143 F. Supp. 3d 530
W.D. Tex.2015Background
- Grasso Enterprises operates two in-network compounding pharmacies under Provider Agreements (2008, 2014) that incorporate a Provider Manual issued by CVS/Caremark. The Manual includes an arbitration clause and a procedure for CVS/Caremark to amend the Manual with notice.
- Grasso alleges CVS/Caremark used automated claim processing to appear to comply with a 30-day regulatory deadline, then performed audits/reversals after that period and withheld unrelated payments, violating ERISA, the ACA, and 29 C.F.R. § 2560.503-1.
- CVS/Caremark counters that a contractually permitted audit revealed overbilling exceeding $1 million and brought the arbitration motion after filing that defense.
- CVS/Caremark moved to dismiss and compel arbitration under the FAA; Grasso opposed, arguing the arbitration clause is illusory and unconscionable and sought a preliminary injunction to prevent network termination.
- The Court applied Arizona choice-of-law (as the agreements specify) and followed Fifth Circuit precedent (notably Crawford) in assessing enforceability and scope of arbitration.
- The Court found the arbitration agreement valid, held that the parties clearly and unmistakably delegated arbitrability to an arbitrator, stayed the case pending arbitration, and dismissed the preliminary injunction motion as moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of arbitration agreement (mutuality/illusory) | Arbitration clause is illusory because CVS can unilaterally amend the Manual and revoke arbitration | CVS lacks unilateral power to bind pharmacies without notice and acceptance; mutual remedies exist; Fifth Circuit precedent upholds clause | Agreement is valid; not illusory; challenge to entire contract validity goes to arbitrator (Buckeye principle) |
| Unconscionability (adhesion/confidentiality) | Clause is a contract of adhesion and confidentiality unfairly advantages repeat player CVS | Clause is standard, not facially unconscionable under Arizona law and Fifth Circuit precedents | Not unconscionable; confidentiality clause does not invalidate arbitration |
| Who decides arbitrability / scope of clause | Court should resolve which claims are arbitrable and whether injunction exception applies | Agreement incorporates AAA rules, which indicates delegation to arbitrator; dispute plausibly falls within arbitration clause | Parties clearly and unmistakably delegated arbitrability to arbitrator; because claim of arbitrability is not wholly groundless, arbitrator decides scope |
| Court's authority to hear preliminary injunction despite arbitration | Court may grant injunctive relief (exception in clause and some circuit precedent) | Arbitrator should decide arbitrability; exception applies only to breaches of the Provider Agreement; claims here are statutory (ERISA) | Court declines to rule; injunction motion dismissed as moot and arbitrator should consider injunctive issues if within scope |
Key Cases Cited
- Crawford Prof’l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249 (5th Cir. 2014) (upholding same Provider Manual arbitration clause and choice-of-law analysis)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (challenges to the validity of the entire contract are for the arbitrator)
- Douglas v. Regions Bank, 757 F.3d 460 (5th Cir. 2014) (arbitrability delegation requires clear and unmistakable evidence and not wholly groundless claim)
- Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671 (5th Cir. 2012) (incorporation of arbitration rules can be clear delegation of arbitrability)
- Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009) (FAA does not displace background state contract law governing arbitration agreements)