Cloney's Pharamacy, Inc. v. Wellpartner, Inc.

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CLONEY'S PHARAMACY, INC., WILLOW CREEK PHARMACY, INC., and JCH PHARMACY HOLDINGS, INC., on behalf of themselves and all others similarly situated, Plaintiffs, v. WELLPARTNER, INC. and WELLPARTNER, LLC, Defendants.

No. 1:23-cv-10088-MKV

United States District Court, S.D. New York

September 30, 2024

OPINION AND ORDER GRANTING MOTION TO STAY IN FAVOR OF ARBITRATION

MARY KAY VYSKOCIL, United States District Judge

Plaintiffs Cloney's Pharmacy, Inc. (“Cloney's”) Willow Creek Pharmacy, Inc. (“Willow Creek”), and JCH Pharmacy Holdings, Inc., doing business as Pucci's Pharmacy (“Pucci's), three independent pharmacies bring this putative class action against Defendant Wellpartner, LLC^[1], a third-party administrator providing services to participants in the federal 340B Drug Pricing Program, alleging that Defendant overcharged Plaintiffs in breach of the parties' contracts. Defendant moves to dismiss or to stay this action in favor of arbitration. For the following reasons, Defendant's motion is GRANTED and this case is stayed pending arbitration.

FACTUAL BACKGROUND^[2]

Plaintiffs are owners and operators of three independent pharmacies located in and organized under the laws of California. Compl. ¶¶ 2, 13-15. Plaintiffs participate as contract pharmacies (“Contract Pharmacies”) in the federal 340B Drug Pricing Program (“340B”), which assists covered healthcare facilities (“Covered Entities) in serving poor and uninsured communities by permitting Covered Entities to purchase certain outpatient prescription drugs at a discount, but be reimbursed for those drugs at the market rate. Compl. ¶¶ 22-23, 34. As Contract Pharmacies Plaintiffs order, store, and dispense drugs to 340B-eligible patients of the Covered Entities and collect payment from the patients and their health insurance. Compl. ¶ 31.

Defendant, organized under the laws of Delaware with its principal place of business in New York, is the nation's largest 340B third-party administrator (“TPA”).^[3] Compl. ¶¶ 2, 17, 47. 340B TPAs like Defendant provide technical, compliance, and administrative services for Covered Entities, including by managing the relationships between Covered Entities and Contract Pharmacies, such as by managing drug inventory, calculating amounts owed on 340B-eligible prescriptions, and coordinating the transfer of those funds from Contract Pharmacies to Covered Entities. Compl. ¶¶ 41-45.

As Contract Pharmacies, Plaintiffs entered into Contract Pharmacy Services Agreements (“CPSAs”) with Defendant^[4] and non-party Covered Entities.^[5] Compl. ¶¶ 13-15, 49-50. Under the CPSAs, Defendant bills Plaintiffs twice per month for payments due in connection with 340B drugs dispensed by Plaintiffs (“Remittances”). Compl. ¶ 52; Cloney's CPSA ¶ 3.2; Willow Creek CPSA ¶ 3.3; Pucci's CPSA ¶ 3.2. Remittances “represent the difference between the payments received by Contract Pharmacy from payers and patients, less 340B Contract Pharmacy dispensing fees and credits appropriately applied by [Defendant].” Compl. ¶ 54; Cloney's CPSA ¶ 3.3; Willow Creek CPSA ¶ 3.5; Pucci's CPSA ¶ 3.3. The CPSAs provide that “[a]s invoiced, Contract Pharmacy shall remit to [Defendant] the total amounts collected for each Covered Drug . . . less its Dispensing Fee calculated by [Defendant].” Compl. ¶ 55; Cloney's CPSA Ex. A ¶ 3.2; Willow Creek CPSA Ex. A ¶ 3.2; Pucci's CPSA Ex. A ¶ 3.2. After receiving payment from Plaintiffs, Defendant deducts an administrative fee and submits the remainder of the Remittance to the Covered Entity. Compl. ¶ 56.

Plaintiffs allege that Defendant erroneously calculated the Remittances by failing to account for “direct and indirect remuneration fees” (“DIR Fees”) that are assessed against Plaintiffs by pharmacy benefit managers (“PBMs”) for drugs dispensed under Medicare Part D, the outpatient prescription drug benefit for Medicare enrollees. Compl. ¶¶ 4-6, 57-58. DIR Fees are “clawed back” from Contract Pharmacies on Medicare Part D prescriptions after the “point of sale” reimbursement, which is the figure on which Defendant bases its calculation of a Remittance. Compl. ¶¶ 61-66. Thus, Plaintiffs allege, Defendant does not properly calculate the “total amount collected” by Plaintiffs in determining a Remittance as required by the CPSAs, because it fails to account for post-point-of-sale DIR Fees collected by PBMs that impact the “total amount collected,” in turn impacting the Dispensing Fee retained by Plaintiffs. Compl. ¶¶ 66, 69, 71-72, 75-82.

Accordingly, Plaintiffs allege that Defendant overcharges Plaintiffs, in breach of the CPSAs. Compl. ¶¶ 5, 71, 73, 77, 82, 94, 97.

