588 F.Supp.3d 424
S.D.N.Y.2022Background
- NYCTA hired Express Scripts as its PBM under a three-year contract (2016–2019) to administer prescription benefits for ~155,000 members.
- Contract provisions at issue: Section 4.1 (standard of care), 4.2 (claims processing), 4.7 (overpayment recovery), 4.14 (personnel/audits), 4.16 (network pharmacy selection/monitoring), and an optional paid fraud program in Section 4.35 (which NYCTA did not purchase).
- Compound-drug spending rose sharply under Express Scripts (~$6M before, ≈$93M during term), driven largely by one pharmacy (Fusion) and two prescribers (Cohen, Honig).
- NYCTA contends Express Scripts failed to identify, investigate, or timely report indicia of large-scale fraud; Express Scripts contends the contract does not impose affirmative fraud-detection duties beyond the paid program and disputes causation.
- NYCTA terminated the contract and sued for breach; parties cross-moved (summary judgment and Daubert) and the court resolved duties, damages disclosure, causation, and expert admissibility issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Contractual duty to detect/prevent fraud (Sections 4.1, 4.2, 4.16, 4.7, 4.14) | Contract language (standard of care; claims processing; monitoring; overpayment recovery) imposes duties to investigate and respond to indicia of fraud | Only the paid Section 4.35 creates an enhanced fraud program; other provisions don’t unambiguously impose fraud-detection duties | Contract ambiguous as to scope of duties under 4.1, 4.2, 4.16, 4.7; summary judgment denied on Counts 1,2,4,5; Count 3 (4.14) deemed abandoned and granted for defendant; Count 6 (Section 4.35 EGWP) granted for defendant |
| Proof of breach and requirement to show specific fraudulent claims | NYCTA need not prove each claim was fraudulent — it need only show Express Scripts breached contractual monitoring/claims-processing standards, causing losses | NYCTA must identify and prove individual fraudulent claims that Express Scripts failed to detect | Court: NYCTA need not prove each claim fraudulent; genuine factual disputes on breach/causation preclude summary judgment |
| Causation (did Express Scripts cause increased compound spend?) | Express Scripts’ alleged failures to alert/act caused NYCTA to delay blocking outliers and incur excess spend | NYCTA would have failed to act even with notice; alternative causes for spend spike | Court found sufficient evidence for a reasonable jury to find causation; summary judgment denied on causation grounds |
| Damages disclosure and admissibility (Rule 26 / Rule 37) | NYCTA’s late/insufficient damages computation should not result in preclusion because underlying raw claims data was produced and evidence is vital | Seek exclusion/preclusion of NYCTA’s compensatory damages for Rule 26 failures | Preclusion is too harsh; sanctions not appropriate here given access to underlying data — damages evidence (summary charts based on raw data) admissible; summary judgment on damages denied |
| Expert exclusion (Susan Hayes — industry standards, network monitoring, pricing incentives) | Hayes is qualified; her opinions are based on industry experience, reports, and claims data | Move to exclude under Daubert as unqualified, unreliable, legal conclusions, or improper motive evidence | Court denied Daubert motion in full; Hayes admissible; methodological/factual attacks go to weight not admissibility |
| Non-compound (non‑FDA) claims — need for expert to determine FDA approval | NYCTA: expert not necessary to determine which drugs lacked FDA approval | Express Scripts: specialized expert required to establish FDA approval status | Court: lay comparison of lists suffices; expert not required; summary judgment denied on these claims |
Key Cases Cited
- Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579 (1993) (trial judge is gatekeeper to ensure expert testimony rests on reliable foundation and is relevant)
- Kumho Tire Co. v. Carmichael, 526 U.S. 137 (1999) (Daubert gatekeeping applies to all expert testimony, including experience‑based)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) (standard for genuine dispute at summary judgment)
- Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (movant satisfies burden by pointing to absence of evidence supporting essential element)
- Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63 (2d Cir. 2008) (summary judgment only when contractual language is wholly unambiguous)
- Lockheed Martin Corp. v. Retail Holdings, N.V., 639 F.3d 63 (2d Cir. 2011) (contract ambiguity inquiry: reasonable basis for differing meanings defeats summary judgment)
- Design Strategy, Inc. v. Davis, 469 F.3d 284 (2d Cir. 2006) (district courts have discretion to impose a range of sanctions under Rule 37; preclusion is not automatic)
- Update Art, Inc. v. Modiin Pub., Ltd., 843 F.2d 67 (2d Cir. 1988) (preclusion under discovery rules is a harsh remedy reserved for rare situations)
- United States v. Bilzerian, 926 F.2d 1285 (2d Cir. 1991) (distinguishing factual conclusions in expert testimony from impermissible legal conclusions)