962 F. Supp. 2d 1172
N.D. Cal.2013Background
- Plaintiff Uptown Drug, a California retail pharmacy, sues CVS Caremark and affiliates alleging they misused confidential customer data disclosed under a provider agreement, bringing UTSA, UCL (unlawful and unfair prongs), and interference with prospective economic advantage claims on behalf of a putative class.
- Uptown contracted with PCS Health in 1995; that agreement and an incorporated provider manual (amended through mergers) govern pharmacies’ participation in Caremark PBM networks and data use; the current manual (2011) contains an arbitration clause.
- The arbitration clause requires arbitration in Scottsdale, Arizona for “any and all disputes in connection with or arising out of the Provider Agreement,” but preserves court injunctive relief for breaches of the agreement.
- Defendants moved to compel arbitration and stay the action; Uptown argued the clause is unconscionable, not enforceable by nonsignatories, and not incorporated; Uptown also sought injunctive relief in court.
- The Court (applying California law) held the arbitration clause is valid and enforceable, found equitable estoppel permits nonsignatory defendants to compel arbitration of the misappropriation-based claims, but declined to compel arbitration of the UCL unfair-prong claim.
- The Court stayed the action pending arbitration for the arbitrable claims and stayed related injunctive requests tied to those claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of arbitration clause (unconscionability) | Clause is procedurally and substantively unconscionable (adhesive, unilateral modification, buried in long manual). | Clause is longstanding, conspicuous, and subject to advance-notice amendment; Uptown had opportunity to accept or exit. | Clause is not unconscionable under California law; enforceable. |
| Choice of law for unconscionability analysis | California law should apply. | Defendants point to an earlier agreement’s Arizona choice-of-law clause. | Court need not enforce 1995 choice-of-law clause; applies California law. |
| Whether nonsignatory defendants can compel arbitration | Nonsignatories lack contractual rights to invoke arbitration. | Equitable estoppel allows nonsignatories to compel arbitration because claims depend on the Provider Agreement. | Equitable estoppel applies to UTSA, unlawful UCL, and IPEA claims; nonsignatory defendants may compel arbitration of those claims. |
| Scope of arbitration (which claims are arbitrable) | All claims arise from Provider Agreement and must be arbitrated. | Some claims (UCL unfair prong) arise independently of the Agreement. | Misappropriation-based claims (UTSA, unlawful UCL, IPEA) fall within arbitration clause; UCL unfair-prong claim does not and is not compelled to arbitration. |
Key Cases Cited
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (FAA favors enforcement of arbitration clauses)
- Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63 (arbitration clauses may be invalidated on general contract defenses)
- Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (party resisting arbitration bears burden to show arbitrability unsuited)
- Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (court decides unconscionability challenge directed at arbitration clause)
- Kramer v. Toyota Motor Corp., 705 F.3d 1122 (nonsignatory enforcement via equitable estoppel framework)
- Mundi v. Union Security Life Ins. Co., 555 F.3d 1042 (apply state contract law to arbitration validity; resolve ambiguities for arbitration)
- Simula, Inc. v. Autoliv, Inc., 175 F.3d 716 (arbitrability: disputes touching matters covered by contract are arbitrable)
- Lifescan, Inc. v. Premier Diabetic Services, Inc., 363 F.3d 1010 (court's limited role when deciding a motion to compel arbitration)
- Kilgore v. KeyBank, Nat. Ass'n, 673 F.3d 947 (stay federal proceedings pending arbitration)