 7, 2015 Signing of the MOU
57. Almost immediately after the October 22, 2015 telephone call, the Cephalon Parties began drafting a Memorandum of Understanding ("MOU") to memorialize the settlement. On October 23, 2015, Lefkowitz sent a draft of the MOU to Cohen and Macoretta. (TX 36.)
58. Two key provisions of the draft remained consistent throughout the drafting process. First, the introduction stated, "[t]his memorandum of understanding (MOU) memorializes the principal terms of a settlement agreement reached on October 22, 2015 by and between the following persons and entities (collectively, "The Parties") and to be incorporated into a comprehensive written settlement agreement that will be presented to the Court for approval." (Id. (emphasis added).) Second, paragraph four provided, "[t]he settlement is binding and enforceable and, unless otherwise agreed to in writing, the terms, including the Settlement Payment, will not change regardless of any rulings issued by the Court on pending motions, and regardless of any ruling by the United States Court of Appeals for the Third Circuit on the End-Payor Class Plaintiffs' pending petition for leave to appeal under Federal Rule of Civil Procedure 26(f)." (Id. (emphasis added).)
59. After that draft was sent to Cohen, and because there were numerous settling entities, it took the health plans (the "settling health plans" or "SHPs") a couple of weeks to get back to the Cephalon Parties with their edits. The parties then negotiated the exact language of the MOU over the ensuing six weeks. (N.T. 4/24/18, 127:16-129:6.)
60. During that time, the lawyers for the individual SHPs-including the lawyers for United-had ample opportunity to both review and mark up the draft MOUs. (N.T. 4/24/18, 69:6-70:2; Lawrence Dep. 70:25-71:11; Slate Dep. 371:17-372:2; Sandmann Dep. 182:7-182:20; TX 38; TX 39.) In fact, Slate was "deeply involved" in the drafting process and exchanged many drafts of the MOU back and forth with the Lowey firm. (Lawrence Dep. 71:20-72:20.)
61. On December 2, 2015, Lawrence e-mailed Skidmore requesting a third tolling agreement. (TX 68.) Skidmore declined to execute the third tolling agreement because the Cephalon Parties did not want any further delay in the signing of the MOU. (N.T. 4/24/18, 128:7-20.)
J. United Outside Counsel Sign the MOU
62. On December 1, 2015, Schmiesing emailed outside counsel to request an update on the status of Provigil. (TX 61.) Sandmann and Slate responded that they were close to a proposed agreement on settlement, which prompted Schmiesing to request a phone conference to discuss specifics because she was "a little uncomfortable with [Slate] stating that we're close to a settlement when [she] [hadn't] heard any numbers." (TX 61.)
63. Schmiesing also asked whether there had been any discussions about the amount of the settlement because they would "need to get approval of the amount in discussion." (TX 59.) Slate responded, "Yes, we will be recommending the settlement with a quick-pay of $77 million for our group out of a total $125 million for our group and the class (which includes both health plans and consumers) combined, and with a true-up process as in a typical SHP deal.... All of this is highly confidential (a term of the draft MOU/agreement), of course." (TX 59.)
64. Schmiesing testified that, from this email, she learned that there was a draft MOU in the works, the total settlement payment was about $125 million, and the quick-pay, which included United, would be $77 million. (N.T. 4/25/18, 90:13-91:12.) Schmiesing then emailed outside counsel with four questions: (1) "[w]hat would United's pro rata share be?"; (2) "[w]hat % recovery compared to our exposure?"; (3) "[w]hy should we settle rather than litigate?"; and (4) "[h]ow does our recovery compare to others outside the settlement group." (TX 64.) Sandmann said he would get something to her "when we have a final proposal to recommend, but we can certainly get something before the week is over with the caveat that there is the release issue still out there and thus no proposed agreement to recommend." (TX 64.) Schmiesing did not ask for a copy of the draft MOU. (N.T. 4/25/18, 95:10-16.)
