ROBERT D. MABE, INC.; ABINGTON PHARMACY, INC.; JAC STORES, INC.; BIEN PHARMACY, INC.; BLENDE DRUG, INC.; WULLSTEIN PHARMACY, INC.; BUCHANAN BROTHERS PHARMACY, INC.; CARROLL APOTHCARY, INC.; CARROLL APOTHCARY, LTC.; CONCORD, INC.; DELRAY SHORES PHARMACY, INC.; K.V.H., INC.; ELLENSBURG DOWNTOWN PHARMACY, INC.; ERIC‘S RX SHOPPE, LLC; FERGUSON REXALL DRUG, INC.; FOX DRUG, INC.; CATHRON, INC.; KZ ENTERPRISES, LLC; RCH PHARMACY SERVICES, LTD.; PHARMACY SERVICES, INC.; HINES PHARMACY, INC.; HINES PHARMACY AT WKOA.; ER BLACK PHARMACY, INC.; FAMILY PHARMACY; J&S PROFESSIONAL PHARMACY, INC.; VOSMEK DRUG STORE, INC.; MESA PHARMACY OF PUEBLO, INC.; PARKWAY DRUGS OF ONEIDA COUNTY; PARKWAY DRUGS OF ONEIDA COUNTY NORTH, INC.; PARKWAY DRUGS OF ONEIDA COUNTY SOUTH, INC.; STREET ROAD PHARMACY, INC.; PHILADELPHIA PHARMACY, INC.; PHILIP E. PEPPER, INC.; PRESSMAN, INC.; CHELSEA DRUGS, INC.; RASHID PHARMACY, PLC; SHAKTI PHARMACY, INC.; RED CROSS PHARMACY, INC.; REED DISCOUNT PHARMACY, INC.; REED PHARMACY, INC.; GNSP CORP.; SAVALL DRUG, INC.; L&M PHARMACY, INC.; SUBURBAN BUSTLETON PHARMACY, INC.; RCL PHARMACY SERVICES, INC.; OPERA HOUSE PHARMACY COMPANY; SPIVACK, INC.; TOWN AND COUNTRY PHARMACIES, INC.; WILLIAM J. FARLANDER, INC.; WHITMAN PHARMACY; MEDS AND MORE, INC., d/b/a Meds & More; CARROLLTON DRUGS, INC., d/b/a Carrollton Drugs; BOWEN PHARMACY, LLC, d/b/a Bowen Pharmacy; BALL GROUND PHARMACY, LLC, d/b/a Ball Ground Pharmacy; BREN-MAK, LLC, d/b/a Corner Drugs; HITCHCOCK RX, INC., d/b/a Jack‘s Discount Pharmacy; LITTLE DRUG COMPANY, LLC, d/b/a Little Drug Company; BROWN‘S DRUG STORE, d/b/a Brown‘s Drug Store; PARKHILL PHARMACY, INC., d/b/a Lopez Island Pharmacy; ANKENY APOTHECARY, INC., d/b/a Medicap Pharmacy #8015; PROFESSIONAL PHARMACY, LLC, d/b/a Professional Pharmacy; DESERT SKY PHARMACY, LLC, d/b/a Desert Sky Pharmacy; MT. VERNON COMMUNITY PHARMACY, INC., d/b/a The Medicine Shoppe, #0560; BEDFORD PHARMACY, INC., d/b/a Bedford Pharmacy; MEDSCENE, INC., d/b/a Crown Drugs; DELCO PHARMACY, INC., d/b/a Delco Pharmacy; LINSON PHARMACY LIMITED (S-Corp), d/b/a Linson Pharmacy; TAMP, INC., d/b/a Pomarico‘s Pharmacy; REDNER‘S MARKETS, INC., d/b/a Redner‘s Pharmacy, Redner‘s Pharmacy #21, Redner‘s Pharmacy #22, Redner‘s Pharmacy #23; WASHCHKO‘S PHARMACY, INC., d/b/a Waschko‘s Pharmacy; LARSEN SERVICE DRUG, INC., d/b/a Larsen Service Drug-New Town and Larsen Service Drug-Watford City; KELLY KIDZ, d/b/a Kapler‘s Pharmacy; 8TH STREET PHARMACY, LLC, d/b/a 8th Street Pharmacy; ACADEMY PHARMACY, LLC, d/b/a Academy Pharmacy; BOUNT‘S MUTUAL DRUGS, INC., d/b/a Blount‘s Mutual Drugs; PUBLIC DRUG COMPANY; CHAPMAN HEALTHCARE PHARMACY, INC.; CHELTEN DRUG INC.; COBB‘S WESTSIDE PHARMACY, INC.; CRITTENDEN‘S DRUG, INC.; DAHLONEGA PHARMACY, INC.; DON‘S PHARMACY, INC.; NEFF DRUGS 8, LLC; FRIENDLY PHARMACY, INC.; FRIENDSHIP PHARMACY, INC.; GLENDALE PRESCRIPTION CENTER, INC.; GOOD PHARMACY, LLC; HEREFORD PHARMACY, INC.; HANDI CAPABLE, INC.; BHS; PHARMACY CARE CENTERS, LLC; PHREDS DRUG, INC.; PROFESSIONAL PHARMACY OF OXFORD, LLC; RANN PHARMACY, INC.; REESER‘S PHARMACY, INC.; SMITH BROTHERS DRUG COMPANY, INC.; SOUTH END PHARMACY, INC.; OLD BALTIMORE PIKE APOTHECARY, INC.; SSJARS, INC.; TOTAL CARE RX, INC.; BOYD‘S PHARMACY OF BORDENTOWN, INC.; BOYD‘S PHARMACY OF FLORENCE, INC.; CRYSTAL CITY APOTHECARY, LLC; GAYCO, INC.; NOVA STAR PHARMACY, INC.; R W GROUP, INC.; RIPLEY DRUG CO.; SHIRLEY COURT PHARMACY, INC.; ADD, INC.; WAKEEM, INC.; WALLY‘S PHARMACY, INC.; WALTER‘S PHARMACY, INC.; BOYD‘S PHARMACY OF MANSFIELD, INC.; BOYD‘S PHARMACY OF MEDFORD, INC.; BOYD‘S PHARMACY OF PEMBERTON, INC.; CABEL L. JONES, III; COMMUNITY