W. Va. CVS Pharmacy, LLC v. McDowell Pharmacy, Inc.

• Decision Date: 09 February 2017
• Docket Number: No. 16-0209,16-0209
• Citation: 796 S.E.2d 574
• Parties: WEST VIRGINIA CVS PHARMACY, LLC, et al., Defendants Below, Petitioners v. MCDOWELL PHARMACY, INC., et al., Plaintiffs Below, Respondents
• Court: West Virginia Supreme Court

796 S.E.2d 574

WEST VIRGINIA CVS PHARMACY, LLC, et al., Defendants Below, Petitioners

v.MCDOWELL PHARMACY, INC., et al., Plaintiffs Below, Respondents

No. 16-0209

Supreme Court of Appeals of West Virginia.

Submitted: January 18, 2017

Filed: February 9, 2017

Robert B. Allen, Pamela C. Deem, Kay Casto & Chaney PLLC, Charleston, West Virginia, Robert H. Griffith, Foley & Lardner LLP, Chicago, Illinois, Michael D. Leffel, Foley & Lardner LLP, Madison, Wisconsin Attorneys for the Petitioners

Marvin W. Masters, April D. Ferrebee, The Masters Law Firm lc, Charleston, West

Virginia, H. Truman Chafin, The H. Truman Chafin Law Firm, Charleston, West Virginia, Anthony J. Majestro, Powell & Majestro, Charleston, West Virginia, Attorneys for the Respondents

J. Mark Adkins, S. Andrew Stonestreet, Bowles Rice LLP, Charleston, West Virginia, Attorneys for Amicus Curiae, West Virginia Pharmacists Association

Davis, Justice:

This appeal originates from a dispute between a pharmacy network administrator and various West Virginia pharmacies that are network members. Stemming from an order of the Circuit Court of McDowell County that refused to compel arbitration, this appeal raises three dispositive issues challenging the circuit court's rulings as to: (1) whether a contractual choice of law provision should be enforced; (2) whether, under the law of the State of Arizona, arbitration agreements were adequately incorporated by reference into the subject contracts; and (3) whether incorporation of the rules of the American Arbitration Association into an arbitration agreement is sufficient to demonstrate that the contracting parties have clearly and unmistakably agreed to a delegation provision contained therein. We find that the circuit court erred in each of these challenged rulings, and, therefore, we remand for the entry of an order dismissing this case and compelling arbitration. Because we find that the parties delegated questions of arbitrability to the arbitrator, we do not address the remaining issues raised.¹

I.FACTUAL AND PROCEDURAL HISTORY

Petitioners, defendants below, are Caremark, LLC; various companies affiliated with Caremark, LLC; and four individuals who are pharmacists-in-charge at certain CVS pharmacies (collectively referred to as "CVS/Caremark").² Caremark offers pharmacy benefit management ("PBM") services to insurers, third party administrators, business coalitions, and employer sponsors of group health plans. Among the services offered by Caremark are the administration and maintenance of pharmacy networks.

Respondents, plaintiffs below, include six West Virginia retail pharmacies: McDowell Pharmacy, Inc. ("McDowell"); McCloud Family Pharmacy, Inc. ("McCloud"); Waterfront Family Pharmacy, LLC ("Waterfront"); T & J Enterprises ("T & J"); Johnston & Johnston, Inc. ("Johnston"); and Griffith & Feil Drug, Inc. ("Griffith"). Respondents also include six individuals who are licensed pharmacists who practice in West Virginia and are affiliated with the aforementioned pharmacies. All of the respondents in this appeal will be collectively referred to as "Plaintiff Pharmacies."

Each of the six West Virginia pharmacies listed above has an agreement with Caremark.³ Three of the pharmacies, McDowell, McCloud, and Waterfront, each signed a "Provider Agreement" directly with Caremark Rx, LLC ("Caremark"). Accordingly, we refer to these three pharmacies collectively as "the Direct Contract Pharmacies." The "Provider Agreement" signed by the Direct Contract Pharmacies contained a choice of law provision and further stated, in relevant part, that "[t]his Agreement, the Provider Manual, and all other Caremark Documents constitute the entire agreement between Provider and Caremark, all of which are incorporated by this reference as if fully set forth herein and referred to collectively as the ‘Provider Agreement’ or ‘Agreement’." Pursuant to an arbitration agreement contained in the referenced "Provider Manual," arbitration would be governed by the rules of the American Arbitration Association ("AAA"). The AAA rules contain a delegation provision. Additional facts pertaining to the choice of law provision, arbitration agreement, and delegation provision are set out below in the "Discussion" section of this opinion.

The three remaining pharmacies, T & J, Johnston, and Griffith, did not have signed agreements directly with Caremark. We collectively refer to these three pharmacies as "Indirect Contract Pharmacies." More detailed facts relating to the agreements executed by the Indirect Contract Pharmacies will be set out below, in connection with our discussion of those agreements. However, we do note here that the agreements contained an arbitration clause electing the AAA rules to govern arbitration.