65. Slate, Sandmann, and Rhoad testified that on December 8, 2015, prior to signing the MOU, they had a phone call with Schmiesing wherein they walked through what they believed were the essential terms of the settlement. (Slate Dep. 173:8-13; Sandmann Dep. 112:14-113:9.) They explained their view of the MOU and that it did not obligate United to anything at that point. (Slate Dep. 209:23-211:12.) They further indicated that they were about to sign the MOU, but United would still have options in deciding whether to go forward with the ultimate SHP settlement agreement because there was a provision allowing United to "opt-out." (Slate Dep. 212:14-214:11; N.T. 4/24/18, 197:12-198:12.)
66. According to outside counsel, Schmiesing told them it was fine for them to go ahead and sign the MOU. (Slate Dep. 214:12-16; Sandmann Dep. 113:10-15.) Sandmann testified that there was no ambiguity about Schmiesing's grant of authority to sign the MOU. (Sandmann Dep. 113:10-114:3.) Rhoad corroborated Sandmann's testimony and stated that before he signed the MOU on behalf of United and the other Schedule C Plaintiffs, he fully explained the terms of the MOU to Schmiesing and that she orally provided authority to sign on United's behalf. (N.T. 4/24/18, 195:8-196:25.)
67. Schmiesing contradicted this testimony and categorically denied giving outside counsel authority to execute the MOU on United's behalf. She maintained that she could not recall any conversation at all with outside counsel in December 2015. (N.T. 4/25/18, 175:10-19.) Several facts undermine her position:
a. First, an email chain from December 7, 2015 reflects that the day before the call in question, Schmiesing and Sandmann arranged a phone conference for the next day. (TX 77.) Documents confirm that that phone call did in fact occur. (TX 79.)
b. Second, Schmiesing acknowledged that in subsequent conferences with United personnel and outside counsel regarding the enforceability of the MOU, she neither denied giving outside counsel authority to sign the MOU nor expressed any surprise that an MOU had been executed on United's behalf. (N.T. 4/25/18, 171:6-25, 173:15-22; see also N.T. 4/26/18, 34:1-35:9, 101:17-102:5; Slate Dep. 239:11-15.) Had Schmiesing never authorized the signing of the MOU, it is likely that she would have displayed some form of incredulity upon learning that outside counsel had entered into the MOU on United's behalf.
c. Third, Schmiesing stated that she sometimes forgot what was going on with her individual cases and often relied on outside counsel to remember the details of any particular matter.
(N.T. 4/25/18, 58:7-59:11; 106:7-13.) Indeed, Schmiesing could not even recall giving outside counsel authority to sign the tolling agreement, despite her deposition testimony that she orally authorized the signing of the tolling agreement. (N.T. 4/25/18, 53:9-54:16.)
68. Given the foregoing facts, together with consistent testimony from outside counsel regarding the December 7, 2015 phone call, I credit the testimony of Sandmann, Slate, and Rhoad that Schmiesing authorized them to sign the MOU.
69. On December 9, 2015, Cohen sent Lekfowitz and Skidmore "the MOU signed by all plaintiff side counsel." (TX 83.) United was listed as a Schedule C SHP, and outside counsel Rhoad and Sandmann signed on behalf of the Schedule C "Settling Health Plans." (TX 83.) Outside counsel for United represented to Cohen that they had the informed consent from United's in-house lawyers to sign the MOU on United's behalf. (N.T. 4/24/18, 72:23-73:1; Lawrence Dep. 69:2-23.)
70. The following day, December 10, 2015, Skidmore signed the MOU on behalf of the Cephalon parties, made a .pdf copy of the executed document, and emailed it to Cohen under the file name "Provigil MOU Final Executed.pdf." (TX 84; 4/24/18, 131:17-20.)
71. At the time the MOU was executed, Lefkowitz and Skidmore understood that Sandmann and Rhoad were authorized to bind United to the MOU. (N.T. 4/23/18, 162:17-163:2; N.T. 4/24/18, 129:17-130:5.)