DRUG, INC.; MEG‘S PHARMACY, INC.; COLOSSEUM, INC.; DAMIANO PHARMACY (S-Corp); DAVIS CUT RATE DRUGS, INC.; DR. IKE, INC.; ESTERBROOK PHARMACY, LLC; BOBO DRUGS, INC.; PHARMAKON, LLC; FUNK PHARMACY, INC.; GATEWAY PHARMACY OF PHOENIXVILLE, INC.; HARBOR DRUG, INC.; HEALTHY WAY PHARMACY, INC.; NRX RX, INC.; PELELLA APOTHECARY, INC.; JBD, INC.; HENRIETTA PHARMACY; HOLLYWOOD DISCOUNT PHARMACY, INC.; BROWN & GOBIN, INC.; LONOKE HEALTH & WELLNESS; MACE PHARMACY, INC.; MALAND, INC.; MEDISAVE, INC.; LAMAR & SEYMOUR, LLC.; MT. CARAMEL MEDICAL; NEWHARD PHARMACY, INC.; SYL-MAX PHARMCARE, INC.; PEOPLES DRUG STORE; PHARMACY CARE, INC.; PHARMAHEALTH HAWTHORN, INC.; PHILLIPS DRUGS, INC.; POINCIANA PHARMACY, LLC.; POTTERVILLE PHARMACY, INC.; DAO PHARMACY, INC.; PAUL REED ENTERPRISES, INC.(S-Corp); QUIK-STOP PHARMACY OF BARLEY STN, INC.; RICCIO FAMILY PHARMACY, INC.; RINGS DRUGS, LTD.; MMRX HEALTHSOLUTIONS, INC.; RX EXPRESS; ROCKWOOD PHARMACY; S & S CORPORATION; SCHAEPER PHARMACY, INC.; SEAWAY PHARMACY, PC.; SHERMAN‘S APOTHECARY PHARMACY, INC., d/b/a Sherman‘s Apothecary Pharmacy; SMITH‘S PHARMACY II, INC., Smith‘s Pharmacy II; SMITH‘S PHARMACY III, INC., d/b/a Smith‘s Pharmacy III; SOUTHERN DISCOUNT DRUGS OF CHARLESTON, INC., d/b/a Southern Discount Drugs of Charleston; MEDICINE SHOPPE, LTD, d/b/a Stephens Pharmacy; REVRAC INDUSTRIES, INC., d/b/a Stony Point Pharmacy; RICHARD L. BERRY PHARMACY, INC., d/b/a The Medicine Shoppe #1086 and The Medicine Shoppe#1759; WILSON DRUG, INC., d/b/a Tillamook Pharmacy; FLEMING PHARMACIST GROUP, INC., d/b/a Total Care Pharmacy#1 and Total Care Pharmacy #2; GRANT PHARAMACIST GROUP, INC., d/b/a Total Care Pharmacy #3 and Total Care Pharmacy #4; PENDLETON PHARMACIST GROUP, INC., d/b/a Total Care Pharmacy #5; ROWAN PHARMACIST GROUP, INC., d/b/a Total Care Pharmacy #6 and total Care Pharmacy #7; KL ARNOLD ENTERPRISE, INC., d/b/a West Point Pharmacy; VISELS DRUG STORE, INC., d/b/a Visels Pharmacy; JGBLA, INC., d/b/a West Hempstead Pharmacy; RJ PROFESSIONALS, INC., d/b/a Young‘s Pharmacy; RUDI PHARMACY, INC., d/b/a Philadelphian Pharmacy; WALKER DRUG COMPANY, INC., d/b/a Walker Drug; HARRIS PHARMACY, INC., d/b/a Harris Pharmacy; NEFF DRUGS 5, LLC, d/b/a 18th Street Apothecary; TANDONS ADVANCED PHARMACY, d/b/a Advanced Health Pharmacy; CARIBBEAN PHARMACY, INC., d/b/a Caribbean Pharmacy; CASTOR PHARMACY & SURGICAL SUPPLIES, LLC, d/b/a Castor Pharmacy; CENTRAL CITY FAMILY PHARMACY, INC., d/b/a Center Point Family Pharmacy; CHRISTOFANO ASSOCIATES, LLC, Hayden‘s Pharmacy 1 and Hayden‘s Pharmacy 2; CIRCLE PHARMACY, LLC, d/b/a Circle Pharmacy; CONDO, INC., d/b/a Condo Pharmacy; COOKS PHARMACY OF KINGSTON, INC., d/b/a Cook‘s Pharmacy of Kingston; CRESTWOOD PHARMACY, LLC, d/b/a Crestwood Pharmacy; DAKES DRUG STORE, INC., d/b/a Dakes Drug Store; DOC‘S DRUGS, LTD.; ESCO DRUG COMPANY, INC., d/b/a Esco Drug; FOREST HILLS PHARMACY, INC., d/b/a Forest Hills Pharmacy; GETWELL PHARMACY CORP., d/b/a Getwell Pharmacy Corp.; HOMETOWN VILLAGE PHARMACY, LLC, d/b/a Hometown Village Pharmacy; JOHNSON‘S PHARMACY, d/b/a Johnson‘s Pharmacy of Hazelton; KEYSTONE PHARMACY(S-CORP.), d/b/a Keystone Pharmacy; KIM DO, INC., d/b/a M.R. Pharmacy; MCNEILL FAMILY PHARMACY, INC., d/b/a Aston Pharmacy Home Health Center; NEFF DRUGS 20, LLC, d/b/a Farmacia Rayo De Sol; NEFF DRUGS 21, LLC, d/b/a Farmacia Sunray; NEFF DRUGS, INC., d/b/a Baederwood Pharmacy; NEFF MERION ENTERPRISES, INC., d/b/a Babis Pharmacy; PHARMACY SHOP, INC., d/b/a Ed Snell‘s Pharmacy Shop; RJ JOMICI, INC., d/b/a Jomici Apothecary; RIAZ U RAHMAN, d/b/a Getwell Pharmacy; INDEPENDENT RX, INC., d/b/a Olde Philly