Catamaran Corp. v. Towncrest Pharmacy

• Decision Date: 28 July 2017
• Docket Number: No. 16-3275,16-3275
• Citation: 864 F.3d 966
• Parties: CATAMARAN CORPORATION, Plaintiff-Appellant v. TOWNCREST PHARMACY ; Clark's Pharmacy ; Meyer's Healthmart Pharmacy; Osterhaus Pharmacy, Defendants-Appellees
• Court: U.S. Court of Appeals — Eighth Circuit

864 F.3d 966

CATAMARAN CORPORATION, Plaintiff-Appellant

v.TOWNCREST PHARMACY ; Clark's Pharmacy ; Meyer's Healthmart Pharmacy; Osterhaus Pharmacy, Defendants-Appellees

No. 16-3275

United States Court of Appeals, Eighth Circuit.

Submitted: April 6, 2017

Filed: July 28, 2017

Rehearing and Rehearing En Banc Denied September 14, 2017^*

Counsel who appeared on the brief and presented argument on behalf of the appellant was Jason Michael Casini, of Des Moines, IA. The following attorney(s) appeared on the appellant brief; Jaki K. Samuelson, of Des Moines, IA.

Counsel who appeared on the brief and presented argument on behalf of the appellee was Bruce Henry Stoltze, Sr., of Des Moines, IA.

Before SMITH, Chief Judge, SHEPHERD, Circuit Judge, and FENNER,¹ District Judge.

SHEPHERD, Circuit Judge.

This case presents a question of first impression in this circuit: whether a court or an arbitrator should determine whether an arbitration agreement authorizes class arbitration. After reviewing relevant Supreme Court precedent and the opinions of our sister circuits, we hold that a court must decide the question because of the fundamental differences between bilateral and class arbitration.

I.

Catamaran Corp.² operates as a pharmacy benefit manager. It contracts with entities that sponsor, administer, or otherwise participate in prescription drug benefit plans. Among the services Catamaran provides is reimbursing pharmacies who furnish prescription drugs to individuals covered by such a plan. The defendants in this case are four pharmacies who have agreements with Catamaran for reimbursements.

There are two relevant agreements here.³ One agreement was with SXC Health Solutions Corp., a predecessor in interest to Catamaran. The other agreement was with Catalyst Health Solutions, Inc., also a predecessor in interest to Catamaran. Each of the four pharmacies were parties to these agreements, which were brokered on their behalf by AccessHealth, a pharmacy services administration organization comprised of some 85 independent pharmacies. AccessHealth acted as the attorney-in-fact for the pharmacies in these two agreements.

The SXC Agreement contains an arbitration provision stating that if "any disputes arising during the term of this Agreement" cannot be resolved informally, then "either party may submit the dispute to binding arbitration in accordance with the Rules for the Conduct of Arbitration of the American Arbitration Association [AAA] ... in effect at the date of commencement of such arbitration." The Catalyst Agreement contains a similar provision: "Any controversy or claim arising out of or relating to this Agreement shall be settled by arbitration in accordance with the applicable rules of the [AAA]." Neither agreement uses the word "class" or refers to class arbitration. The AAA Supplementary Rules for Class Arbitration permit class arbitration and give arbitrators the power to decide whether an agreement contemplates class arbitration.

Eventually, a dispute arose between Catamaran and the four pharmacies. The pharmacies filed a demand for class arbitration with the AAA, asserting claims on behalf of themselves and similarly situated independent pharmacies—a class of over 85 pharmacies.

Catamaran responded by filing a declaratory judgment action under 28 U.S.C. § 2201 and the Federal Arbitration Act (FAA) in the district court. Catamaran sought declaratory relief and an injunction preventing the pharmacies from proceeding with class arbitration. Catamaran then moved for summary judgment, arguing that the relevant agreements do not permit the pharmacies to proceed to arbitration as a class. Rather, Catamaran contends that each pharmacy must engage Catamaran in bilateral arbitration proceedings.

After oral arguments, the district court denied Catamaran's motion for summary judgment. The court viewed the issue before it as twofold: (1) whether the availability of class arbitration is a substantive or a procedural question; and (2) whether the agreements clearly and unmistakably commit the class arbitration question to an arbitrator. On the first question, the court recognized that the Eighth Circuit has yet to offer an answer. The court surveyed case law from around the country but ultimately did not make any determination on this question. Instead, the court answered the second question in the affirmative. Relying on Eighth Circuit precedent analyzing bilateral arbitration, the court held that the agreements' reference to the AAA rules was a clear and unmistakable commitment for an arbitrator to decide whether the agreements contemplate class arbitration. Catamaran appeals.

