CZ Servs., Inc. v. Express Scripts Holding Co.
| Decision Date | 30 July 2020 |
| Docket Number | Case No. 3:18-cv-04217-JD |
| Court | U.S. District Court — Northern District of California |
| Parties | CZ SERVICES, INC., et al., Plaintiffs, v. EXPRESS SCRIPTS HOLDING COMPANY, et al., Defendants. |
In this dispute between a pharmacy and a pharmacy benefits manager ("PBM"), the parties have filed a blizzard of summary judgment motions, Dkt. Nos. 239, 244, and motions to exclude experts under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), Dkt. Nos. 241, 243, 246, 247. The motions were accompanied by multiple declarations with hundreds of pages of exhibits. Defendants also filed a motion to strike certain declarations as untimely under Federal Rule of Civil Procedure 26. Dkt. No. 303. Both sides have asked to seal substantial portions of their briefs, declarations, and exhibits, which has compounded the burden on the Court and, more importantly, unfairly sought to hide to these proceedings from public access and scrutiny.
The Court took oral argument on the summary judgment and Daubert motions. Dkt. No. 329. The Court finds the motion to strike suitable for decision on the papers pursuant to Civil Local Rule 7-1(b). This order resolves the pending summary judgment motions. An order on the Daubert motions, and the related motion to strike, will be filed shortly. The sealing motions will be denied in a separate order. The docket references here are to the unredacted briefs and other documents, which will be ordered to be filed.
The basic factual background for the case was discussed in detail in the orders denying transfer and plaintiffs' application for a TRO. Dkt. Nos. 57, 92. The parties' familiarity with the record is assumed.
In summary, plaintiffs CZ Services, Inc. ("CZ California") and its wholly owned subsidiary, CareZone Pharmacy LLC ("CZ Tennessee"), are retail pharmacy businesses. They are referred to here as "CZ Pharmacies" when discussed together. Defendants Express Scripts, Inc. and Express Scripts Holding Company ("ESI") are a large, national PBM that provides prescription drugs to customers through, as relevant here, a retail pharmacy network on behalf of health insurance companies. CZ California and CZ Tennessee participated under a contract in ESI's retail network until ESI terminated that arrangement in 2018.
This lawsuit arises out of the termination. CZ Pharmacies filed a complaint alleging that ESI made up a variety of pretextual reasons to terminate the contract because ESI feared CZ Pharmacies as a rising competitor. The pretexts included allegations by ESI that the pharmacies operated out of compliance with various state regulatory laws, and was running a mail order drug service that violated the express terms of the contract. CZ Pharmacies sued ESI for defamation under the Lanham Act and unspecified state laws, and brought claims for unfair competition under California and Tennessee law, and a claim under Tennessee's Any Willing Provider ("AWP") statute. Dkt. No. 24. The AWP prohibits insurers from excluding a licensed pharmacy from their networks if the pharmacy agrees to participate on the same terms and conditions offered to other pharmacies.
ESI filed counterclaims against plaintiffs and the additional parties of Care Zone Inc. ("CareZone"), which operates an online app for pharmacy customers, and Jonathan Schwartz, the CEO of CareZone, and the founder, president, and sole owner of CZ Pharmacies. ESI alleges counterclaims for breach of contract, promissory fraud/fraudulent inducement, and defamation for some online posts attributed to counter-defendants. Dkt. No. 154.
The organization and legal relationship of the CZ entities is of importance as a backdrop for the pending motions. The parties are not in agreement on all of the details, but both sidesappear to accept this organization chart for purposes of the motions, and the Court will do the same:
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Dkt. No. 249-9; see Dkt. No. 328 at 34:23-35:8 (). The "call option," which is the link between CareZone and the pharmacies, gives CareZone the option to purchase the CZ Pharmacies for the nominal sum of $200. Dkt. No. 249-15.