Pharmacy; MIDDLETOWN CHEMISTS, INC., d/b/a NeighboRx Pharmacy; MILLS FAMILY PHARMACY, LLC, d/b/a Mills Family Pharmacy; NEWPOINTE PHARMACY, LLC, d/b/a Newpointe Pharmacy; NICE PHARMACY, INC., d/b/a Nice Pharmacy; PACKER APOTHECARY, INC., d/b/a Packer Apothecary; PAW PAW VILLAGE DRUG, d/b/a Paw Paw Village Pharmacy; V.V. INC., d/b/a ND Pharmacy; EKLUND DRUG, INC., d/b/a Preston‘s Pharmacy; IGM, INC., d/b/a Rapoport Pharmacy; NEFF DRUGS 12, LLC, d/b/a Sunray Drugs 56th&Market Street; NEFF DRUGS 6, LLC, d/b/a Sunray Drugs Baltimore Avenue; NEFF DRUGS, 11, LLC, d/b/a Sunray Drugs 60th Street; OPIERX, INC., d/b/a S& B Drugs; PROFESSIONAL PHARMACY AND CONVALESCENT PRODUCTS, LTD, d/b/a Professional Pharmacy; RAMON PHARMACY, INC., d/b/a Ramon Pharmacy; RESOLUTION RX, INC., d/b/a Resolutin Rx; RINGS DRUG, LTD, d/b/a Rings Drug; SAMUEL J ROBINSON PHARMACY, INC., d/b/a SJ Robinson Pharmacy; SHEEANS PHARMACY, INC., d/b/a Sheeans Pharmacy; SUNRAY DRUGS, LLC, d/b/a Sunray Drugs; TWO FISHES, INC., d/b/a Roger‘s Family Pharmacy; DANIEL RAIF, INC., d/b/a The Medicine Shoppe#0188; GRIFFIN DRUGS, INC., d/b/a Thrift Drugs; KARWASKI PHARMACY, INC., d/b/a The Medicine Shoppe-Dallas (#1251); NEFF DRUGS 13, LLC, d/b/a Sunray Drugs Chestnut Plaza; PHC PHARMACIES, INC., d/b/a The Medicine Shoppe#1330 and The Medicine Shoppe#1397; SLV PHARMACY, INC., d/b/a Valley Pharmacy & Surgical Supplies; SSV PHARMACY, LLC, d/b/a The Medicine Shoppe#1404; SCHROPP PHARMACY, INC., d/b/a The Medicine Shoppe #0146; SHIRLEY COURT PHARMACY, INC., d/b/a Upper Darby Family Pharmacy; THE ROBBINS PHARMACY (S-CORP), d/b/a The Robbins Pharmacy; CLLAMP CO., INC., d/b/a Medicap Pharmacy#8213; FAIRMOUNT PHARMACY SERVICES, INC., d/b/a Fairmount Pharmacy Services; FOREST HILLS PHARMACY, INC., d/b/a FHP Pharmacy Services; GRANITE STATE PHARMACY, LLC, d/b/a Granite State Pharmacy; HEALTH SPECTRUM, d/b/a Wonder Drug; HUSACK HOLDINGS, JPL, d/b/a The Medicine Shoppe-Berwick; J.B.M. INC., d/b/a Village Pharmacy At Springhouse; JJM ENTERPRISES, INC., d/b/a Gem Pharmacy; KEDO, LLC, d/b/a Valumed Pharmacy-Coralville; MADSEN, INC., d/b/a Medicap Pharmacy; #8019; MEDCARE LTC, LLC, d/b/a Medcare LTC; NEFF DRUGS 22, LLC, d/b/a Village Shires Pharmacy; SPRINGFIELD PHARMACY, INC., d/b/a Village Pharmacy(Queens Village); SUGAR RIVER PHARMACY, LLC, d/b/a Sugar River Pharmacy; THE MEDICINE SHOPPE, d/b/a The Medicine Shoppe-Jeffersonville and The Medicine Shoppe-Munhall; WARNER PHARMACY, INC., d/b/a Warner Pharmacy; WEST VILLAGE PHARMACY, INC., d/b/a West Village Pharmacy; BOWSER CORPORATION, d/b/a Shankel‘s Pharmacy; CLAYWELL, INC., d/b/a Medica Pharmacy & Wellness Center and Medica Pharmacy Bloomfield; CLINIC PHARMACY, LLC, d/b/a Clinic Pharmacy; EVANS CITY DRUG STORE, INC., d/b/a Evans City Drug Store; FAIRMOUNT PHARMACY, INC., d/b/a Fairmount Pharmacy; G&R INC., CORP, d/b/a Malheur Drug II; GFJ, INC., d/b/a Broken Arrow Family Drug and Broken Arrow Family Drug#2; HIDENWOOD PHARMACY, INC., d/b/a Hidenwood Pharmacy; KST GROUP, LLC, d/b/a Valumed Pharmacy-Sioux City; KAPAA PHARMACY (S-Corp), d/b/a Kapaa Pharmacy; LIHUE PHARMACY (S-CORP), d/b/a Lihue Pharmacy Group; M.D. CO., INC., d/b/a M.D. Pharmacy; MELROSE PHARMACY, LLC, d/b/a Melrose Pharmacy; MILLERSBURG PHARMACY, INC., Millersburg Pharmacy; PACIFIC HEALTH MANAGEMENT, LLC, d/b/a Lihue Professional Pharmacy; PHARMACY CONSULTANT SERVICES, INC., d/b/a Turner Drug; ROCKY TOP PHARMACY, INC., d/b/a Longley Pharmacy; ROYER PHARMACY, INC.; SANO VITO, INC. (S.CORP), d/b/a Rivergate Pharmacy; SHELTONS PHARMACY, INC., d/b/a A Village Pharmacy; SUMPTER PHARMACY, INC., d/b/a Sumpter Pharmacy & Wellness; TAYLOR DRUG OPERATING SERVICES, INC., d/b/a Taylor Drug Operating Services; THE MEDICINE CENTER, LLC, d/b/a The Medicine Center; BLUEGRASS RX, LLC, d/b/a Bluegrass Pharmacy; BROAD & GRANGE, INC., d/b/a Broad & Grange Pharmacy; BROAD & LEHIGH PHARMACY, INC., d/b/a Broad & Lehigh Pharmacy; CHOICE FAMILY PHARMACY, INC., d/b/a Choice Family Pharmacy; ELU, INC., d/b/a Point Breeze Pharmacy; EAST BERLIN PHARMACY, INC., d/b/a East Berlin Pharmacy; FAMILY PHARMACY PROFESSIONAL ASSOCIATION, (Sub S Corp.), d/b/a Family Pharmacy P.A.; FINO‘S PHARMACY, LLC, d/b/a Fino‘s Pharmacy-Dallas; GREATER FALLS PHARMACY, INC., d/b/a Greater Falls Pharmacy; HEALME, INC., d/b/a Hometown; HERITAGE PHARMACY, INC., d/b/a Heritage Pharmacy; HOWES PHARMACY, LLC, d/b/a Howes Pharmacy; KB PHARMACY, LLC, d/b/a Grafton Drug; MATSTE, INC., d/b/a Hometown Pharmacy-Brookfield; MED-FAST PHARMACY, INC.; MILAN PHARMACY, INC., d/b/a King Pharmacy; KRYNICKI, INC., d/b/a Hometown Pharmacy-Dierkens; TADEK, INC., d/b/a Hometown Pharmacy-Cornersburg and Hometown Pharmacy-Struthers; TADMAR, INC., d/b/a Hometown Pharmacy-Girard; CMV PHARMACY, INC., d/b/a Manlius Pharmacy; HEIN-LUN, INC., d/b/a Neff Surgical Pharmacy; LION PHARMACY, INC., d/b/a Lion Pharmacy; MARYSIA, INC., d/b/a Hometown Pharmacy-Harmony; NEWTKO, INC.; d/b/a Port Allegheny Pharmacy; NORLAND AVENUE PHARMACY, LLC, d/b/a Norland Avenue Pharmacy; OAK LANE PHARMACY, INC., d/b/a Oak Lane Pharmacy; PATTERSON FAMILY PHARMACY, INC., d/b/a Patterson Family Pharmacy; RX EXPRESS PRESCRIPTION SERVICES, INC., d/b/a Rx Express Prescription Services; RICHLANDS PHARMACY ASSOCIATES, d/b/a Richalands Pharmacy; SAV-MOR PHARMACY, INC., d/b/a Sav-Mor Pharmacy; ST. MARY‘S PHARMACY, INC., d/b/a St. Mary‘s Pharmacy; Stemat, INC., d/b/a Hometown Pharmacy-New Castle; STONEWOOD VILLAGE PHARMACY, INC., d/b/a Stonewood Village Pharmacy; WANDAROO, INC.; CITY DRUGS CO OF JEFFERSON TX, d/b/a City Drug; FRANKLIN SQUARE PHARMACY, INC., d/b/a Franklin Square Pharmacy; KULER DRUGS, LLC, d/b/a Med Depot Pharmacy; LEHAN DRUGS, INC., d/b/a Lehan Drugs; LUKE‘S FAMILY PHARMACY, d/b/a Luke‘s Family Pharmacy; MATTHEWSON DRUG CO., INC., d/b/a Matthewson Drug Co.; NEFF DRUGS 9, LLC, d/b/a Sunray Drugs Progress Plaza; PINE STREET PHARMACY, d/b/a Stacy‘s Family Pharmacy; PURDY PHARMACY, INC., d/b/a Purdy Costless Rx; RJMTZ PHARMACY, LLC, d/b/a The Pharmacy Corner; RX SHOPS, INC., d/b/a Hometown Pharmacy; READINGS COMMUNITY PHARMACY, INC., d/b/a R&R Pharmacy; S&R DRUG CO. (S-Corp), d/b/a S&R Drug Co.; SAN JUAN PHARMACY, INC., d/b/a San Juan Pharmacy; THE COUNTRY SQUIRE DISCOUNT PHARMACY, INC., d/b/a The Country Squire Discount Pharmacy; URBAN SPECIALTY PHARMACY, LLC, d/b/a Urban Specialty Pharmacy; S&B HEALTH SYSTEMS, LLC, d/b/a West Cocoa Pharmacy & Compounding; DAVID J. GREENLEE, d/b/a Ross Grant Avenue Pharmacy; JAK PHARMA, INC., d/b/a Arthur Avenue Pharmacy; JEN PHARMA, INC., d/b/a Summer Ave Pharmacy; MEDICAP SPECIALTY SERVICES, d/b/a Medicap Specialty Services; NEFF DRUGS 23 LLC, d/b/a Allegheny Apothecary; NEFF DRUGS 24, LLC, d/b/a Holmesburg Pharmacy; STAR PHARMACY SERVICES, INC., d/b/a Paoli Pharmacy; UNIVERSITY PHARMACY, INC., d/b/a University Pharmacy; VIJAN PHARMA, INC., d/b/a Sure Drugs; ESTATE OF THEODORE BILLINGER Brent Billinger, Personal Representative; v. OPTUMRX, successor by merger to Catamaran Corporation
No. 21-2192
United States Court of Appeals for the Third Circuit
August 4, 2022
PRECEDENTIAL
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 21-2192
On Appeal from the United States District Court for the Middle District of Pennsylvania District Court No.
