Me. Cmty. Health Options v. CVS Pharmacy, Inc.

• Decision Date: 09 March 2020
• Docket Number: C.A. No. 20-10JJM
• Parties: MAINE COMMUNITY HEALTH OPTIONS, Plaintiff, v. CVS PHARMACY, INC., Defendant.
• Court: U.S. District Court — District of Rhode Island

MAINE COMMUNITY HEALTH OPTIONS, Plaintiff, v. CVS PHARMACY, INC., Defendant.

C.A. No. 20-10JJM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND

March 9, 2020

REPORT AND RECOMMENDATION

PATRICIA A. SULLIVAN, United States Magistrate Judge.

Pursuant to § 7 of the Federal Arbitration Act (9 U.S.C. § 7) ("FAA"), Maine Community Health Options ("Health Options") has petitioned for enforcement of an arbitration subpoena duces tecum issued to CVS Pharmacy, Inc. ("CVS"), in an American Arbitration Association arbitration ("Arbitration") of its dispute with Navitus Health Solutions, LLC ("Navitus"), a pharmacy benefits manager. ECF No. 1 ("Petition"). In the Arbitration, Health Options claims that Navitus failed properly to calculate the usual and customary ("U&C") prices that it charged Health Options for drugs purchased by its members, resulting in millions of dollars in overcharges. The Arbitration is presided over by a panel of arbitrators ("Panel") that authorized the issuance of subpoenas to the retail pharmacies in the Navitus network, including CVS.

Health Options filed the Petition because CVS refused to comply, beyond providing Health Benefits with information regarding its "Health Savings Program" ("HSP"), unless ordered to do so by a court. Focused on the period from January 1, 2014, until June 30, 2016, the Petition asks the Court to compel CVS to produce price lists, transaction data, and documents, with some requests based on a "sufficient to show" standard and others encompassing "all communications" or "all documents and communications" relating to CVS's price for retail transactions with individuals who pay without insurance. ECF No. 1-2. In opposition, CVS argues that this Court lacks subject matter jurisdiction. And if there is subject matter jurisdiction, it contends that it should not be further ordered to comply because of the burden of doing so and the lack of materiality or relevance of the requested data and documents.

The Petition has been referred to me for determination. However, although it presents a dispute that may be boiled down to a simple discovery scuffle, its resolution is also outcome-determinative of the entire case. Therefore, I have addressed it in this report and recommendation. 28 U.S.C. § 636(b)(1)(B).¹

I. LAW AND ANALYSIS

A. Subject Matter Jurisdiction

Although the FAA animates the Petition, it does not supply federal jurisdiction. Joia v. Jozon Enters., Inc., C.A. No. 18-365WES, 2019 WL 1226986, at *5 (D.R.I. Mar. 13, 2019). "[F]or jurisdiction over controversies touching arbitration," the FAA "bestow[s] no federal jurisdiction but rather require[s] an independent jurisdictional basis." Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 581-82 (2008); see UBS Fin. Servs. Inc. v. Asociacion de Empleados del Estado Libre Asociado de P.R., 223 F. Supp. 3d 134, 137 (D.P.R. 2016) ("To open the federal court's door, a party must demonstrate an independent basis for jurisdiction over the arbitration-relateddispute."). The burden of establishing federal jurisdiction over this proceeding to enforce an arbitral subpoena rests on Health Options. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted).

Health Options has asserted diversity jurisdiction based on 28 U.S.C. § 1332(a)(1). Petition ¶ 10. This requires that "the matter in controversy exceeds the sum or value of $75,000" and the parties on either side are "citizens of different States." Id. The parties concur that diversity is met: Health Options is a citizen of Maine, and CVS is a citizen of Rhode Island. Petition ¶¶ 4, 6. As to the jurisdictional minimum, unless challenged by the opposing party or the Court, a general allegation is sufficient to support jurisdiction. Dep't of Recreation & Sports of P.R. v. World Boxing Ass'n, 942 F.2d 84, 88 (1st Cir. 1991) (citing Gibbs v. Buck, 307 U.S. 66, 72, (1939)). Here, however, CVS has mounted such a challenge grounded in the parties' vigorous disagreement over how to measure the jurisdictional minimum in the FAA context. Relying on what it contends is the right yardstick, CVS argues that Health Options has failed to sustain its burden of demonstrating that there is $75,000 in controversy. Therefore, it asks the Court to dismiss the Petition.