II.

We review de novo a district court's order on a motion for summary judgment. See Lamoureux v. MPSC, Inc. , 849 F.3d 737, 739 (8th Cir. 2017).

A.

Under the FAA, arbitration agreements are deemed "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. But the FAA also imposes a basic principle: arbitration is a process of consent and not coercion. See Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp. , 559 U.S. 662, 681, 130 S.Ct. 1758, 176 L.Ed.2d 605 (2010). "[A]rbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." Howsam v. Dean Witter Reynolds, Inc. , 537 U.S. 79, 83, 123 S.Ct. 588, 154 L.Ed.2d 491 (2002) (internal quotation marks omitted). Courts must therefore play a threshold role to determine "whether the parties have submitted a particular dispute to arbitration." Id.

These threshold or gateway issues are called substantive questions of arbitrability. Substantive questions include "whether the parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy." Green Tree Fin. Corp. v. Bazzle , 539 U.S. 444, 452, 123 S.Ct. 2402, 156 L.Ed.2d 414 (2003). Courts presume that substantive questions are "for judicial determination [u]nless the parties clearly and unmistakably provide otherwise." Howsam , 537 U.S. at 83, 123 S.Ct. 588 (alteration in original) (internal quotation marks omitted). Because arbitration is about consent of the parties, we "hesitate to interpret silence or ambiguity" in an agreement as grounds for committing such important questions to an arbitrator. See First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 945, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).

Many questions that arise in the arbitration context are procedural or subsidiary questions that courts presume an arbitrator may decide. Howsam , 537 U.S. at 84, 123 S.Ct. 588. "Procedural questions arise once the obligation to arbitrate a matter is established, and may include such issues as the application of statutes of limitations, notice requirements, laches, and estoppel." Dell Webb Cmtys., Inc. v. Carlson , 817 F.3d 867, 873 (4th Cir.), cert. denied sub nom. Carlson v. Del Webb Cmtys., Inc. , –––U.S. ––––, 137 S.Ct. 567, 196 L.Ed.2d 444 (2016). These are questions for an arbitrator both because the parties would most likely expect an arbitrator to decide them, see Howsam , 537 U.S. at 84, 123 S.Ct. 588, and because they do not challenge the arbitrator's underlying authority, see AT&T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 648-49, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986).

B.

The first issue we must determine is whether the question of class arbitration is substantive in nature, and hence one for the court to decide absent clear and unmistakable language to the contrary, or procedural in nature and presumably for an arbitrator to decide.

The Supreme Court has not offered a definitive answer on this question. At one time, a plurality of the Court held that class arbitration was a procedural question for an arbitrator because "it concerns neither the validity of the arbitration clause nor its applicability to the underlying dispute between the parties." See Bazzle , 539 U.S. at 452, 123 S.Ct. 2402. Instead, the plurality considered class arbitration simply a matter of "contract interpretation and arbitration procedures." Id. at 453, 123 S.Ct. 2402. The plurality, we can safely assume, did not believe class arbitration affected or changed the underlying dispute. In later cases, however, the Supreme Court disavowed the Bazzle plurality's decision. In Stolt-Nielsen , the Court admonished the parties not to assume that arbitrators should decide whether a contract permitted class arbitration; "[i]n fact, however, only the [ Bazzle ] plurality decided that question." 559 U.S. at 680, 130 S.Ct. 1758. And in Oxford Health Plans, LLC v. Sutter , the Court stated emphatically that it "has not yet decided whether the availability of class arbitration" is a procedural or substantive question of arbitrability. ––– U.S. ––––, 133 S.Ct. 2064, 2068 n.2, 186 L.Ed.2d 113 (2013).

But recent cases have strongly hinted at the Supreme Court's ultimate conclusion: the question of class arbitration is substantive in nature and requires judicial determination. See Carlson , 817 F.3d at 875 ("The evolution of the Court's cases are but a short step away from the conclusion that whether an arbitration agreement authorizes class arbitration presents a question as to the arbitrator's inherent power, which requires judicial review."); Reed Elsevier, Inc. ex rel. LexisNexis Div. v. Crockett , 734 F.3d 594, 598 (6th Cir. 2013) ("[R]ecently the Court has given every indication, short of an outright holding, that classwide arbitrability is a gateway question rather than a subsidiary one."). To that predicted end, the Court has identified a number of fundamental differences between bilateral and class arbitration suggesting that the question of whether an agreement permits class arbitration is reserved for the courts to decide.

First, the benefits of arbitration are substantially lessened in a class arbitration proceeding. See Stolt-Nielsen , 559 U.S. at 685, 130...