Argued March 3, 2022
Before: McKEE, AMBRO, and SMITH, Circuit Judges
(Filed: August 4, 2022)
Lucas C. Townsend ARGUED
Gibson Dunn & Crutcher
1050 Connecticut Avenue, N.W.
Washington, DC 20036
Counsel for Appellant
Mark R. Cuker ARGUED
Suite 1120 2005 Market Street
Philadelphia, PA 19103
Counsel for Appellee
SMITH, Circuit Judge.
Over 400 pharmacies joined forces in a lawsuit against OptumRX (Optum), a pharmacy benefits manager, alleging breaches of contract and breaches of duties of good faith and fair dealing, together with violations of certain state statutes. Pointing to arbitration agreements found in various contracts covering almost all of those pharmacies, Optum moved to compel arbitration. The pharmacies opposed the motion, arguing that compelling arbitration would be unconscionable. The District Court agreed with the pharmacies, and Optum timely appealed.
We conclude that the District Court erred by applying the wrong standard in
I. Facts & Procedural History
Optum is a pharmacy benefits manager (PBM) responsible for administering prescription drug programs on behalf of health-insurance plans. Optum and its predecessors1 entered into 41 contracts with, in total, over 400 pharmacies.2 Twenty of the pharmacies negotiated their contracts with Optum directly; others used bargaining agents known as pharmacy services administrative organizations (PSAOs). Each of these contracts consists of two documents that refer to, and incorporate, each other. The first is the Provider Manual, which covers, inter alia, claim submission, pricing, and provider audits. The contents of the Provider Manual do not vary across the many contractual relationships. Then, there are the Provider Agreements, which are specific to their signing parties and which address matters such as pharmacy responsibilities and reimbursement rates. But while each contract consists of these two documents, the pharmacies allege that only those pharmacies that negotiated with Optum directly received copies of their Provider Agreements.
The pharmacies banded together and, in June 2017, brought a mass action in the United States District Court for the Middle District of Pennsylvania. They alleged that Optum: (1) paid them less than they were due under their contracts; (2) breached its duties of good faith and fair dealing; and (3) violated certain state statutes. In early 2018, Optum moved to compel arbitration of all but nine pharmacies’ claims,3 relying on arbitration provisions within the Provider Agreements.4 Each pharmacy that
negotiated through PSAOs opposed arbitration as procedurally unconscionable on grounds that the arbitration provisions were contained in their Provider Agreements and that those Provider Agreements were unavailable to them at all relevant times. The pharmacies that negotiated directly with Optum did not initially oppose the motion but did so later, advancing a theory of substantive unconscionability.
Three years after Optum filed its motion to compel arbitration, the District Court
II. Jurisdiction
Always, this Court‘s “first and fundamental question is that of jurisdiction.” Steel Co. v. Citizens for a Better Env‘t, 523 U.S. 83, 94 (1998) (quoting Great S. Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 453 (1900)). The establishment of jurisdiction is “a threshold matter,” and without it “the court cannot proceed at all.” Id. (quoting Ex Parte McCardle, 74 U.S. (7 Wall.) 506, 514 (1868)). We thus raised, sua sponte,5 the question of whether
A. Background on Mass Actions
Because the mass action is less common than other forms of aggregate litigation—namely the
So Congress included mass-action provisions in CAFA. The Act defined a mass action as
any civil action (except a civil action within the scope of section 1711(2)) in
which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under [§ 1332(a)].
B. Mass-Action Jurisdiction
Surprisingly, whether the district courts may exercise original jurisdiction over mass actions is unsettled.
Optum urges us to hold that the District Court lacked original jurisdiction. In doing so, Optum advances four arguments: (1) the plain text of CAFA makes clear that mass actions are only removable to federal courts but that this action originated in federal court; (2) purpose statements within CAFA and its legislative history show that Congress did not intend to provide original jurisdiction over mass actions; (3) courts and scholars have doubted that CAFA provides original jurisdiction over mass actions; and (4) there is no alternate basis for subject matter jurisdiction if the Court agrees with Optum‘s interpretation of
The pharmacies urge us to reach the opposite conclusion. First, they insist that we adopt the reasoning of district courts that have recognized the availability of
Our “primary purpose in statutory interpretation is to discern legislative intent.” Morgan v. Gay, 466 F.3d 276, 277 (3d Cir. 2006). And in so doing, we must begin with the statute‘s text. Ross v. Blake, 578 U.S. 632, 638 (2016). “If the statute‘s plain language is unambiguous and expresses Congress‘s intent with sufficient precision, we need not look further.” Douglass v. Convergent Outsourcing, 765 F.3d 299, 302 (3d Cir. 2014) (alteration adopted) (quoting In re Lord Abbett Mut. Funds Fee Litig., 553 F.3d 248, 254 (3d Cir. 2009)). But on occasion, plain and unambiguous language ends up stating what was not Congress‘s intent. In these instances, “we are obligated to ‘construe statutes sensibly and avoid constructions which yield absurd or unjust results.‘” Id. (quoting United States v. Fontaine, 697 F.3d 221, 227 (3d Cir. 2012)); see also United States v. Am. Trucking Ass‘ns, Inc., 310 U.S. 534, 543 (1940) (“[E]ven when the plain meaning did not produce absurd results but merely an unreasonable one ‘plainly at variance with the policy of the legislation as a whole’ this Court has followed that purpose rather than the literal words.” (footnote omitted) (quoting Ozawa v. United States, 260 U.S. 178, 194 (1922))); Morgan, 466 F.3d at 278 (quoting United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989)).
