Bellevue Drug Co. v. CaremarksPCS (In re Pharmacy Benefit Managers Antitrust Litig.)

• Citation: 700 F.3d 109
• Decision Date: 15 November 2012
• Docket Number: No. 12–1430.,12–1430.
• Parties: In re PHARMACY BENEFIT MANAGERS ANTITRUST LITIGATION, (MDL 1782). Bellevue Drug Co; Robert Schreiber Inc., d/b/a Burns Pharmacy; Rehn–Huerbinger Drug Co., d/b/a Parkway Drugs # 4, on behalf of themselves and all others similarly situated; Pharmacy Freedom Fund; National Community Pharmacists Association v. CaremarksPCS, f/k/a AdvancePCS, (D.C. Civil No. 03–cv–04731). Bellevue Drug Co., Robert Schreiber, Inc., d/b/a Burns Pharmacy; Rehn–Huerbinger Drug Co., d/b/a Parkway Drugs # 4, on behalf of themselves and all others similarly situated, Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

700 F.3d 109

In re PHARMACY BENEFIT MANAGERS ANTITRUST LITIGATION, (MDL 1782).

Bellevue Drug Co; Robert Schreiber Inc., d/b/a Burns Pharmacy; Rehn–Huerbinger Drug Co., d/b/a Parkway Drugs # 4, on behalf of themselves and all others similarly situated; Pharmacy Freedom Fund; National Community Pharmacists Association

v.CaremarksPCS, f/k/a AdvancePCS, (D.C. Civil No. 03–cv–04731).

Bellevue Drug Co., Robert Schreiber, Inc., d/b/a Burns Pharmacy; Rehn–Huerbinger Drug Co., d/b/a Parkway Drugs # 4, on behalf of themselves and all others similarly situated, Appellants.

No. 12–1430.

United States Court of Appeals,Third Circuit.

Argued: Sept. 10, 2012.

Opinion Filed: Nov. 15, 2012.

H. Laddie Montague, Jr., Esq. (Argued), David A. Langer, Esq., Martin I. Twersky, Esq., Berger & Montague, Philadelphia, PA, for Appellants.

Michael D. Leffel, Esq. (Argued), Foley & Lardner, Madison, WI, Robert H. Griffith, Esq., Foley & Lardner, Chicago, IL, for Appellee.

Before: SCIRICA, ROTH and BARRY, Circuit Judges.

OPINION OF THE COURT

BARRY, Circuit Judge.

Plaintiffs Bellevue Drug Co., Robert Schreiber, Inc., and Rehn–Huerbinger Drug Co. (collectively “Plaintiffs”) appeal the District Court's order granting Defendant AdvancePCS's motion to compel arbitration. Plaintiffs argue that the District Court erred in ordering them to arbitrate their antitrust claims because: (1) AdvancePCS waived its right to arbitrate by actively litigating the case in federal court for more than ten months prior to demanding arbitration; and (2) the arbitration clause is unenforceable because it limits the remedies that Plaintiffs can receive under the Sherman Act, and contains a fee-shifting provision that deters Plaintiffs from proceeding in arbitration. Because we agree with Plaintiffs that AdvancePCS waived its right to arbitrate, we will reverse the order of the District Court compelling arbitration, and need not reach those issues addressed to the clause itself.

I. Background

The factual and procedural background underlying this case was extensively summarized in this Court's precedential decision disposing of an earlier appeal, In re Pharmacy Benefit Managers Antitrust Litigation, 582 F.3d 432 (3d Cir.2009). We will not reprise the entire background here, but will set forth those facts necessary to our analysis of the waiver issue, and most particularly those facts preceding AdvancePCS's motion to compel arbitration.

AdvancePCS is a prescription benefits manager (“PBM”) for drug benefit plans sponsored by employers, unions, government agencies, insurance plans and others (“Plan Sponsors”). PBMs are retained by Plan Sponsors to efficiently manage their benefit plans and to achieve cost savings for Plan Sponsors and plan members. PBMs achieve efficiencies and cost savings in a variety of ways, including negotiating discounts or rebates from drug manufacturers, providing mail order prescription service to plan members, contracting with retail pharmacies for reimbursement when prescriptions are filled for plan members, and electronic processing and paying of claims.

Plaintiffs are retail pharmacy businesses that entered into written Pharmacy Provider Agreements (“the Agreements” or “PPA”) with AdvancePCS to provide prescription drugs and related pharmacy services to persons covered by drug benefit plans administered by AdvancePCS. The PPA establishes the terms and conditions under which the Plaintiffs were to provide prescription drugs and services to plan members, and sets forth an agreed reimbursement rate that AdvancePCS will pay to the pharmacies. The PPA also contains an arbitration clause which provides:

Arbitration. Any and all controversies in connection with or arising out of this Agreement will be exclusively settled by arbitration before a single arbitrator in accordance with the Rules of the American Arbitration Association. The arbitrator must follow the rule of law, and may only award remedies provided in this Agreement. The award of the arbitratorwill be final and binding on the parties, and judgment upon such award may be entered in any court having jurisdiction thereof. Arbitration under this provision will be conducted in Scottsdale, Arizona, and Provider hereby agrees to such jurisdiction, unless otherwise agreed to by the parties in writing or mandated by Law, and the expenses of the arbitration, including attorneys' fees, will be paid by the party against whom the award of the arbitrator is rendered. This Section 9.5 and the parties' rights hereunder shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

(App.381–82.) The PPA also includes a severability clause, which provides:

Lawful Interpretation. Whenever possible, each provision of this Agreement will be interpreted so as to be effective and valid under applicable Law, but if any provision of this Agreement should be rendered unenforceable or invalid under applicable Law, that provision will be ineffective to the extent of such unenforceability or invalidity without invalidating the remaining provisions of this Agreement.

