55 F. Supp. 3d 400
E.D.N.Y2014Background
- HM Compounding Services, LLC (HMC) is a large compounding pharmacy; three individual plaintiffs purchase compounded medications from HMC and sued on behalf of a putative class. Defendants are PBMs: Express Scripts, Inc. (ESI), CVS Caremark (Caremark), Optum Rx (Optum), and Prime Therapeutics (Prime).
- Plaintiffs allege PBMs coordinated to restrict access to compounded drugs and to eliminate independent compounding pharmacies, causing economic and injunctive harms; HMC’s agreements with Caremark, Optum, and Prime contain arbitration clauses (and ESI’s contains a forum-selection clause).
- Caremark, Optum, and Prime each notified/terminated HMC (various letters alleging compliance issues, prohibited shipping, fraud/waste/abuse, or misrepresentations); ESI also sent termination and allegedly communicated restrictions to prescribers.
- Defendants moved to sever and send HMC’s claims to arbitration (Caremark, Optum, Prime) or to sever and transfer to Missouri under ESI’s forum-selection clause; ESI also sought to vacate a TRO. The court stayed litigation under FAA §3 as to arbitrable issues and extended certain interim relief.
- The court evaluated (1) whether public policy barred arbitration of New York antitrust (Donnelly Act) claims, (2) whether arbitrability questions were delegated to arbitrators, (3) unconscionability (choice of governing state law analyzed), and (4) whether ESI’s forum-selection clause required severance and transfer under §1404(a).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether New York antitrust/Donnelly Act claims may be arbitrated | HMC: state public policy forbids arbitration of state antitrust claims (Aimcee) | Defs: FAA preempts state rule; federal policy favors arbitration | Court: FAA displaces contrary NY policy; arbitration not barred by public policy |
| Who decides arbitrability (court or arbitrator) | HMC: claims are extra-contractual and not within arbitration clauses | Defs: incorporation of AAA/express delegation shows clear and unmistakable delegation | Court: delegation clauses (AAA incorporation) are valid; arbitrator decides arbitrability for Caremark/Optum/Prime |
| Whether arbitration clauses are unconscionable (procedural or substantive) | HMC: clauses are adhesion, unilaterally amendable, limit discovery/remedies, and are cost-prohibitive | Defs: parties are sophisticated, notice/amendment practices adequate, AAA rules apply, severability available | Court: clauses generally enforceable; Caremark’s and others’ clauses are not procedurally unconscionable; Caremark’s absolute discovery waiver was substantively unconscionable and severed; remaining arbitration terms enforced; cost arguments rejected |
| Whether ESI’s forum-selection clause requires severance and transfer | HMC: claims are non-contractual so clause doesn’t apply; clause is permissive; public-interest favors keeping case here | ESI: clause covers disputes "arising out of or related to" agreement and is mandatory | Court: clause construed broadly as mandatory and covering HMC’s claims; severance granted and claims against ESI transferred to Eastern District of Missouri under §1404(a) |
Key Cases Cited
- Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (federal presumption of arbitrability limited to ambiguities about scope)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (FAA preempts state rules that prohibit arbitration agreements)
- Southland Corp. v. Keating, 465 U.S. 1 (Congressional policy favors arbitration over state law requiring judicial forum)
- Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (FAA reflects liberal federal policy favoring arbitration)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (parties may delegate threshold arbitrability questions to arbitrator)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (ordinary state contract law governs formation of arbitration agreements)
- PacifiCare Health Sys., Inc. v. Book, 538 U.S. 401 (questions about severability or enforceability of remedial limits may belong to arbitrator)
- Green Tree Fin. Corp. v. Randolph, 531 U.S. 79 (excessive arbitration costs can bar effective vindication of rights, but speculative cost claims insufficient)
- Contec Corp. v. Remote Solution Co., 398 F.3d 205 (2d Cir. recognizing delegation to arbitrator when AAA rules incorporated)