CAFA includes the following relevant provisions:
CAFA § 2(a)(4)(A)—
Congress finds th[at] . . . [a]buses in class actions undermine the national judicial system, the free flow of interstate commerce, and the concept of diversity jurisdiction as intended by the framers of the United States Constitution, in that State and local courts are [] keeping cases of national importance out of Federal court;
CAFA § 2(b)—
The purposes of [CAFA] are to [] assure fair and prompt recoveries for class members with legitimate claims[,] restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction[,] and benefit society by encouraging innovation and lowering consumer prices;
CAFA § 4(a)(2) (codified at
The district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs, and is a class action in which [] any member of a class of plaintiffs is a citizen of a State different from any defendant;
CAFA § 4(a)(2) (codified at
For purposes of this subsection and section 1453, a mass action shall be deemed to be a class action removable under paragraphs (2) through (10) if it otherwise meets the provisions of those paragraphs;
Any action(s) removed to Federal court pursuant to this subsection shall not thereafter be transferred to any other court . . . unless a majority of the plaintiffs in the action request transfer . . .; and
CAFA § 4(a)(2) (codified at
The limitations periods on any claims asserted in a mass action that is removed to Federal court pursuant to this subsection shall be deemed tolled during the period that the action is pending in Federal court.
Optum and the pharmacies seem to agree that
Optum and the pharmacies both advance readings of
As for the pharmacies’ reading, mass actions could be generally deemed class actions for purposes of subsection (d) and section 1453. Such a reading would provide district courts with original jurisdiction through
We express the same frustrations as have two of our sister circuits as we attempt to make sense of CAFA‘s mass-action provisions. See Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 680–82 (9th Cir. 2006) (per curiam); Lowery v. Ala. Power Co., 483 F.3d 1184, 1200 n.41 (11th Cir. 2007). In calling the drafting of the relevant subsection “clumsy,” the Ninth Circuit also observed:
Congress‘s use of the word “removable” in the text of § 1332, a statute establishing original jurisdiction, blurs what had previously been a clear distinction between jurisdiction and removal statutes, and thus obscures the reach of jurisdiction over mass actions. Because Congress did not refer to original jurisdiction in either the mass action provision itself, or in § 1453, the text does not answer the important question of when there is original federal jurisdiction over mass actions, and what the scope of that original jurisdiction might be.
Abrego Abrego, 443 F.3d at 682. The Eleventh Circuit went beyond the Ninth‘s use of the word “clumsy“: “CAFA‘s mass action provisions present an opaque, baroque maze of interlocking cross-references that defy easy interpretation, even though they are contained in a single paragraph. . . .” Lowery, 483 F.3d at 1198 (footnote omitted). In a different context, and without mentioning the “removable under” language, Lowery took the position that mass actions are generally deemed class actions. Id. at 1199. But the Lowery Court nevertheless concluded that “[i]t is not clear . . . whether a group of plaintiffs who, choosing not to certify as a class, but otherwise meeting the requirements for a mass action, would be permitted to file a mass action originally in a district court.” Id. at 1200 n.41. So while both the Ninth and Eleventh Circuits recognized that Congress was not clear about conferring on district courts jurisdiction over mass actions, neither court needed to resolve the issue in the case before it.
Looking beyond the CAFA provisions that made their way into the United States Code12 does make our task easier. See King v. Burwell, 576 U.S. 473, 492 (2015) (“A
Congress‘s explicit purpose in enacting CAFA supports a conclusion that the District Court had original jurisdiction here. Congress sought to “provid[e] for Federal court consideration of interstate cases of national importance under diversity jurisdiction.” CAFA § 2(b)(2). It would seem, then, passing strange to construe ambiguous language as preventing a plaintiff from asking a federal court to consider an interstate case of national importance pursuant to diversity jurisdiction. True, Congress‘s mention of removal without any mention of original jurisdiction could tend to imply an intent not to provide original jurisdiction. But because the statutory purpose suggests that the inclusion of removal jurisdiction was not done to the exclusion of original jurisdiction, that implication does not attach. See Burns v. United States, 501 U.S. 129, 136 (1991) (“An inference drawn from congressional silence certainly cannot be credited when it is contrary to all other textual and contextual evidence of congressional intent.“), abrogated on other grounds by Booker v. United States, 543 U.S. 220 (2005). And since Congress‘s animating concern was state and local courts’ tendency to keep class actions for themselves, when examined in light of CAFA‘s statement of purpose, the text of
Having settled upon a permissible meaning of
The only legislative history that might support Optum‘s view is Congress‘s motivating concern of federal-court evasion, but only if understood as evidence that Congress‘s purpose was preventing forum shopping. On the other hand, a Congress concerned with federal-court evasion could simply aim to make the federal courts more accessible. The latter understanding makes more sense, especially in light of the Judiciary Committee‘s observation that “mass actions are simply class actions in disguise” and that they “often result in the same abuses as class actions,” or sometimes “even worse.” Id. at 47. Optum otherwise relies on language from the Senate Judiciary Committee Report that “a mass action removed to a federal court under this provision may not be transferred to another federal court under the MDL statute” and that, when a mass action is removed, it should stay in federal court “so long as the mass action met the various jurisdictional requirements at the time of removal.” S. Rep. No. 109-14 at 47. Neither statement even implies that Congress intended to prevent mass actions from being originally brought in federal court.