72. Similar to the original draft MOU, the introduction to the fully-executed MOU stated:
This memorandum of understanding ("MOU") memorializes the principal terms of a settlement agreement reached on October 22, 2015 by and between the following persons and entities (collectively, "the Parties") and to be incorporated into a written settlement agreement that will be presented to the Court for approval with respect to the End Payor Plaintiffs and End-Payor Settlement Class ("End-Payor Class Settlement Agreement"), and a separate written settlement agreement with the Settling Health Plans listed on the attached A-D ("SHP Settlement Agreement"), which agreements together will result in a comprehensive settlement between the Cephalon Defendants and Plaintiffs.
(TX 84 at Introduction.)
73. The MOU then provides that "Plaintiffs will release all claims against the Cephalon [Parties] and covenant not to sue the Cephalon [Parties] on any claims relating in any way to the claims asserted in the lawsuit filed by the End-Payor Plaintiffs and related actions." (Id. ¶ 1.)
74. In exchange for these releases, the Cephalon Parties were to request from the FTC Settlement Fund certain amounts for each group of plaintiffs. With respect to the SHPs, the Cephalon Parties agreed to request disbursement from the Settlement Fund in the amount of $77 million into "an account designated by Plaintiffs' Counsel." (Id. ¶ 2.) With respect to the End-Payor putative class, the Cephalon Parties agreed to request a disbursement in the amount of $48 million, to be paid into a "qualified settlement escrow account established by Plaintiffs' Counsel." (Id. ¶ 3.) The collective payments to the SHPs and the End-Payor class would not exceed $125 million. (Id. ¶ 4.)
75. The MOU then states that "[t]he settlement is binding and enforceable , and, unless otherwise agreed to in writing, the terms, including the Settlement Payment, will not change regardless of any rulings issued by the Court on pending motions...." (Id. ¶ 5 (emphasis added).)
76. Unlike the Tolling Agreement, the MOU did not contain a "Consent and Authority" provision, or any similar provision, warranting that each person executing the MOU in a representative capacity on behalf of a party is fully empowered and authorized by such party to execute the MOU on its behalf. (TX 84.)
77. On December 22, 2015, Skidmore sent Lawrence initial drafts of the two settlement documents contemplated in the MOU: the End-Payor Class Settlement Agreement and the SHP Settlement Agreement. (N.T. 4/24/18, 131:23-132:12; TX 95.) Both draft documents contained a "WHEREAS" clause indicating that "parties have entered into a binding Memorandum of Understanding that contemplates the entry of this Settlement Agreement which will remain in force and effect only until this Settlement Agreement becomes effective, at which point the Memorandum of Understanding will be superseded by this Settlement Agreement." (TX 95.) This clause was included in all drafts of the SHP Settlement Agreement, including the latest one circulated on April 4, 2016. (TX 211, TX 215.) Sandmann, Slate, and Rhoad were aware of the inclusion of this clause, but never questioned it. (N.T. 4/24/18, 68:6-69:5; Slate Dep. 297:22-300:8.)
78. Skidmore understood that Cohen and Lawrence forwarded the draft SHP and Class Agreements to the other lawyers in their group. (N.T. 4/24/18, 134:12-135:14.)
K. United's In-House Inquiry Into Whether It Would Pursue Affirmative Litigation
79. On November 19, 2015, lawyers from two other law firms, Boies Schiller ("Boies") and Zelle-current counsel in this enforcement of settlement dispute-held a meeting with United in-house counsel at United's headquarters in Minnesota. United's attendees at this meeting included Redmond, Schmiesing, Klein, Jeremy Johnson, Boado, and Zaetta. (N.T. 4/25/18, 68:24-69:12.)
80. The point of this meeting was for the Boies and Zelle lawyers to "pitch" United on pursing affirmative, contingency-fee antitrust litigation with respect to Provigil in lieu of pursuing settlement. (N.T. 4/26/18, 93:2-14.)