In August of 2011, the Plaintiff Pharmacies filed a complaint against CVS/Caremark. The complaint sought injunctive relief for violations of W. Va. Code § 30–5–7 (1995) (Repl. Vol. 1998);⁴ alleged violations of West Virginia Code § 33–16–3q (2003) (Repl. Vol. 2011)⁵ and W. Va. Code § 33–11–4 (2002) (Repl. Vol. 2011);⁶ and also alleged tortious interference, fraud, and violations of W. Va. Code § 47–18–3 (1978) (Repl. Vol. 2015).⁷ Punitive damages also were sought.

Following an attempted removal to and remand from federal court, CVS/Caremark filed a motion to dismiss the complaint and to compel arbitration. After a period of three years of discovery, the circuit court heard arguments on CVS/Caremark's motion and denied the same by order entered on January 19, 2016. This appeal followed.

II.STANDARD OF REVIEW

CVS/Caremark herein appeals a circuit court order denying its motion to dismiss and to compel arbitration. This Court previously has held that "[a]n order denying a motion to compel arbitration is an interlocutory ruling which is subject to immediate appeal under the collateral order doctrine." Syl. pt. 1, Credit Acceptance Corp. v. Front , 231 W.Va. 518, 745 S.E.2d 556 (2013). In addition, we repeatedly have recognized, and now expressly hold, that when an appeal from an order denying a motion to dismiss and to compel arbitration is properly before this Court, our review is de novo . See Citibank, N.A. v. Perry , No. 15–1121, 2016 WL 6677944, at *3, 238 W.Va. 662, ––––, 797 S.E.2d 803, 805 (Nov. 10, 2016) (" ‘When an appeal from an order denying a motion [to] dismiss is properly before this Court, our review is de novo .’ " (quoting Credit Acceptance , 231 W.Va. at 525, 745 S.E.2d at 563 )); Schumacher Homes of Circleville, Inc. v. Spencer , 237 W.Va. 379, 386, 787 S.E.2d 650, 657 (2016) ("Because the circuit court's ruling denied Schumacher's motion to dismiss, we review the circuit court's order de novo ." (footnote omitted)). Accord Geological Assessment & Leasing v. O'Hara , 236 W.Va. 381, 385, 780 S.E.2d 647, 651 (2015).

Moreover, to the extent that our resolution of this appeal necessitates our review of contractual issues," ‘we apply a de novo standard of review to [a] circuit court's interpretation of [a] contract.’ " Finch v. Inspectech, LLC , 229 W.Va. 147, 153, 727 S.E.2d 823, 829 (2012) (quoting Zimmerer v. Romano , 223 W.Va. 769, 777, 679 S.E.2d 601, 609 (2009) (per curiam)).

Having set out the proper standards for our consideration of the instant appeal, we now address the dispositive issues raised.

III.DISCUSSION

Three dispositive issues must be addressed to resolve this appeal: (1) whether the parties agreed to apply Arizona law, (2) whether arbitration agreements were incorporated by reference into the subject contracts, and (3) whether the parties have clearly and unmistakably agreed to a delegation provision. We address each issue in turn.⁸

A. Law Applicable to the Contract

The provider agreements executed between Direct Contract Pharmacies and Caremark each contain the following clause specifying that the law of Arizona governs the contract:

Lawful Interpretation and Jurisdiction. Whenever possible, each provision of the Agreement shall be interpreted so as to be effective and valid under applicable Law. Should any provision of this Agreement be held unenforceable or invalid under applicable Law, the remaining provisions shall remain in full force and effect. Unless otherwise mandated by applicable Law, the Agreement will be construed, governed, and enforced in accordance with the laws of the State of Arizona without regard to choice of law provisions .

(Italicized emphasis added). The provider agreements governing the Indirect Contract Pharmacies also contains a choice of law provision electing Arizona law:

Jurisdiction . Unless otherwise specifically provided herein or mandated by applicable Law, this Agreement will be construed, governed and enforced in accordance with the laws of the State of Arizona without regard to its choice of law provisions.

The circuit court acknowledged that, in West Virginia, a choice of law provision must bear a substantial relationship to the chosen jurisdiction. The circuit court discussed the relationships of states other than Arizona to the provider agreements, and the significant relationship West Virginia has to the provider agreements. Based upon this analysis, the circuit court concluded there was no substantial relationship between the provider agreements and the State of Arizona and applied West Virginia law.

CVS/Caremark argues that the circuit court erred in disregarding Arizona law, as contractually chosen by the parties, and instead applying West Virginia law to CVS/Caremark's motion to compel arbitration. With respect to Arizona's substantial relationship to the provider agreements, CVS/Caremark relies on the deposition testimony of Daniel Pagnillo, who is Caremark's Director of Network Account Management and Compliance. Caremark summarizes Mr. Pagnillo's deposition testimony thusly:

Communications with pharmacies in Caremark's network originate from Caremark's Arizona offices. Caremark personnel in Arizona process claims from the pharmacies within Caremark's network (including the

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