First Health Group v. National Prescription Adm'Rs
| Decision Date | 19 July 2001 |
| Docket Number | No. CIV. A. 1CV00312.,CIV. A. 1CV00312. |
| Citation | 155 F.Supp.2d 194 |
| Parties | FIRST HEALTH GROUP CORP., Plaintiff, v. NATIONAL PRESCRIPTION ADMINISTRATORS, INC., and David W. Norton, Defendants. |
| Court | U.S. District Court — Middle District of Pennsylvania |
Thomas B. York, Dilworth Paxson LLP, Christine D. Consiglio, Dilworth Paxson, LLP, Harrisburg, PA, for National Prescription Administrators, Inc., David W. Norton, defendants.
I. Introduction ..................................................................... 198
II. Findings of Fact ................................................................. 199
III. Discussion and Conclusions of Law ................................................ 215
A. Choice of Law ................................................................ 215
B. Legal Standards for Injunctive Relief ........................................ 216
C. Probability of Success on the Merits ......................................... 216
1. First Health v. Norton and NPA—Misappropriation of Trade Secrets ... 216
2. First Health v. Norton—Breach of Contract .......................... 228
3. First Health v. Norton—Intentional Interference with Prospective
Contractual Relationship ............................................... 231
4. First Health v. NPA—Intentional Interference with Prospective
Contractual Relations .................................................. 233
5. First Health v. NPA—Intentional Interference with Contractual
Relations .............................................................. 233
D. Irreparable Harm ............................................................. 234
1. First Health v. Norton and NPA—Misappropriation of Trade Secrets ... 236
2. First Health v. Norton—Breach of Contract .......................... 237
3. Tortious Interference Claims ............................................. 237
IV. Conclusion ....................................................................... 238
Plaintiff First Health Group Corp. ("First Health") initiated this diversity action against David W. Norton ("Norton") and National Prescription Administrators, Inc. ("NPA"), by filing a complaint, motion for temporary restraining order, motion for preliminary injunction, and motion for expedited discovery on February 22, 2000. Plaintiff's complaint alleges claims of breach of contract, misappropriation of trade secrets, breach of fiduciary duty, tortious interference with contract, and tortious interference with a prospective economic advantage, against Norton and NPA, arising out of NPA's successful 1999 bid to manage and administer Pennsylvania's Pharmaceutical Assistance Contract for the Elderly ("PACE") program. Plaintiff's claims against Norton arise out of his role as a former employee of First Health (and officer-in-charge of the PACE program) and his later role as a consultant to NPA in connection with the preparation of its successful 1999 bid to manage and administer the PACE program.
The Court denied Plaintiff's motion for a temporary restraining order on February 23, 2000, and held a hearing on Plaintiff's motion for preliminary injunction on May 15-18 and 24, 2000. Based on the testimony presented and documentary evidence introduced at the hearing, and upon consideration of the briefs and proposed factual findings submitted by the parties, the Court makes the following findings of fact and conclusions of law. For the reasons set forth below, the court will deny Plaintiff's motion for a preliminary injunction.
1. In 1983, the General Assembly of the Commonwealth of Pennsylvania enacted legislation that established the PACE program to provide prescription drugs to eligible senior citizens.
2. The Pennsylvania Department of Aging ("PDA") administers the program through a contractor. The contractor maintains operations to determine cardholder eligibility, provide cardholder services, enroll providers, maintain provider relations, adjudicate on-line claims, administer clinical programs (such as retrospective and prospective drug utilization review, disease state management programs, and establishment of drug formularies), administer manufacturers' rebates, and manage PDA's funding stream.
3. First Health Group Corporation is the parent company of First Health Services Corporation. First Health Services Corporation is a national company that manages and administers, in approximately twenty-two (22) states, Medicaid and other public assistance programs including, but not limited to, government-funded entitlement programs. First Health Services Corporation derives an important part of its business from government-funded pharmacy benefit programs. First Health Group Corporation (operating through First Health Services Corporation) is currently the contract administrator for government-funded programs that provide prescription drug benefits for the elderly, such as the New York EPIC program and PACE.1
4. First Health submitted a bid proposal in response to the initial RFP issued by the PDA for the PACE program in 1983, and was awarded the contract.
5. Since 1983, First Health has been the only contractor to manage and administer the PACE program, having won three (3) subsequent bids in 1987, 1990 and 1995. The contract term of the PACE contract entered into between PDA and First Health in 1995 was originally three years. In 1998, PDA extended its contract with First Health for the two year period from 1998-2000.
6. Thomas Snedden ("Snedden"), Director of the PACE program for PDA, has consistently given First Health an "A-plus" rating with respect to First Health's performance under the PACE contract.
7. In each and every re-procurement of the PACE contract before 1999, First Health had always been the lowest bidder.
8. Ninety-five percent of NPA's business is as an administrator of commercial health care benefit programs. NPA has never managed or administered either the PACE program or a comparable government-funded entitlement program.
9. Relevant portions of the contract between First Health and the PDA read:
a. The Department maintains full ownership rights to the administrative and operating system. The Contractor understands and agrees that all computer programs, manual procedures, operating plans and procedures, documentation, data, records and related items developed by Contractor for, or used by Contractor in the administration of the PACE program (except for Contractors' or any subcontractors' proprietary software, proprietary software leased or licensed by the Contractor or any subcontractors and those items directly related) are owned without qualification by the Department, and that such ownership of these elements shall continue and remain in the PACE program unimpaired during the term of, and subsequent to termination of this Agreement. Any enhancements to, changes in or augmentation or creation of any such elements during the term of this Agreement shall be owned by the Department without qualification. It shall be a fundamental duty of the Contractor to ensure Department ownership of such elements in such manner and at such times as herein provided.
b. In the event Contractor or subcontractor proprietary software utilities (programs) are utilized in the operation of the system, Contractor agrees upon request by the Department to grant to the Department at the end of [this agreement] a non-exclusive, non-transferable license for three years to use the programs required to operate the PACE system subject to the following conditions: [t]he programs shall only be used by the Department or the Department's successor PACE contractor(s) to operate the PACE system ....
c. All computer files, computer programs and related items developed by the Contractor for the program shall be owned fully and without restriction by the Department....
10. While the PDA owns the administrative and operating system, it does not own the way in which the Contractor ties together all the individual elements to manage the PACE program.
11. The contract requires that First Health provide documentation for proprietary software directly affecting the PACE program including "the name of the software vendor, the method of acquisition, the identification of the party responsible for maintenance ... warranties applicable to the software and the software contract or lease."
12. The contract further requires First Health to deliver to the PDA a description of all manual procedures, including copies of the programs, the instruction manuals and the procedure manuals that are used.
13. On or about September 14, 1999, PDA forwarded the its request for proposals ("1999 RFP") for the contract to manage and administer the PACE program for the period commencing July 1, 2000 to First Health, NPA and other potential bidders.
14. Norton was not on PDA's list of potential bidders for the PACE contract, and did not receive a copy of the 1999 RFP from PDA.
15. The 1999 RFP required all bid proposals to include, among other things, a technical proposal setting forth (i) a statement of understanding, management summary, work plan (addressing the three separate tasks of program takeover, operation and turnover), bidder's experience and personnel (collectively the "technical proposal"); (ii) a proposal to include Socially/Economically Restricted Businesses ("SERB"), and (iii) a cost and price proposal.
16. The 1999 RFP required that all bidders address the PACE program, the PACE needs enhancement tier ("PACENET") program and certain related ancillary programs, such as Chronic...
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