81. Shortly after this pitch meeting, Zaetta asked Jeremy Johnson to work up a potential affirmative litigation case in connection with Provigil. (N.T. 4/26/18, 93:20-24; TX 58.) Johnson explained that this was a new tact with respect to the Provigil cases since, prior to that time, Schmiesing and Optum had been working on negotiating settlements. (N.T. 4/26/18, 96:24-97:11, 96:10-97:10; N.T. 4/27/18, 5:14-19.)
82. Following the pitch meeting, Schmiesing emailed Johnson, Zaetta, and Klein, on November 18, 2015, stating, "[j]ust want to give you a heads up that we have already retained another firm on Provigil...." She then identified Crowell and Hill Hill as the firms United "regularly use[s]" for the national recovery work. (TX 52.)
83. Outside counsel was not aware at that time that United was working with the Boies and Zelle firms to develop a litigation strategy for Provigil. (Slate Dep. 241:4-13.)
L. United's In-House Discussions Regarding Settlement In December 2015
84. Following execution of the MOU, outside counsel sent Schmiesing an extensive memorandum, dated December 9, 2015, entitled "Provigil Proposed Settlement."
(TX 82.) Outside counsel indicated that "we, along with counsel for the IP Class, began settlement discussions with Teva which, as noted above, had bought Cephalon during the course of the litigation.... We have ultimately convinced Teva to pay a total of $125 million to resolve all the claims of our group and the IP Class." (TX 82.)
85. The December 9th memorandum went on to acknowledge an understanding of how the allocation of the settlement amount would work, stating that
[W]e were able to negotiate with the [indirect purchaser] Class to get an unprecedented 61.6% of the total settlement amount-$77 million-in quick-pay.... The agreement with Teva would provide that, upon the execution of both agreements with our group and the IP Class, Teva would have eight days to submit a disbursement request to the FTC requesting the $77 million be paid to our group.
(Id. ) The memorandum made clear that the estimate of UHS's pro rata share under the allocation was not exact and that "an exact pro rata allocation based on all purchases during a set period can be calculated when all relevant purchases for our group are compiled (currently in process). However, we believe the pro rata share for United based on covered live market share will give a good 'back-of-the-napkin' estimation." (Id. )
86. In the memorandum, Slate, Sandmann, and Rhoad recommended that "United accept a settlement containing the essential terms" set forth in the memorandum "subject, of course, to the drafting of an acceptable written agreement." (Id. ) The memorandum made no mention of the MOU.
87. On December 18, 2015, Schmiesing forwarded this memorandum to her colleagues at United, including Redmond, Boado, Zaetta, Jeremy Johnson, and Klein, with the subject "Provigil proposed settlement." (TX 88.) Schmiesing indicated that the Cephalon Parties had "agreed to settle the Settling Health Plan group (SHP) and indirect purchaser class (IP Class) claims for a total of $125 million. United is a member of the SHP group." (TX 88.) She went on to note that the SHP group would receive approximately $77 million in a quick pay and there would be a "true-up" payment after the class funds were distributed. She commented that although outside counsel acknowledged that a larger recovery might be achieved through litigation, they were recommending settlement because of the risks associated with litigation. (Id. ) At the time Schmiesing wrote this email, she did not yet have a copy of the MOU and was summarizing only the December 9th"Provigil Proposed Settlement" memo. (N.T. 4/25/18, 109:4-9, 110:6-16.)
88. Schmiesing testified that, at this time, the Provigil matter was proceeding on "two tracks" within United. On one track, United was considering affirmative litigation through the Boies and Zelle firms, while, on the other, United was considering settlement through outside counsel. (N.T. 4/25/18, 95:10-23.) Schmiesing was not directly involved in discussions about affirmative litigation. (Id. )
89. On December 21, 2015, Andrea Boado called Schmiesing regarding the Provigil matter. (N.T. 4/26/18, 17:19-18:5; TX 70.) Boado's contemporaneous notes of the call refer to the fact that the "Settling HP [Health Plan] Group" will get the "SHP Quick Pay," and that it "[s]eems we've reached a settlement [agreement]," but could still decide not to settle. (TX 70.) Boado understood that there were proposed settlement terms that were put forth for United to evaluate. (N.T. 4/26/18, 2:5-15.)
