Caremark LLC v. Aids Healthcare Found.

• Docket Number: CV-21-01913-PHX-DJH
• Decision Date: 05 May 2022
• Parties: Caremark LLC, et al., Petitioners, v. AIDS Healthcare Foundation, Respondent.
• Court: U.S. District Court — District of Arizona

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Caremark LLC, et al., Petitioners, v. AIDS Healthcare Foundation, Respondent.

No. CV-21-01913-PHX-DJH

United States District Court, D. Arizona

May 5, 2022

ORDER

Honorable Diane J. Humetewa United States District Judge

Pending before the Court is Petitioners' Motion to Seal Filings in this Action (Doc. 1). Respondent filed a Response in Opposition (Doc. 22), and Petitioners filed a Reply (Doc 29). Also pending is Petitioners' Motion for Sanctions against Respondent (Doc. 19). Respondent filed a Response in Opposition (Doc. 37), and Petitioners filed a Reply (Doc 45).^[1]

On December 1, 2021, the Court conditionally granted the Motion to Seal “subject to being unsealed based on the parties briefing.” (Doc. 13). The matter is fully briefed, and the Court now issues its decision.

I. Background

This case arises from a confidential arbitration between Petitioners and Respondent in which Respondent sought to enjoin Petitioners from operating certain performance network programs (“Claw Back Programs”), which Respondent contended breached an agreement between the parties. (Doc. 1 at 2).

On November 12, 2021, the arbitrator held the Claw Back Programs were unconscionable and therefore unenforceable. (Id.) The arbitrator also granted a permanent injunction prohibiting Petitioners from operating Claw Back Programs using the same methodologies as those presented in the claims in the arbitration. (Id.)

On December 1, 2021, Petitioners filed an Amended Motion to Vacate or Correct the Arbitration Award. (Doc. 12). Petitioners also filed a Motion to Seal Filings in this Action, arguing (1) the parties' arbitration agreement included a confidentiality provision and (2) the Award contains trade secrets, such as the incentive-fee formulas and contractual terms. (Doc. 1 at 3-4). Petitioners thus ask that “all filings in this action, including but not limited to the Application and the Motion, [] be made under seal.” (Id.)

II. Discussion

The Court will first address Petitioners' Motion to Seal and then address Petitioners' Motion for Sanctions.

A. Motion to Seal

The Court's analysis regarding a motion to seal begins with a “strong presumption in favor of [public] access.” Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172, 1178 (9th Cir. 2006); see also Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 597 (1978) (The public has a general right of access “to inspect and copy . . . judicial records and documents”). “[A] party seeking to seal a judicial record then bears the burden of overcoming this strong presumption.'” Ctr. for Auto Safety v. Chrysler Grp., LLC, 809 F.3d 1092, 1095 (9th Cir. 2016) (quoting Kamakana, 447 F.3d at 1178)). To meet its burden, a party seeking to file a document under seal must give compelling reasons supported by specific factual findings. Id. The moving party must specifically identify “where in the documents confidential financial information and trade secrets are to be found.” Foltz v. State Farm Mut. Auto. Ins. Co., 331 F.3d 1122, 1137 (9th Cir. 2003). General allegations of confidentiality, “without further elaboration or any specific linkage with the documents, ” do not satisfy the moving party's burden. Kamakana, 447 F.3d at 1184.

In weighing these considerations, the court also balances “the competing interests of the public and the party who seeks to keep certain judicial records secret.'” Ctr. for Auto Safety, 809 F.3d at 1097 (quoting Kamakana, 447 F.3d at 1178). The district courts have discretion to determine what constitutes a compelling reason. Id.

As the moving party, Petitioners must articulate a compelling reason and provide specific factual support for sealing each document. Kamakana, 447 F.3d at 1179. Petitioners first argue this entire case should be sealed because the Court must strictly construe and enforce the arbitration agreement, including its confidentiality provision. (Doc. 1 at 3). Petitioners argue they have “compelling reasons” to maintain the confidentiality of the Award because it discloses “the proprietary methodology Caremark uses to calculate incentive fees and reimbursement terms.” (Id. at 8). This information, Petitioners argue, is unknown to “any individual or entity besides Caremark, the pharmacies that participate in the program, and Caremark's plan-sponsor clients.” (Id.) Petitioners contend their competitive standing will be prejudiced if this information is publicized and their competitors can use it in a manner that is harmful to them. (Id.) Finally, Petitioners argue the Award contains information about the Provider Agreements (“PA”) that govern the relationships between Caremark and the Respondent's pharmacies and that the parties have agreed the PAs are “confidential and proprietary.” (Id.)

