Crawford Prof'l Drugs, Inc. v. CVS Caremark Corp.

• Citation: 748 F.3d 249
• Decision Date: 04 April 2014
• Docket Number: No. 12–60922.,12–60922.
• Parties: CRAWFORD PROFESSIONAL DRUGS, INCORPORATED; Service Rexall Drugs; Okolona Drug Company, Incorporated; BSW, Incorporated; Burnham–McKinney Pharmacies, Incorporated; French's Pharmacy, Incorporated; John W. Farris, doing business as Ridgeland Discount Drugs, Incorporated, also known as Bo; Condon's East Union Pharmacy, Incorporated; McGuffee Drugs, Incorporated; Plaza Pharmacy, Incorporated; Southern Discount Drugs Of Charleston, Incorporated; Medical Plaza Pharmacy, Incorporated; Essco/Shooz Too!, Incorporated; Save Rite Pharmacy, Incorporated; Rocky McGarity, doing business as Edwards's Discount Drugs; Magic Mart Pharmacy, Incorporated; W.J. (Bill) Mosby, doing business as Mosby's Drug Store; Macon City Drug Store, Incorporated; Ashland Drugs, Incorporated; Brandon Discount Drugs, Incorporated; Duncan's Pharmacy, Incorporated; Richard Little, doing business as Little's Pharmacy; Tyson Drugs, Incorporated, Plaintiffs–Appellants v. CVS CAREMARK CORPORATION; CVS Pharmacy, Incorporated; Caremark RX, L.L.C.; Caremark, L.L.C., Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

748 F.3d 249

CRAWFORD PROFESSIONAL DRUGS, INCORPORATED; Service Rexall Drugs; Okolona Drug Company, Incorporated; BSW, Incorporated; Burnham–McKinney Pharmacies, Incorporated; French's Pharmacy, Incorporated; John W. Farris, doing business as Ridgeland Discount Drugs, Incorporated, also known as Bo; Condon's East Union Pharmacy, Incorporated; McGuffee Drugs, Incorporated; Plaza Pharmacy, Incorporated; Southern Discount Drugs Of Charleston, Incorporated; Medical Plaza Pharmacy, Incorporated; Essco/Shooz Too!, Incorporated; Save Rite Pharmacy, Incorporated; Rocky McGarity, doing business as Edwards's Discount Drugs; Magic Mart Pharmacy, Incorporated; W.J. (Bill) Mosby, doing business as Mosby's Drug Store; Macon City Drug Store, Incorporated; Ashland Drugs, Incorporated; Brandon Discount Drugs, Incorporated; Duncan's Pharmacy, Incorporated; Richard Little, doing business as Little's Pharmacy; Tyson Drugs, Incorporated, Plaintiffs–Appellants

v.CVS CAREMARK CORPORATION; CVS Pharmacy, Incorporated; Caremark RX, L.L.C.; Caremark, L.L.C., Defendants–Appellees.

No. 12–60922.

United States Court of Appeals,Fifth Circuit.

April 4, 2014.

J. Price Coleman (argued), Coleman Law Firm, Oxford, MS, Timothy Joseph Giattina, Esq., Attorney, Clyde Talbot Turner, Esq., Turner & Associates, P.A., North Little Rock, AR, for Plaintiffs–Appellants.

Robert Harl Griffith, Foley & Lardner, L.L.P., Chicago, IL, Michael D. Leffel (argued),Foley & Lardner, L.L.P., Madison, WI, Mark Herndon Tyson, McGlinchey Stafford, P.L.L.C., Jackson, MS, for Defendants–Appellees.

Appeal from the United States District Court for the Southern District of Mississippi.

Before SMITH, DENNIS, and HIGGINSON, Circuit Judges.

JAMES L. DENNIS, Circuit Judge:

The principal issue in this appeal is whether the district court erred in ordering the plaintiffs to submit their claims to arbitration. The Plaintiffs, entities that operate twenty-three locally owned drug stores in Mississippi, brought suit in Mississippi state court against the Defendants seeking damages and declarative and injunctive relief. The four Defendants, (1) Caremark, L.L.C. (“Caremark”), (2) CVS Caremark Corporation (“CVS Caremark”), (3) CVS Pharmacy, Inc. (“CVS Pharmacy”), and (4) Caremark Rx, L.L.C. (“Caremark Rx”), own and operate the second-largest chain of pharmacies and the largest pharmacy-benefit-management (“PBM”) network ¹ in the United States. In their suit, the Plaintiffs assert two claims: first, that the Defendants committed common-law trade-secret misappropriation and intentional interference with business relations by unlawfully taking patient and prescription information confidentially disclosed by the Plaintiffs and by using that data to persuade patients and consumers to have prescriptions filled by pharmacies owned and operated by the Defendants, rather than by the Plaintiffs' drug stores; and, second, that the Defendants, by excluding the Plaintiffs from certain Defendant-administered PBM networks have violated Mississippi's Any Willing Provider Law, which protects a patient's right to use any pharmacy of his choosing.