90. Boado immediately communicated the substance of her conversation with Schmiesing to Chris Zaetta. (N.T. 4/27/18, 10:7-21.) Zaetta asked whether Schmiesing thought "the settlement negotiations to date were a problem if we [United] want to pull out?" (TX 92.) Boado responded, "Yes and no. She thought we could walk away from the settlement without recourse. However, she was unsure whether the tolling agreement would protect us if we chose to pursue affirmative litigation." (TX 92.) Boado did not tell Zaetta at that time that she had learned from Schmiesing that there was a settlement agreement. (N.T. 4/27/18, 11:14-21.)
M. United In-House Counsel Receives the MOU
91. On January 5, 2016, United in-house lawyers Schmiesing, Boado, Jeremy Johnson, and Redmond had a conference call with outside counsel Sandmann, Rhoad, and Slate. (TX 96; TX 97; N.T. 4/26/18, 30:11-31:7.) Zaetta was not on the call. (Id. ) Although a primary topic was a discussion of the pros and cons of United's affirmative litigation of the Provigil antitrust claims, (TX 70), another topic discussed was the executed MOU. (N.T. 4/26/18, 101:14-16.) The parties on the call discussed that an MOU had been executed by outside counsel and that, under the MOU, United would be part of the quick pay group receiving $77 million. (TX 70, at 6.) Schmiesing did not raise any surprise, concern, or objection about the fact that counsel had executed an MOU. Likewise, no other lawyer from United either expressed any surprise or dismay at that fact or requested a copy of the MOU. (N.T. 4/26/18, 34:1-35:9, 101:17-102:5; Slate Dep. 239:11-15.) Sandmann could not recall anyone questioning or commenting in any way on his authority to sign the MOU on United's behalf. (Sandmann Dep. 192:14-193:1.)
92. Sandmann first sent Schmiesing a copy of the executed MOU on January 14, 2016 via an email with the file name "Provigil MOU Final Executed.pdf." (TX 109.) The cover email stated, "[h]ere is the MOU that contains the proposed terms discussed in our memorandum." (TX 109.) Although Schmiesing understood that the principal terms of the settlement were memorialized in this MOU, she did not click on the link to open the MOU and read it. (N.T. 4/25/18, 129:9-22.) In fact, Schmiesing testified that she never read the MOU until sometime after March 25, 2016. (N.T. 129:17-130:11.) At the time she first received the MOU, Schmiesing believed that it was only a proposed settlement which allowed United to walk away from it, but not the Cephalon Parties. (N.T. 4/25/18, 132:21-3.) She thought that when Sandmann and Rhoad signed the MOU on United's behalf, United gained rights and obligations under this MOU to enforce the settlement against the Cephalon Parties. (N.T. 4/25/18, 133:14-134:20.)
93. On January 15, 2016, and without any comment, Schmiesing forwarded the MOU to several of her colleagues inside United, including Boado, Jeremy Johnson, and Redmond. (TX 110; N.T. 4/25/18, 128:18-129:5.)