In a case where the plaintiff seeks money damages, calculating the § 1332 minimum is relatively simple - the claimant must show that the pecuniary consequences of the judgment might crest $75,000 to sustain diversity jurisdiction. Kilgore v. Providence Place Mall, C.A. No. 16-135S, 2016 WL 3092990, at *3 (D.R.I. Apr. 1, 2016), adopted, C.A. No. 16-135 S, 2016 WL 3093450 (D.R.I. June 1, 2016). But that is not our case. Health Options' Petition pursues relief analogous to an injunction, a court order compelling CVS's compliance with an arbitral subpoena. Petition at 12. In such circumstances, "when the relief sought is declaratory or injunctive," it is well settled that "'the amount in controversy is measured by the value of theobject of the litigation.'" Hernandez v. US Bank, N.A., 318 F. Supp. 3d 558, 559 (D.R.I. 2018) (quoting Hunt v. Wash. State Apple Advert. Comm'n, 432 U.S. 333, 347 (1977)). Guidance in our Circuit permits the calculation to focus on the value to the plaintiff of the equitable relief sought, or it may be based on the "defendant's viewpoint," resulting in jurisdictional findings that rest on "the alleged pecuniary burden on the defendants were plaintiffs to prevail." Grotzke v. Kurz, 887 F. Supp. 53, 56-57 (D.R.I. 1995). Importantly, the party asserting jurisdiction is not required to prove an injury to itself or the other party definitively valued at more than $75,000. As the First Circuit has held, "the party seeking to invoke jurisdiction has the burden of alleging with sufficient particularity facts indicating that it is not a legal certainty that the claim involves less than the jurisdictional amount." Dep't of Recreation & Sports of P.R., 942 F.2d at 88 (emphasis supplied).

While this guidance is workable for a typical case where the underlying dispute is between the parties before the court, the law is less well developed regarding the applicability of these principles in the context of actions to enforce arbitration subpoenas. As of this writing, federal district courts around the country embrace diametrically opposed approaches to the measurement of the amount in controversy, differing principally on whether and to what extent the underlying arbitration affects the outcome.

Some courts have held that the value of the underlying arbitration controls or plays a significant role in calculating the amount in controversy. See, e.g., Next Level Planning & Wealth Mgmt., LLC v. Prudential Ins. Co. of Am., No. 18-MC-65, 2019 WL 585672, at *2 (E.D. Wis. Feb. 13, 2019), adopted, No. 18-MC-65-PP, 2019 WL 1466049 (E.D. Wis. Apr. 3, 2019); Wash. Nat'l Ins. Co. v. Obex Grp. LLC, No. 18 CV 9693 (VB), 2019 WL 266681, at *4 (S.D.N.Y. Jan. 18, 2019); Fed. Ins. Co. v. Law Offices of Edward T. Joyce, P.C., No. 08 C 0431,2008 WL 4348604, at *1 (N.D. Ill. Mar. 13, 2008). These courts reason that, if the petitioner seeks, for example, "$134 million in damages in the underlying arbitration [, and] documents responsive to the summonses pertain to only a small fraction of that sum, the amount in controversy requirement would still be satisfied." Wash. Nat'l Ins., 2019 WL 266681, at *4. With an arbitration that seeks to recover millions of dollars in alleged overcharges from Navitus, Health Options marshals this line of cases in support of its argument that the $75,000 amount-in-controversy in its dispute with CVS is readily established. If Health Options is right on the law, it is clear that this Court has diversity jurisdiction.

In challenging the amount in controversy, CVS relies on the holdings of other courts - these conclude that the money at issue in the underlying arbitration is not applicable to the federal court's § 1332 jurisdictional analysis. Royal Merch. Holdings, LLC v. Traeger Pellet Grills, LLC, No. 2:19-MC-00108-DB-EJF, 2019 WL 2502937, at *5 (D. Utah June 17, 2019), adopted, No. 2:19-MC-108, 2019 WL 2774280 (D. Utah July 2, 2019); Zurich Ins. PLC v. Ethos Energy (USA) LLC, C.A. No. 4:15-CV-03580, 2016 WL 4363399, at *3 (S.D. Tex. Aug. 16, 2016); In re Application of Ann Cianflone, No. Misc. 3:14-MC-63, 2014 WL 6883128, at *1 (N.D.N.Y. Dec. 4, 2014); Chicago Bridge & Iron Co. N.V. v. TRC Acquisition, LLC, C.A. No. 14-1191, 2014 WL 3796395, at *2 (E.D. La. July 29, 2014). Emphasizing the limited reach of federal jurisdiction, these courts point out that the federal court action does not involve the parties joined in the arbitration - rather, it involves an arbitration party and a third party who is not named in the arbitration. See Royal Merch. Holdings, 2019 WL 2502937, at *4 ("[T]he controversy before this Court relates to the enforcement of the subpoena served on [the third party], not the underlying arbitration."). These cases focus on the adverse impact of subpoenacompliance on the third-party. See id. At *5 (with no facts to establish that subpoena compliance viewed in isolation would meet $75,000 threshold, petition dismissed).

Fortunately, this Court does not need to resolve this knotty conundrum. If the Court accepts and applies the Royal Merch. Holdings test, as CVS argues it should, it is clear that this record contains more than enough to permit the exercise of diversity subject matter jurisdiction under 28 U.S.C. § 1332. This conclusion rests on CVS's declarations and the arguments it offered to support its alternative contention that subpoena compliance would impose a substantial burden.

First, William Boyd, CVS's Information Technology Director, laid out his experience in extracting data and his specific experience with the data on U&C prices and the HSP program; he estimated that compliance with Health Options' subpoena would require at least two months and...