As the voluminous mass of the pending motions indicates, the parties have engaged in scorched-earth tactics from the beginning of this case. The summary judgment motions did not benefit from this approach. Each side sought to kick out virtually every claim by the other, which means that weighty issues were often superficially discussed, without adequate development and analysis. The motions are also replete with factual disputes. The Court would have been well within bounds to deny summary judgment across the board on this record. See FTC v. D-Link Sys., Inc., Case No. 17-cv-00039-JD, 2018 WL 6040192, at *1 (N.D. Cal. Nov. 5, 2018). Nevertheless, it undertook the unduly arduous task of sorting through the motions with the hope that this order will focus the case for settlement or trial. With the guidance provided here, the Court orders the parties to return to the mediator, Ambassador (ret.) Jeffrey L. Bleich, for a mandatory settlement conference on a date the mediator can accommodate.
Parties Fed. R. Civ. P. 56(a). The Court may dispose of less than the entire case and even just portions of a claim or defense. Smith v. Cal. Dep't of Highway Patrol, 75 F. Supp. 3d 1173, 1179 (N.D. Cal. 2014). A dispute is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is material if it could affect the outcome of the suit under the governing law. Id.
To determine whether a genuine dispute as to any material fact exists, the Court views the evidence in the light most favorable to the nonmoving party, and "all justifiable inferences are to be drawn" in that party's favor. Id. at 255. The moving party may initially establish the absence of a genuine issue of material fact by "pointing out to the district court that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). It is then the nonmoving party's burden to go beyond the pleadings and identify specific facts that show a genuine issue for trial. Id. at 323-24. "A scintilla of evidence or evidence that is merely colorable or not significantly probative does not present a genuine issue of material fact." Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000).
It is not the Court's responsibility to root through the record to establish the absence of factual disputes, Arvin Kam Constr. Co. v. Envtl. Chem. Corp., Case No. 16-cv-02643-JD, 2019 WL 1598220, at *1 (N.D. Cal. Apr. 15, 2019), or to look for evidence on the nonmoving parties' behalf, Winding Creek Solar LLC v. Peevey, 293 F. Supp. 3d 980, 989 (N.D. Cal. 2017), aff'd, 932 F.3d 861 (9th Cir. 2019). While the volume of the parties' briefs, declarations, and exhibits is not necessarily fatal to summary judgment, it is indicative of disputes of fact that will require a trial to resolve. See D-Link Sys., 2018 WL 6040192, at *1.
CZ sought summary judgment on all of ESI's counterclaims on the grounds that the PBM had failed to provide any computation, or even a rough estimate, of its alleged damages for the breach of contract, fraud, and defamation counterclaims. In effect, CZ brought a motion for preclusion under Rules 26 and 37 for failure to provide damages evidence in a timely manner. See Dkt. No. 238-4 at 4-7. From this, CZ Pharmacies says summary judgment should be granted because ESI cannot present any evidence on the essential element of damages for its counterclaims. Id. at 9-12. The motion is premised on the representation that ESI never "identified even the order of magnitude of the damages it seeks on its counterclaims, much less any calculation of its damages numbers or the method it intends to use to calculate its alleged damages." Id. at 5.
ESI opposes summary judgment on the grounds that it has disclosed "all of the information the Counterclaim Defendants [i.e. CZ] need to calculate compensatory damages." Dkt. No. 271-4 at 1. But it diluted this seemingly straightforward response by arguing that: (1) neither side properly disclosed their damages in their initial disclosures or elsewhere, but whatever ESI did was better than what the CZ Pharmacies did; (2) it provided documents from which CZ could determine ESI's damages claims by "simply adding up" the numbers; and (3) in any event, ESI may be seeking only nominal damages, attorney's fees, and punitive damages, and not actual damages. See id. at 2, 5-7.
At the motion hearing, the Court spent considerable effort on clarifying these arguments and other ambiguities in the parties' briefs, such as the choice of governing law. In response to the Court's inquiries, the parties agreed that ESI's counterclaim for promissory fraud or fraudulent inducement should be decided under California law, and that they waived any appeal on this choice of law. Dkt. No. 328 at 10:17-11:16. The parties also agreed that ESI's contract claims were governed by Missouri law because of a choice-of-law provision in the provider agreements. Dkt. No. 290-4 at 11. ESI agreed its defamation claim should be dismissed because of its failure to provide evidence of special damages. Dkt. No. 328 at 15:18-25. That claim is dismissed.
CZ's summary judgment motion is at heart a discovery sanction request, and the...
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