43 F.4th 307
3rd Cir.2022Background
- Over 400 independent pharmacies sued OptumRx (Optum), a pharmacy benefits manager, alleging underpayment, breaches of good faith, and state-law violations; Optum moved to compel arbitration based on arbitration clauses in Provider Agreements.
- Optum relied on 41 contracts (Provider Agreements + Provider Manuals); many pharmacies signed through PSAOs and contend they never received the Provider Agreements containing arbitration clauses.
- The District Court denied Optum’s motion, finding compelling arbitration would be procedurally unconscionable because PSAOs were allegedly prohibited from sharing Provider Agreements with member pharmacies. Optum appealed.
- The Third Circuit raised and resolved sua sponte whether the district court had original jurisdiction under CAFA’s mass-action provisions (28 U.S.C. § 1332(d)(11)).
- The court held district courts do have original jurisdiction over mass actions that meet the (d)(2)–(10) criteria, and concluded the pharmacies had presented sufficient factual allegations to place arbitrability (procedural unconscionability) in issue. Guidotti requires limited discovery on arbitrability before converting a Rule 12 motion into a Rule 56 motion; the District Court failed to allow that discovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court had original jurisdiction under CAFA §1332(d)(11) | Pharmacies: mass actions are "deemed class actions" generally, so original federal jurisdiction exists | Optum: §1332(d)(11) only makes mass actions removable; no original jurisdiction for mass actions filed in federal court | Court: §1332(d)(11) should be read consistent with CAFA’s purpose; qualifying mass actions are deemed class actions for original-jurisdiction purposes — district court had jurisdiction |
| Proper procedure for a Rule 12 motion to compel arbitration when opposing party presents evidence on arbitrability | Pharmacies: Guidotti requires limited discovery on arbitrability and chance to renew under Rule 56 before summary disposition | Optum: sought enforcement under Rule 12 (dismissal) based on complaint and existing documents | Court: Where complaint and materials place arbitrability in issue, district court must allow limited discovery on arbitrability and permit Optum to renew its motion under Rule 56; vacated in part and remanded |
| Who decides arbitrability (court vs arbitrator) | Pharmacies: District court may decide; Optum didn’t timely press delegation argument below | Optum: arbitrator should decide delegation issues | Court: Optum forfeited the delegation argument by not raising it below; court declined to reach the merits of who decides |
| Procedural unconscionability based on alleged prohibition on PSAOs sharing Provider Agreements | Pharmacies: confidentiality provisions and corporate testimony plausibly show PSAOs were barred from giving Provider Agreements to member pharmacies, so arbitration clauses were hidden and unconscionable | Optum: record does not show any prohibition and PSAOs could share agreements; no procedural unconscionability | Court: Pharmacies produced more than a naked assertion; facts plausibly put arbitration clauses in issue — but factual resolution requires limited discovery on arbitrability |
Key Cases Cited
- Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764 (3d Cir. 2013) (establishes Rule 12 v. Rule 56 framework and requires limited discovery on arbitrability before summary disposition)
- Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019) (when parties delegate arbitrability to arbitrator, courts cannot override that delegation)
- Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63 (2010) (arbitration agreements are enforced like other contracts; defenses such as unconscionability apply)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (distinguishes challenges to the arbitration clause itself from attacks on the entire contract)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (arbitrability challenges that attack the whole contract may be for the arbitrator)
- Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998) (jurisdiction is a threshold issue)
- Abrego Abrego v. Dow Chemical Co., 443 F.3d 676 (9th Cir. 2006) (discusses ambiguity and interpretive difficulties of CAFA’s mass-action provisions)