West Virginia CVS Pharmacy, LLC v. McDowell Pharmacy, Inc.
238 W. Va. 465
| W. Va. | 2017Background
- Plaintiff Pharmacies (six WV retail pharmacies and affiliated pharmacists) sued CVS/Caremark alleging statutory and tort claims and sought injunctive and punitive relief; CVS/Caremark moved to dismiss and compel arbitration.
- Three pharmacies (Direct Contract Pharmacies) signed Provider Agreements with Caremark that incorporated a Provider Manual; three others (Indirect Contract Pharmacies) were bound via predecessor contracts (PCS/AdvancePCS) and notices after corporate acquisitions.
- Provider Agreements contained choice-of-law clauses selecting Arizona law and incorporated arbitration provisions by reference to the Provider Manual; the Provider Manual incorporated the American Arbitration Association (AAA) Commercial Rules.
- The AAA Commercial Rules include Rule R-7(a), delegating arbitrability (gateway issues) to the arbitrator.
- The McDowell County circuit court applied West Virginia law, found no valid incorporation or delegation, denied the motion to compel arbitration, and this interlocutory denial was appealed to the West Virginia Supreme Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Arizona choice-of-law in Provider Agreements governs | Choice-of-law not applicable because WV has stronger relation and some claims are torts; no meaningful Arizona nexus | Parties contractually chose Arizona; Caremark’s operations and contacts (Scottsdale office, manuals, claims processing) create substantial relationship | Arizona law applies under the contracts; circuit court erred in applying WV law |
| Whether arbitration clause in Provider Manual was incorporated into Direct Contract Agreements | Arbitration buried in lengthy manual; signatures didn’t explicitly reference arbitration so no mutual assent | Provider Agreements expressly incorporated the Provider Manual and acknowledged receipt; later manual amendments were properly notified and accepted by continued performance | Under Arizona law the Provider Manual (including arbitration clause) was incorporated by reference and amendments were accepted by conduct |
| Whether Indirect Contract Pharmacies are bound by arbitration | They never signed Caremark agreements; notices were not personally received and corporate predecessors executed the agreements | Caremark succeeded to PCS/AdvancePCS rights and expressly adopted the AdvancePCS Provider Agreement; notices and contractual delegations bound pharmacies | Indirect Contract Pharmacies are bound: predecessor contracts and successor adoption created clear agreement to arbitrate |
| Whether incorporation of AAA rules clearly and unmistakably delegates arbitrability to the arbitrator | Plaintiffs: chain of incorporations and complexity make delegation not "clear and unmistakable"; parties unsophisticated | Incorporation of AAA Commercial Rules (which include R-7) is clear and unmistakable evidence to delegate arbitrability; numerous federal circuits agree | Incorporation of AAA rules is sufficient; delegation of gateway arbitrability to arbitrator was clear and unmistakable |
Key Cases Cited
- General Elec. Co. v. Keyser, 275 S.E.2d 289 (W. Va.) (choice-of-law clause invalid where no substantial relationship or public policy objection)
- Rent–A–Ctr., W., Inc. v. Jackson, 561 U.S. 63 (U.S.) (parties may agree to arbitrate gateway arbitrability questions)
- Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir.) (incorporation of AAA rules constitutes clear and unmistakable delegation of arbitrability)
- Crawford Prof’l Drugs, Inc. v. CVS Caremark Corp., 748 F.3d 249 (5th Cir.) (applying Arizona law and finding incorporation of AAA rules delegates arbitrability)
- Weatherguard Roofing Co. v. D.R. Ward Constr. Co., 152 P.3d 1227 (Ariz. Ct. App.) (standards for incorporation by reference under Arizona law)