It is undisputed that two Plaintiffs entered into an agreement with Caremark (“the Provider Agreement”), which incorporates by reference another document (“the Provider Manual”), which contains an arbitration clause. It is also undisputed that all other Plaintiffs entered into a Provider Agreement, which incorporates by reference the Provider Manual, with CaremarkPCS, which is not one of the four Defendants named in this suit. The remaining three Defendants—CVS Caremark, CVS Pharmacy, and Caremark Rx (“the non-signatory Defendants”)—are non-signatories to any iteration of the Provider Agreement. After removing the Plaintiffs' suit to federal court, all four Defendants moved to compel the Plaintiffs to arbitrate their claims pursuant to the arbitration contracts to which all or most the Defendants were not signatories under the Federal Arbitration Act (“FAA”), see9 U.S.C. §§ 3–4. The Plaintiffs opposed the motion to compel arbitration, arguing that: (1) they may not be compelled to arbitrate their claims against the non-signatory Defendants because they had never entered into an agreement to arbitrate with those entities; (2) their claims are not subject to the Provider Agreement's arbitration clause; and (3) the Provider Agreement and the Provider Manual's arbitration clause are procedurally and substantively unconscionable under Mississippi law. The district court rejected the Plaintiffs' arguments and ordered them to submit their claims against all four Defendants to arbitration.

In Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 129 S.Ct. 1896, 173 L.Ed.2d 832 (2009), the Supreme Court held that, under the FAA, traditional principles of state law may allow an arbitration contract to be enforced by or against nonparties to the contract through a number of state-contract-law theories, including equitable estoppel. The relevant Arizona law, made controlling by the Provider Agreement's choice-of-law clause, supports the non-signatory Defendants' motion to enforce the agreement to arbitrate against the Plaintiffs based on state-law equitable estoppel doctrine. Accordingly we AFFIRM the district court's judgment compelling arbitration. Coincidentally, we recognize that our prior decisions applying federal common law, rather than state contract law, to decide such questions, see Grigson v. Creative Artists Agency L.L.C., 210 F.3d 524 (5th Cir.2000), have been modified to conform with Arthur Andersen.

BACKGROUND

The Defendants were formed in 2007 when CVS, a national pharmacy chain, merged with Caremark, the PBM. Insurance carriers frequently hire PBMs to administer the payment of claims for prescription drugs. Accordingly, following the merger, the Defendants operated retail pharmacies that were direct competitors to those owned and operated by the Plaintiffs. At the same time, the Defendants became responsible for administering insurance claims for prescription drug benefits. Each Plaintiff provides services in at least one of the PBM networks operated by the Defendants. They receive access to participants in those networks in exchange for agreeing to fill prescriptions at discounted prices.

The Plaintiffs brought suit against the Defendants in Mississippi state court. The Plaintiffs assert that the Defendants conspired in various ways to harm the Plaintiffs' business interests. In particular, the Plaintiffs allege that the Defendants collected proprietary patient information from local pharmacies that participate in their PBM networks and used that information for the financial benefit of CVS pharmacies. The Plaintiffs further allege that the Defendants accepted payments from drug companies to directly market certain drugs to patients who are likely candidates based on their prescription history and that the Defendants directly targeted patients who filled subscriptions at non-CVS pharmacies for marketing of CVS pharmacies and services. Lastly, the Plaintiffs assert that the Defendants conspired to deprive patients of their right to use any pharmacy of their choosing by forming pharmacy networks that either exclude non-CVS pharmacies or provide economic incentives for using CVS pharmacies. SeeMiss.Code Ann. § 83–9–6.² The Plaintiffs allege that the Defendants coerced prescription-drug benefit plans into requiring that all routine maintenance prescriptions be filled at CVS pharmacies. The Plaintiffs argued that these actions deprived them of millions of dollars in potential business and that the Defendants' actions violated Mississippi's Uniform Trade Secrets Act and Any Willing Provider Law. Additionally, the Plaintiffs claimed intentional interference with business relations and requested damages and injunctive relief.

The Defendants removed the action to the U.S. District Court for the Southern District of Mississippi and moved to compel the Plaintiffs to arbitrate their claims against all four Defendants (or, in the alternative, to stay the federal proceeding until arbitration was completed) on the basis of the Provider Agreement and the Provider Manual's arbitration clause. The district court found—and the Plaintiffs have not disputed—that each Plaintiff is a party to a Provider Agreement that incorporates the terms of the Provider Manual, which in turn includes an arbitration clause. That clause provides:

Any and all disputes in connection with or arising out of the Provider Agreement by the parties 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 for in the Provider Agreement.... Any such arbitration must be conducted in Scottsdale, Arizona, and Provider agrees to such jurisdiction, unless otherwise agreed to by the parties in writing. The expenses of arbitration, including reasonable attorney's fees, will be paid for by the party against whom the award of the arbitrator is rendered.... Arbitration shall be the exclusive and final remedy for any dispute between the parties in connection with or arising out of the Provider Agreement; provided, however, that nothing in this provision shall prevent either party from seeking injunctive relief for breach of this Provider Agreement in any state or federal court of law....

The district court granted the Defendants' motion to compel arbitration and dismissed the plaintiffs' civil actions with prejudice. The Plaintiffs filed a timely notice of appeal.

STANDARD OF REVIEW

“This court reviews an order compelling arbitration de novo.” Paper, Allied–Indus. Chem. & Energy Workers Int'l Union, Local 4–12 v. Exxon Mobil Corp., 657 F.3d 272, 275 (5th Cir.2011). “We review the district court's findings of fact under the clearly erroneous standard.” Cargill Inc. v. Golden Chariot MV, 31 F.3d 316, 317 (5th Cir.1994). We review the district...