(App.381.)

On August 15, 2003, Plaintiffs filed a putative class action lawsuit on behalf of themselves and all other similarly-situated pharmacies that contracted with AdvancePCS to sell drugs for a prescription drug benefit plan. The complaint asserted an antitrust claim against AdvancePCS, alleging that it had engaged in an unlawful conspiracy with its Plan Sponsors to restrain competition in violation of the Sherman Act, 15 U.S.C. § 1. In particular, Plaintiffs alleged that AdvancePCS used the combined economic power of its Plan Sponsors to reduce the contractual amount it pays to retail pharmacies below the levels that would prevail in a competitive marketplace. Plaintiffs also alleged that the Agreements impose certain limitations on drug refills and co-payment charges to plan members. The complaint sought treble damages, injunctive relief, attorneys' fees, and costs. The case was initially assigned to Judge Eduardo C. Robreno.

As noted at the outset, for more than ten months following the filing of the complaint, AdvancePCS actively—and, indeed, aggressively—litigated the case without mentioning arbitration, much less filing a motion to compel arbitration. On September 25, 2003, more than a month after the complaint was filed, AdvancePCS filed a nineteen-page motion to dismiss the complaint under Fed.R.Civ.P. 12(b)(6), arguing that Plaintiffs suffered no antitrust injury, failed to allege a per se price-fixing agreement, and failed to allege any rule of reason price-fixing agreement. With the motion, AdvancePCS submitted a binder of allegedly judicially-noticeable exhibits—as “thick as the yellow pages,” we are told, including three lengthy government-sponsored studies of the efficiency enhancing effects of PBMs, as well as AdvancePCS's own annual report to the SEC (Form 10–K), and other materials. Plaintiffs submitted a thirty-one page response brief, and AdvancePCS filed a seventeen-page reply brief, expanding upon its earlier presentation as it argued that no antitrust injury had been alleged; that no per se price-fixing agreement had been alleged because the complaint lacked allegations of horizontal conspiracy, monopsony power, and supra-competitive output pricing; that Plaintiffs incorrectly interpreted materials of the U.S. Department of Justice and Federal Trade Commission (“FTC”); that price-fixing agreements by sellers should be treated differently; that Plaintiffs' authorities on monopsony power were inadequate; that buyer cartel cases were inapposite;and that the complaint failed to state a rule of reason antitrust violation.

On February 5, 2004, Judge Robreno held a hearing on the motion to dismiss, and on March 2, 2004, denied the motion in a detailed sixteen-page opinion, rejecting each of AdvancePCS's substantive antitrust arguments—Plaintiffs, the Court concluded, had standing and had alleged facts sufficient to state an antitrust claim. Two weeks later, on March 16, 2004, AdvancePCS filed a twelve-page motion to reconsider the denial of its motion to dismiss, or to certify it for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). The motion to reconsider again urged dismissal based on the results of a recent FTC investigation into the acquisition of AdvancePCS by Caremark, Inc. Plaintiffs filed a fifteen-page response brief, and AdvancePCS replied.

At the same time in March 2004 as it filed its motion for reconsideration, AdvancePCS filed an answer to the complaint, and asserted a host of affirmative defenses, including failure to state a claim, lack of standing, lack of antitrust injury, laches, estoppel, waiver, failure to mitigate, failure to plead with particularity, and failure to join necessary and indispensable parties. On April 20, 2004, new counsel for AdvancePCS entered their appearances. A hearing was subsequently held on the motion for reconsideration, and on May 14, 2004, the motion was denied. Also on May 14, 2004, Judge Robreno ordered the parties to submit a discovery plan and a proposed case management order, and scheduled a pretrial conference for June 15, 2004. On consent, the conference was rescheduled to July 6, 2004.

Five weeks after Judge Robreno's latest order, and after more than ten months of active and wholly unsuccessful litigation, on June 21, 2004, AdvancePCS filed a motion to compel arbitration asking the District Court, for the first time, to enforce the arbitration clause in the PPA and enter an order compelling arbitration of the case. Plaintiffs opposed the motion, arguing that AdvancePCS waived any right to arbitrate by actively litigating the case in federal court for as long as it did, and that the arbitration agreement was unenforceable for various reasons.

On August 24, 2004, Judge Robreno granted the motion to compel arbitration and stayed the District Court action. He concluded that Plaintiffs had entered into enforceable arbitration agreements that encompassed...