94. Upon receipt, Johnson read the MOU within a day or two. (N.T. 4/26/18, 104:2-106:13.) He noted that the MOU expressly stated that it "memorializes the principal terms of the settlement agreement reached on October 22nd," that it listed United as a Schedule C Settling Health Plan, and that it provided that the settlement was "binding and enforceable." (N.T. 4/26/18, 105:1-23.) His understanding of the MOU was consistent with the opinion provided by outside counsel-that United was not bound to a settlement of its Provigil claims. (N.T. 4/26/18, 175:19-176:15.) Johnson admitted, however, that when he read the MOU, he was "not really reviewing [it] to question whether it was binding or not," but rather "was looking at the MOU primarily for the main terms of what [United] would get out of this and seeing what [United] would get out of it versus the upside of pursuing an individual case." (N.T. 4/26/18, 137:14-25.) Johnson further stated that he "read the MOU in the context of two memoranda [from outside counsel] addressing a proposed settlement.... I'm relying heavily on my own outside lawyers who have been involved in the process. I'm new to the matter. I read it in that context. I never questioned it. I thought they were reputable lawyers and they knew-they knew more about the MOU than I did." (N.T. 4/26/18, 137:4-13.) In short, Johnson did not question outside counsel's representation that the MOU was not binding. (TX 178.)
95. Boado did not read the MOU upon receipt, but rather reviewed it at a "high level" and relied on what outside counsel had conveyed to her about the MOU. (N.T. 4/26/18, 45:11-46:24, 51:15-53:15.) She did not believe it was her responsibility, as a business lawyer, to thoroughly read the document. (N.T. 4/26/18, 58:19-59:4.)
96. Similarly, Redmond indicated that she opened up the MOU and reviewed it for the framework of the proposed settlement and the financial aspects, but did not review the entire document from start to finish. (Redmond Dep. 44:20-45:25; 93:6-9.) She considered the MOU to be a framework of possible settlement terms that the parties were negotiating, and did not believe it was a binding settlement agreement. (Redmond Dep. 47:6-11, 96:16-18.)
97. On January 22, 2016, Jeremy Johnson, together with Andrea Boado and Laurie Wolfe, prepared a report for United Healthcare General Counsel, Thad Johnson. (TX 111, 112, 113, 114.) This report stated, in part:
In July 2015, Crowell (at the direction of OptumInsight) began settlement discussions with Teva on UHC claims for Provigil. In late December 2015, Crowell obtained a settlement offer estimated to result in a gross settlement amount of $11 - 16.5 million in a "quick pay" to UHC. The settlement offer also provides for additional "true up" funds after consumer claimants have been paid 100% of their purchases; although Crowell believes those funds would likely be less than the quick pay amount. The quick-pay likely would be paid sometime in 2016, with the true-up calculated and any additional amounts paid by the end of 2016 or early 2017. UHS has not responded to the offer forwarded by Crowell, and is evaluating whether to pursue individual affirmative litigation against the defendants using Zelle, Hofmann and Boies Schiller (Zelle/Hofmann).
(TX 114.) Boado did not tell Thad Johnson that a week earlier she had received an executed MOU. (N.T. 4/26/18, 45:11-24.)
98. On January 28, 2016, Jeremy Johnson emailed Wolfe and Boado in preparation for Boado's meeting with Zaetta and Thad Johnson the following Monday. (N.T. 4/26/18, 107:13-108:18.) Without mentioning the MOU, Jeremy Johnson stated "Crowell negotiated a tentative $125 mm settlement agreement with defendants on behalf of a group of indirect purchasers (including UHC). UHS would likely receive $11 mm-$16.5 mm under that settlement." (TX 117.) Johnson acknowledged that he pulled his summary more from the December 9th memorandum he received from outside counsel than from the MOU. (N.T. 4/26/18, 110:1-9.) Relying on outside counsel, he did not consider the possibility that United's counterparties to this executed MOU might read the "binding and enforceable" language in the MOU to mean that it was a binding agreement. (N.T. 4/26/18, 114:2-115:7.)
N. United In-House Lawyers and Outside Counsel Discuss "Opting Out" of the Settlement
99. At the end of January 2016, Schmiesing reached out to Sandmann to inquire whether the tolling agreement between the Cephalon Parties and the end payors had been extended. (TX 119.) Sandmann responded, in part, "need to confirm with Jerry Lawrence at Lowey that the [Defendants] are treating the agreement as still in effect during the sign off period for the MOU ..." (TX 119.)