Respondent argues Petitioners fail to explain how its competitors' knowledge of the methodology for Caremark's Claw Back Programs competitively harms Caremark. (Doc. 22 at 20). Respondent says Petitioners provide no examples of “specific, identifiable harm, ” besides the disclosure of the methodology for the Claw Back Programs and the metrics for those programs. (Id.) Respondent further notes that the Arbitrator found both the methodology and the metrics for those programs to be substantively unconscionable and unenforceable. (Id.) Unlawful business practices, Respondent claims, are not protectable trade secrets. (Id.) Respondent also argues that Petitioners' reimbursement rates for 2016 to 2020 are not “trade secrets” because Petitioners fail to explain how its competitors might use past rates to undercut Petitioners' future rates. (Id. at 21).

At the outset, the Court finds the existence of the confidentiality provision in the arbitration agreement between the parties does not provide a particularized, compelling reason to preemptively seal all filings in this case. See, e.g., Gamble v. Arpaio, 2013 WL 142260, at *5 (D. Ariz. Jan. 11, 2013) (“[T]he [mere] fact that the parties' agreement contains a confidentiality provision is an insufficient interest to overcome the presumption that a [court] approved . . . settlement agreement is a judicial record, open to the public.”) (internal quotations omitted); Moussouris v. Microsoft Corp., 2018 WL 1159251, at *8 (W.D. Wash. Feb. 16, 2018) (“The existence of a confidentiality provision, without more, does not constitute good cause, let alone a compelling reason, to seal.”).

But where, as here, the confidentiality agreement is crafted to protect confidential trade secret information, certain filings that contain such information may be sealed. See TriQuint Semiconductor, Inc. v. Avago Techs. Ltd., 2011 WL 5190264, at *2 (D. Ariz. Nov. 1, 2011) (“Where a party shows that its documents contain sources of business information that might harm its competitive standing, the need for public access to the records is lessened.”). The question for the Court then is whether Petitioners have made a particularized enough showing of protectable trade secret information to keep all or certain portions of the Award sealed.

i. Protectable Trade Secret-Incentive-Fee Formula & Contractual Terms

Petitioners argue the Provider Manual and the Award itself contain proprietary methodology Caremark uses to calculate incentive fees and, if disclosed, Caremark's competitors can take advantage of it to Caremark's detriment. (Doc. 29 at 11). Petitioners also argue the Provider Manual's contractual provisions are trade secrets and that disclosure would “prejudice Caremark because Caremark's competitors could access Caremark's specially designed contract terms.” (Doc. 2 at ¶ 23). Respondent contends the incentive-fee formula is not a trade secret because the arbitrator found these fees to be unconscionable. (Doc. 22 at 20). Respondent further argues Petitioners fail to show any of the contract terms in the Provider Manual are trade secrets. (Id. at 22).

Generally, compelling reasons exist when documents might be used for improper purposes such as the release of trade secrets. Kamakana, 447 F.3d at 1179 (quoting Nixon v. Warner Commc'ns, Inc., 435 U.S. 589, 598 (1978)). A trade secret consists of “any formula, pattern, device or compilation of information which is used in one's business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” Bowser, Inc. v. Filters, Inc., 398 F.2d 7, 9 (9th Cir. 1968) (internal quotations omitted). As to the incentive-fee formula, Petitioners submit a declaration of Steve McCall, Caremark's Vice President of Network Services, explaining how disclosure of the Award would afford competitors direct information about Caremark's incentive-fee formula and the contractual terms and provisions that are incorporated into the Provider Manual. (Doc. 2 at ¶ 7-17). Mr. McCall says access to this information would harm Caremark because their “competitors would be able to discover Caremark's methodology for calculating inventive fees [and] use our knowledge to leapfrog design of their own incentive-fee programs without having to invest their own research and development to create a similar program.” (Id.) He further asserts “if competing plan sponsors are aware of these reimbursement rates, then they could potentially establish reimbursement terms lower than Caremark's plan-sponsor clients' reimbursement rates, thereby hurting the plan sponsors' competitive standing in the marketplaces.” (Id.)

Petitioners have adequately shown its competitors could obtain an advantage over them if the incentive-fee formulas were released. The Court thus finds, at least for now, the incentive-fee formulas and the reimbursement rates should be shielded from public view. Although the Court agrees with Respondent's argument that unlawful business practices are not deserving of trade...