We therefore agree with the pharmacies and hold that mass actions initiated in federal district court are considered class actions if they otherwise meet the provisions of paragraphs (2) through (10), and that district courts accordingly have original jurisdiction over those mass actions. Because this mass action otherwise meets the provisions of paragraphs (2) through (10), the District Court properly exercised jurisdiction. We exercise jurisdiction under
III. Standard of Review
This appeal comes to us after the District Court‘s denial of Optum‘s motion to compel arbitration. Motions to compel arbitration are treated either as motions to dismiss or motions for summary judgment. Guidotti v. Legal Helpers Debt Resol., LLC, 716 F.3d 764, 771 (3d Cir. 2013) (AJS, KAJ, JRR). “‘Where the affirmative defense of arbitrability of claims is apparent on the face of a complaint (or documents relied upon in the complaint),’ ‘the [Federal Arbitration Act] would favor resolving a motion to compel arbitration under a motion to dismiss standard without the inherent delay of discovery.‘” Id. at 773–74 (citations omitted and alterations adopted). In such a case, Rule 12 supplies the appropriate standard. Id. But “a more deliberate pace is required” when “the motion to compel arbitration does not have as its predicate a complaint with the requisite clarity’ to establish on its face that the parties agreed to arbitrate, or the opposing
Our first task is to determine which of these two standards applies. Id. at 772. Optum was explicit in seeking review of its motion to compel under the
Under the
IV. Analysis
With passage of the Federal Arbitration Act, Congress established “a national policy favoring arbitration when the parties contract for that mode of dispute resolution.” Preston v. Ferrer, 552 U.S. 346, 349 (2008). And when the parties have done so, arbitration agreements must be enforced according to their terms like any other contract would be. Rent-A-Ctr., W., Inc. v. Jackson, 561 U.S. 63, 67 (2010). Like other contracts, arbitration agreements “may be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability.‘” Id. at 68 (quoting Doctor‘s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). Here, the District Court concluded that one of these generally applicable defenses—procedural unconscionability—applied, and it therefore denied Optum‘s motion to compel.
Optum argues that this conclusion was in error for five reasons and urges us to reverse, or alternatively vacate, the District Court‘s order. First, Optum argues that
the pharmacies’ procedural-unconscionability defense should have been decided by an arbitrator rather than the District Court. Second, that there was no procedural unconscionability because PSAOs were not prohibited from sharing the Provider Agreements from their constituent pharmacies. Third, that the pharmacies ratified the Provider Agreements and thus vitiated any procedural unconscionability that may have otherwise been present. Fourth, that twenty of the pharmacies did not even claim procedural unconscionability. And fifth, that Guidotti requires that Optum be given a chance to engage in discovery limited to the question of arbitrability and a chance to reassert its motion to compel arbitration under theA. Who Decides?
Before a court can resolve a dispute arising out of a contract containing an arbitration clause, it must address the “threshold arbitrability question“: who decides, the arbitrator or the court? See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 527 (2019). Optum argues that the District Court “should have stayed the case and compelled arbitration so that the arbitrator can address [the pharmacies‘] procedural unconscionability argument in the first instance.” Blue Br. at 39. The pharmacies contend that Optum forfeited this argument by not raisingit before the District Court, and that even if it was not forfeited, the District Court was correct in deciding the issue itself. For the following reasons, we agree with the pharmacies.
Arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
For a district court, rather than an arbitrator, to consider a challenge to an arbitration agreement, the challenge “must focus exclusively on the arbitration provision.” S. Jersey Sanitation Co. v. Applied Underwriters Captive Risk Assurance Co., 840 F.3d 138, 143 (3d Cir. 2016). “[A]bsent a specific challenge to the validity of the arbitration clause specifically, the court must treat [an arbitration agreement] as a valid and enforceable agreement and refer any challenges to the container contract to arbitration.” MZM Constr. Co. v. N.J. Bldg. Laborers Statewide Benefit Funds, 974 F.3d 386, 397 (3d Cir. 2020). Here, the District Court concluded that the pharmacies “argue[d] . . . that it would be procedurally unconscionable to bind them to the arbitration agreement [because] the terms and conditions of the agreement were not accessible to them when they entered into their contractual relationship” and proceeded to address the
The District Court addressed the pharmacies’ challenge without the benefit of any argument from Optum that the arbitrability decision was not the District Court‘s to make. “We generally refuse to consider issues that the parties have not raised below.” Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 249 (3d Cir.2013). This refusal “is essential in order that parties may have the opportunity to offer all the evidence they believe relevant to the issues.” Id. (quoting Hormel v. Helvering, 312 U.S. 552, 556 (1941)). And while it is within our discretion to depart from this general rule, we do so only in exceptional circumstances. Id.; Gen. Refractories Co. v. First State Ins. Co., 855 F.3d 152, 162 (3d Cir. 2017).
In its reply brief, Optum identifies two instances before the District Court where it raised this argument. Neither is sufficient. The first was a lone citation to Rent-A-Center in Optum‘s motion to compel, before the pharmacies even challenged arbitrability.13 And that citation supported nothing more than the rule that an arbitration provision shall be valid unless it is specifically challenged. Nothing in the motion to compel can be read as an argument that the District Court was unable to preside over such a specific challenge. It is beyond implausible to read such a simple statement, made before Optum knew the pharmacies were disputing whether they were bound to arbitrate, as an argument that the District Court had to stay the case and refer the arbitrability challenge to the arbitrator.
The second instance Optum highlights is the following sentence from its response to the pharmacies’ second supplemental brief opposing its motion in the District Court: “Plaintiffs argue that the entire Provider Agreement was purportedly concealed from them. Accordingly, there is no basis for singling out the arbitration clause as not binding.” But again, nothing in this statement amounts to an argument that the District Court should have referred the arbitrability challenge to the arbitrator. Both of these instances are more naturally seen as arguments to the District Court about why it should have rejected the pharmacies’ arbitrability challenge.
Optum also argues that it could not have forfeited this issue because the question of who decides is jurisdictional. Per the Supreme Court, “the word ‘jurisdictional’ is generally reserved for prescriptions delineating the classes of cases a court may entertain (subject-matter jurisdiction) and the persons over whom the court may exercise adjudicatory authority (personal jurisdiction).” Fort Bend Cnty. v. Davis, 139 S. Ct. 1843, 1848 (2019). And the Supreme Court, when discussing a district court‘s responsibility to give effect to arbitration agreements, has at times used language of that flavor, e.g.: “When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue.” Henry Schein, 139 S. Ct. at 529 (emphasis added). But placing the weightthat Optum does on this language would put the Supreme Court at odds with itself. It has repeatedly held that statutory limitations are to be treated as nonjurisdictional unless Congress clearly states it intends otherwise. Gonzalez v. Thaler, 565 U.S. 134, 141-44 (2012) (quoting Arbaugh v. Y & H Corp., 546 U.S. 500, 515-16 (2006)); see also United States v. Wong, 575 U.S. 402, 409-10 (2015).