100. Thereafter, Slate and Sandmann contacted Lawrence and asked whether "[i]f this [the MOU] all blew up somehow, are we still tolled?" (TX 118.) Lawrence responded that, "if it blew up, we'd [the plaintiffs] be suing to enforce the settlement." (TX 118.) Sandmann then repeated the question regarding whether the claims were still tolled in light of the expiration of the tolling agreement. (TX 118.) Lawrence stated that "the antitrust claims aren't tolled, but we now have claims to enforce the settlement-same if we tried to bring the antitrust claim they could enforce the settlement." (TX 118.) In follow up, Sandmann remarked, "is what I am hearing is that if one of the SHP clients decides not [to] participate and wants to sue (and does), the limitations period has not been tolled since November 30, 2014." (TX 118.) Lawrence simply responded, "yes." (TX 118.)
101. Lawrence explained that he understood these questions to reflect Sandmann and Slate's concern that perhaps the Cephalon parties were trying to back out of the settlement. (Lawrence Dep. 229:6-20.) He testified that this email did not set off any red flags for him because he was "confident that [United] agreed to a settlement on October 22nd." (Lawrence Dep. 229:21-230:1.)
102. Schmiesing then spoke with Sandmann sometime on January 29, 2016, but could not remember the call with any level of specificity. (N.T. 4/25/18, 136:18-138:4.) Thereafter, she wrote to Jeremy Johnson, Boado, Wolfe, and Redmond stating, "Hi-I spoke with Mark. Even if we decide not to sign off on the MOU, we are OK because there will be an opt out period associated with the approval of the settlement class. Also, the class claims are tolled from the filing of class complaint until the time of denial of certification, so there is still time left on the clock-approximately three years." (TX 120.)
103. Upon reading this email from Schmiesing, Boado sent a separate email to Jeremy Johnson, and Wolfe inquiring, "[i]s she merely addressing the settlement issue or is she confusing/conflating the settlement opt out with our query re the DP opt out ..." (TX 121.) Johnson responded that,
Even though the indirect class wasn't certified for purposes of the litigation, a class can be certified for settlement purposes. The Memorandum of Understanding (attached) does in fact contemplate the certification of a class of indirect purchasers for settlement purposes. Any final settlement, including the certification of an IP settlement class, needs to be approved by the judge and all class members (including UHC) need to be given the opportunity to opt-out of the settlement class.
(TX 121.) Johnson understood that the SHP settlement did not require court approval, but did not think that it affected United's opt-out rights. (N.T. 4/26/18, 8-12, 127:10-23.)
104. Johnson also told Boado that "on a related note, settlements often also have 'blow up' provisions where the settlement is voided if a certain number of plaintiffs ... opt out." (N.T. 4/26/18, 128:11-16.) Johnson was referring to the concept or possibility that if United were to opt out of the settlement, it would blow up. (TX 122; N.T. 4/26/18, 128:17-20.) Boado responded that, "So I'm guessing that this shrinking violet may be tossing an incendiary device into the settlement?" (TX 122.) Johnson noted, "That's right!" (TX 122.)
105. On February 15, 2016, Redmond sent the executed MOU, with the same filename-"Provigil MOU Final Executed.pdf."-to Matthew Shors, the corporate head of litigation for UnitedHealth Group. (N.T. 4/27/18, 33:31-4; TX 133.) At this point, multiple high-level in-house lawyers at United-Matthew Shors, Jeremy Johnson, Elizabeth Schmiesing, Andrea Boado, and Laurie Wolfe-had a copy of the MOU. From January through late March of 2016, no counsel from United expressed any surprise that there was an executed MOU in the Provigil matter or questioned whether outside counsel had authority to sign the MOU. (N.T. 4/24/18, 203:16-205:3; N.T. 4/25/18, 173:1-22; N.T. 4/26/18, 106:14-107:3, 138:22-140:3.)