“The largest PBM by market share in the United States are non-parties Caremark, LLC and CaremarkPCS, LLC” (collectively, “Caremark”). Compl. ¶¶ 6, 59. Caremark are Defendant's “sister companies.” Compl. ¶ 6. Defendant and Caremark “are wholly owned by the parent company, nonparty CVS Health.” Compl. ¶ 7. Plaintiffs allege that Defendant “is well aware of Caremark's DIR Fees,” including because CVS Health is “one of the most prolific assessors of DIR Fees” and “CVS Health-not so incidentally the owner of the largest PBM in the nation- purchased [Defendant] ¶ 2017, in or around the same time that DIR Fees came into prominence as a popular moneymaker for PBMs.” Compl. ¶ 67; see also Compl. ¶ 83 (“[Defendant] is capable of accounting for its sister company Caremark's DIR Fees in its Remittances but fails to do so.”).

Plaintiffs each have a separate contractual relationship with Caremark through a Caremark Provider Agreement (“CPA”), which governs the provision of PBM services by Caremark to its network pharmacies such as Plaintiffs, who are defined as “Providers.” Def. Mem. 3; Pl. Mem. 6; Cloney's CPA; Willow Creek CPA; Pucci's CPA. Each CPA incorporates by reference Caremark's Provider Manual (“CPM”). Def. Mem. 3; Cloney's CPA ¶ 11; Willow Creek CPA ¶ 11; Pucci's CPA ¶ 11. At all relevant times, the CPM has contained an arbitration provision (the “Arbitration Clause”). See 2010 CPM ¶ 15.09; 2014 CPM 45-46; 2016 CPM 44-45; 2022 CPM ¶ 15.09. As of the time of the filing of the Complaint, the Arbitration Clause states:

Any dispute, claim or controversy between Provider and Caremark [including Caremark's current, future, or former employees, parents, subsidiaries, affiliates, agents, and assigns (collectively referred to in this Arbitration section as “Caremark”)] including, but not limited to, disputes in connection with, arising out of, or relating in any way to, the Provider Agreement or to Provider's participation in one or more Caremark networks or exclusion from any Caremark networks, including any disputes regarding the interpretation, validity, scope, or applicability of this agreement to arbitrate, will be exclusively settled by arbitration. This arbitration provision applies to any dispute arising from events that occurred before, on, or after the effective date of this Provider Manual.... The arbitrator(s) shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability, or formation of the agreement to arbitrate including, but not limited to, any claim that all or part of the agreement to arbitrate is void or voidable for any reason.... Any such arbitration must be conducted in Scottsdale, Arizona and Provider agrees to such jurisdiction, unless otherwise agreed to by the parties in writing.

2023 Arbitration Clause. The CPM contains a provision providing that Caremark may amend a CPA, including the CPM, “by giving notice to Provider of the terms of the amendment and specifying the date the amendment becomes effective,” and that if a Provider “submits claims to Caremark after the effective date of any notice or amendment, the terms of the notice or amendment is accepted by Provider and is considered part of the” CPA. 2022 CPM ¶ 15.07; see also 2010 CPM ¶ 15.07; 2014 CPM 45; 2016 CPM 44.^[6]

PROCEDURAL HISTORY

Plaintiffs commenced this action, filing the Complaint invoking the Court's diversity jurisdiction and asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, negligent performance, and an accounting. Compl. ¶¶ 92-122. Defendant filed a pre-motion letter in anticipation of its motion to dismiss the Complaint for improper venue pursuant to Federal Rule of Civil Procedure 12(b)(3) or, in the alternative, for lack of subject matter jurisdiction pursuant to Rule 12(b)(1). [ECF No. 9]. Plaintiffs opposed Defendant's argument in substance, but consented to Defendant's filing of the proposed motion. [ECF Nos. 9, 11]. Defendant now moves, pursuant to Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, and Rules 12(b)(1) and (3), to dismiss or to stay the action in favor of arbitration, or, in the alternative, to transfer the action to the District of Arizona pursuant to 28 U.S.C. § 1404(a). [ECF Nos. 18, 19 at 8]. Defendant filed a memorandum of law in support of its motion, along with a Declaration of Katherine Trefz and several exhibits. [ECF No. 19]. Plaintiffs filed a memorandum of law in opposition to the motion, accompanied by several exhibits, some of which Plaintiffs move to seal. [ECF Nos. 21, 22 (“Mot. Seal”)].^[7] Defendant filed a reply brief in further support of its motion. [ECF No. 23]. Both Defendant and Plaintiffs subsequently filed notices of supplemental authority [ECF Nos. 24 (“Def. Suppl. Auth.”), 26 (“Pl. Suppl. Auth.”)], to which the opposing party responded [ECF Nos. 25, 27].^[8]

LEGAL STANDARDS

The Federal Arbitration Act (“FAA”), 9 U.S.C §§ 1 et seq., embodies “a legislative recognition of ‘the desirability of arbitration as an alternative to the complications of litigation.'” Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840,...