Optum points to no such clear statement by Congress. Instead it directs our attention to section 3 of the FAA, which requires courts to stay trial of an action pending arbitration, and to section 4, which directs courts to order parties to proceed to arbitration when required by an agreement. Both of these statutory provisions undercut Optum‘s argument. If a court lacks jurisdiction, how could it stay the case or enter an order other than for dismissal? Far from making a clear statement that the FAA strips courts of jurisdiction whenever there is an arbitration agreement, Congress has made a clear statement telling the courts how they are to exercise that jurisdiction.
Sections 3 and 4 of the FAA are not jurisdictional limitations. Further, because Optum did not argue before the District Court that the pharmacies’ arbitrability challenge needed to be decided by the arbitrator, we conclude that Optum forfeited its argument that the District Court was required to submit the pharmacies‘arbitrability challenge to the arbitrator.14 We therefore refuse to consider the issue.
B. Guidotti
After considering the pharmacies’ arbitrability challenge, the District Court concluded that “compelling plaintiffs to proceed with arbitration in this matter would be procedurally unconscionable.” Dist. Ct. Op., App‘x at 13. It reached this conclusion upon finding that “the record demonstrates that the defendant prohibits PSAOs from giving the Provider Agreement to the individual pharmacies without first gaining permission to do so and the defendant has never given such permission, making it impossible for the pharmacies to have any knowledge of the arbitration agreement.” Id. at 12. Optum argues that the record does not actually demonstrate that PSAOs were prohibited from sharing the Provider Agreements fromtheir constituent pharmacies, and that there was thus no procedural unconscionability.
Under Illinois law—which the parties agree controls here—“[p]rocedural unconscionability exists when a contract term is so difficult to find, read, or understand that the plaintiff cannot fairly be said to have been aware that he or she was agreeing to it.” Zuniga v. Major League Baseball, N.E.3d —, No. 1-20-1264, 2021 WL 976958 (Ill. App. Ct. Mar. 16, 2021). In response to Optum‘s argument, the pharmacies prominently focus on language found in a number of the pharmacies’ Provider Agreements, which they contend prevents PSAOs from sharing terms such as the arbitration agreement with the pharmacies. For example, one Provider Agreement provides:
Unless required to do so by operation of law or order of any court or government authority, Pharmacy will not share information concerning the terms of this Agreement or other proprietary information,
including but not limited to, reimbursement rates and pricing as provided to Pharmacy by [Optum], with any other person or entity without the permission of [Optum]. If any such disclosure is made or contemplated, Pharmacy will notify [Optum].
AccessHealth Provider Agreement, Exh. A § 3.3, App‘x at 506. While at first blush this may suggest, as Optumargues, that the pharmacies are expected to have access to but not share the Provider Agreement‘s terms, this contract in particular shows the PSAO signing as “Pharmacy.” So when read in the light most favorable to the pharmacies, this Provider Agreement could plausibly prevent the PSAO from sharing the Provider Agreement‘s terms with any third party, including the PSAO‘s member pharmacies. Further, the pharmacies came forward with other evidence: a transcript from the deposition of Optum‘s corporate representative, Kerri Tanner. Tanner was unable to recall any specific times that Optum authorized PSAOs to disclose Provider Agreement terms to non-signatory pharmacies. Otherwise, Tanner provided only vague statements that could be understood to support either view (and are indeed selectively quoted by Optum and the Pharmacies).
Given that Optum brought its motion to compel arbitration under the
Because it is plausible that a number of the pharmacies were never given the terms of their Provider Agreements, it is likewise plausible that holding the pharmacies to the arbitration agreements contained therein would be procedurally unconscionable. See Zuniga, 2021 WL 976958, at *5 (“Procedural unconscionability consists of some impropriety during the process of forming the contract depriving a party of a meaningful choice.” (quoting Kinkel v. Cingular Wireless, LLC, 223 Ill.2d 1, 23 (2006))). So we agree with the District Court that the pharmacies “brought forth sufficient facts to place the agreement to arbitrate in issue.” Dist. Ct. Op., App‘x at 6. Optum‘s motion to compel arbitration, brought under the
Without providing for discovery as to arbitrability and without allowing Optum to bring a
This formal discovery, limited to the question of arbitrability, may then be followed by a renewed motion to compel arbitration wherein both the moving and non-moving parties’ arguments can be supported by a developed record. Id. at 776. To proceed otherwise would plainly disadvantage moving parties because they would be limited to the complaint, exhibits attached to the complaint, matters of public record, and undisputedly authentic documents relied upon by the complaint, even when non-moving parties introduced and relied on other evidence in opposition. Id. at 772.
Guidotti, then, requires a district court to allow discovery on the question of arbitrability after it has denied a motion to compel arbitration under the
Before concluding, we note that the District Court did not provide any citations to the record in support of its finding that “the record demonstrates that [Optum] prohibits PSAOs from giving the Provider Agreement to
the individual pharmacies without first gaining permission to do so.” Because we apply the same standard of review the District Court should have applied, Guidotti, 716 F.3d at 772, we have examined the record and found support for the finding in the Provider Agreement set forth in Exhibit A and in other Provider Agreements. But that particular Provider Agreement may not be representative of other pharmacies’ Provider Agreements. We note two examples. The Provider Agreement set forth in Exhibit D appears to contain the same confidentiality clause as the Provider Agreement in Exhibit A, but “Pharmacy” therein is defined more broadly—as each of the PSAO‘s participating member pharmacies—and the Provider Agreement set forth in Exhibit P does not appear to contain the same confidentiality
V. Conclusion
For the foregoing reasons, we will vacate in part16 and remand to the District Court for further proceedings consistent with this opinion.