Federal officer jurisdiction is the quiet middle child of the federal jurisdiction family.  We all came out of law school fully versed in federal question jurisdiction and diversity jurisdiction (and we also vividly recall our civil procedure professor using Wyoming and Colorado for all his hypotheticals on diversity of citizenship because those were the only two states he could draw).  But federal officer jurisdiction is a real player in the federal jurisdiction sandbox, and it should not be overlooked. 

The First Circuit surely did not overlook it, and the result is federal officer jurisdiction over an insulin pricing dispute and a very strong opinion rejecting the plaintiff’s attempt to “disclaim” relief relating to any federal program.  The case is Puerto Rico v. Express Scripts, Inc., No. 23-1612, 2024 U.S. App. LEXIS (1st Cir. Oct. 18, 2024), where the Commonwealth of Puerto Rico sued a number of pharmacy benefit managers on behalf of residents of the Commonwealth to recover for allegedly inflating insulin prices.  As the court described, pharmacy benefit managers (or PBMs) act as “middlemen” between health care plans, pharmacies, and pharmaceutical manufacturers.  In that role, PBMs contract with their client health plans to administer prescription drug benefits, manage drug costs, and negotiate rebates and discounts from manufacturers.  Id. at *4-*5.  At the core of the plaintiff’s claim is its unproven allegation that the PBMs inflated prices through their rebate negotiations with drug manufacturers. 

For federal jurisdiction, the key fact here is that at least one PBM defendant performed services for carriers offering benefits to federal employees under the Federal Employees Health Benefits Act.  That is to say, when federal employees residing in Puerto Rico purchased insulin using benefits under their FEHBA plans, they were purchasing drugs under terms negotiated by the defendant. 

Moreover—and this is the really key fact—when negotiating with manufacturers, the defendant did not distinguish between FEHBA clients and non-FEHBA clients.  When a PBM negotiated with a manufacturer, it was one set of negotiations on behalf of all its clients, making the work “indivisible.” 

The plaintiff clearly knew that removal to federal court was a risk, so it preemptively included in its complaint an express “disclaimer” of any federal-related claim: 

The [Commonwealth] is not seeking relief relating to any federal program (e.g., Medicaid, Medicare) or any contract related to a federal program.  Moreover, the [Commonwealth’s] claims do not arise out of a written contract, but rather are based on the larger unfair and deceptive scheme that violates the Fair Competition Act and increased prices . . . for Puerto Rico Consumers.

Id. at *8.  The district court accepted this disclaimer and remanded the case, but the First Circuit reversed, holding that the defendants properly removed the case, and that the disclaimer had no effect. 

To review, the U.S. Code permits removal of an action to federal court if the defendant “is an officer (or any person acting under that officer) of the United States” and is sued “in an official or individual capacity, for or relating to any act under color of such office.”  Id. at *14-*15 (citing 28 U.S.C. § 1442(a)(1)).  This is federal officer jurisdiction, and it requires three elements: (1) that the defendant was acting under a federal officer’s authority; (2) that the charged conduct was carried out for or relating to the asserted official authority; and (3) that the defendant will assert a colorable federal defense to the suit.  Id. at *16-*17.

Here, when the defendant negotiated drug rebates and drug pricing on behalf of federal employees covered by FEHBA plans, it was acting under federal authority and its conduct was related to that authority.  The defendant also had a colorable federal defense:  FEHBA includes an express preemption provision, which the defendant had a right to present in federal court.  Id. at *25-*27.  That is a rock-solid basis for federal officer jurisdiction. 

But what about the plaintiff’s attempted “disclaimer”?  Well, it turns out there are two kinds of disclaimers.  First, there is an express disclaimer of claims that could serve as the grounds for removal; and second, there is mere “artful pleading” for purposes of circumventing federal officer jurisdiction.  Mere artful pleading is never credited.  Id. at *21.  By comparison, an express disclaimer can be effective, but it “must eliminate any basis for federal officer removal so that, upon remand, there is no possibility that a state court would have to determine whether a defendant acted under a federal officer’s authority.”  Id. at *19-*20 (emphasis inoriginal). 

That is where the plaintiff’s express disclaimer failed.  While the plaintiff attempted to disclaim any relief relating to any federal program, including FEHBA, the defendant negotiates for rebates jointly for all its clients—including FEHBA-based carriers.  Moreover, those negotiations lead to rebate agreements that do not distinguish between FEHBA and non-FEHBA plans.  The plans and their beneficiaries all get the same rebates. 

As a result, even though the plaintiff attempted to disclaim “federal” relief, it was still attempting to recover based on the defendant’s “official acts” because the charged conduct was all the same—or “indivisible.”  The First Circuit emphasized three points.  First, as mentioned, by targeting the defendant’s rebate negotiations, the plaintiff was necessarily targeting acts under a federal officer because the defendant negotiated for FEHBA and non-FEHBA plans simultaneously.  Second, because those negotiations could not be “disassembled,” crediting the disclaimer would foreclose the defendant’s right to have a federal court determine its express preemption defense.  Third, crediting the disclaimer would undercut § 1442(a)(1)’s requirement that federal courts determine whether a defendant acted under a federal officer’s authority.  Id. at *28-*30.

As you can see, the indivisible nature of the defendant’s negotiations on behalf of all its clients was dispositive.  As the First Circuit put it, “[Defendant] claims that it negotiates for FEHBA and non-FEHBA plans in one fell swoop.  Given this purported indivisibility, . . . the Commonwealth could recover in the [Puerto Rico] Court of First Instance for [Defendant’s] acts under a federal officer’s authority.  That would deprive [Defendant] of the federal forum to which it is entitled.”  Id. at *30-*31.  We have never known “in one fell swoop” to be a legal term of art, but we’ll take it.