O. Chris Zaetta at United Receives the MOU
106. On March 25, 2016, Chris Zaetta, head of litigation at United Healthcare, was on a conference call when something alerted him to the potential existence of a document involving Provigil. (N.T. 4/27/18, 17:18-18:9.) At Zaetta's request, Boado forwarded Jeremy Johnson's January 29, 2016 email referring to the MOU. (TX 145; N.T. 4/27/18, 18:10-19:23.) It was at this point that Zaetta first learned that there was an MOU. (N.T. 4/27/18, 20:1-4.)
107. After seeing the reference to the MOU, Zaetta wrote to Schmiesing asking if there was "a deadline for opting out?" (TX 147.) Schmiesing responded, "I assume you mean a deadline for opting out of the proposed settlement, right? I'm not aware of one, but I will follow up and let you know." (TX 147.) This prompted Zaetta to ask, "Is there a settlement agreement?" (TX 147.) Schmiesing then forwarded him Sandmann's email of January 14, 2016, which attached a copy of the executed MOU. Schmiesing's cover email stated, "Here's the proposed settlement." (TX 149.) Zaetta then realized that everyone on his in-house team working on the Provigil matter knew about the executed MOU except him. (N.T. 4/27/18, 22:4-7.)
108. As soon as he received the MOU, he read it and concluded that there was a problem. (N.T. 4/27/18, 22:8-15.) In his view, what he was reading in the MOU was very inconsistent with what he had understood to be the state of affairs, i.e. that United could opt out of the settlement. (N.T. 4/27/18, 23:3-7.)
109. Zaetta emailed Schmiesing stating, "[i]t's not clear to me that we can actually opt out from the settlement based on this MOU? What is your view on that?" (TX 156.) Schmiesing remarked that there was no final agreement yet. She went on to state that, "[w]e are definitely not bound to the settlement at this point-we would just need to tell the firm [Hill Hill] that we're not signing on and we would then not be listed as a settling TPA. If they are not able to get this approved as a class settlement, we would not need to opt out, but if there is a class settlement, it will include an opt out procedure." (TX 156.) At this point, Schmiesing had still not read the MOU. (N.T. 4/25/18, 142:21-145:16.)
110. Zaetta responded, "My view is that we're probably going to have a fight on our hands if a settlement class is certified and we decide to opt out." (TX 156.) When Zaetta indicated that he did not understand the purpose of the MOU if United was allowed to opt out, Schmiesing explained,
My understanding is that, if we do not buy into the settlement and therefore are not part of the MOU, we are not bound by it. Those payers that are not party to the MOU will be in the general pool of payers that can opt in or out of the settlement once it is set forth as a class settlement.... I think the purpose of the MOU is to ensure that there is a critical mass among the payers that are participating in the settlement and minimize the potential for direct actions such as the one we're contemplating.
(TX 162.) In other words, Schmiesing took the position that somehow United had a choice not to be part of the MOU. (N.T. 4/25/18, 151:2-6.) Zaetta wrote back and asked, "[d]oesn't the fact that we're a signatory to the MOU make us a party to it." (TX 165.) Schmiesing answered, "It has not yet been finalized. Crowell and Hill Hill understand that we have not agreed to the settlement." (TX 165.) At trial, Schmiesing acknowledged that this email did not deny granting authority to outside counsel to sign the MOU for United. (N.T. 4/25/18, 152:11-16.)
111. Zaetta wanted to get outside counsel on the phone so he could have them address his concerns about how the MOU should be read, particularly in light of its "binding and enforceable" language. (N.T. 4/27/18, 24:22-25:9.)
112. In preparation for this meeting, Boado forwarded several emails relating to the settlement to Zaetta, including one from Schmiesing to Johnson, Boado, Wolfe, and Redmond describing the opt-out theory. (TX 155.) Zaetta responded simply, "I'm not sure I agree with the below." (TX 155.)
113. Boado also sent to Thad Johnson and Zaetta a "rough chronology of salient meetings and messages" that she had relating to Pr