In re Remicade (Direct Purchaser) Antitrust Litig.

938 F.3d 515

IN RE: REMICADE (DIRECT PURCHASER) ANTITRUST LITIGATION

Johnson & Johnson; Janssen Biotech, Inc., Appellants

No. 18-3567

United States Court of Appeals, Third Circuit.

Argued on July 9, 2019

Opinion filed: September 13, 2019

Ashley E. Bass, Covington & Burling, 850 10th Street, N.W., One City Center, Washington, DC 20001, William F. Cavanaugh, Jr. [Argued], Adeel A. Mangi, Sara A. Arrow, Patterson Belknap Webb & Tyler, 1133 Avenue of the Americas, New York, NY 10036, Leslie E. John, Burt M. Rublin, Ballard Spahr, 1735 Market Street, 51st Floor, Philadelphia, PA 19103, Counsel for Appellants

David F. Sorensen [Argued], Andrew C. Curley, Zachary D. Caplan, Berger Montague, 1818 Market Street, Suite 3600, Philadelphia, PA 19103, Daniel J. Walker, Berger Montague, 2001 Pennsylvania Avenue NW, Suite 300 Washington, DC 20006, Archana Tamoshunas, Esq., Taus Cebulash & Landau, 80 Maiden Lane, Suite 1204, New York, NY 10038, Counsel for Appellee

Before: SHWARTZ, KRAUSE, and FUENTES, Circuit Judges

OPINION OF THE COURT

KRAUSE, Circuit Judge.

Johnson & Johnson and its subsidiary Janssen Biotech, Inc. appeal the District Court’s denial of their motion to compel arbitration of federal antitrust claims asserted by Rochester Drug Cooperative (RDC) on the ground that those claims fall within the scope of an agreement to arbitrate all claims "arising out of or relating to" a distribution contract between them. We conclude that RDC’s antitrust claims, which allege that Johnson & Johnson and Janssen Biotech’s anticompetitive conduct caused RDC to pay artificially inflated prices for products purchased under the distribution contract, do "arise out of or relate to" the distribution contract. Accordingly, we will reverse and remand for the District Court to refer the matter to arbitration.

I. Background

RDC is a direct purchaser and wholesaler of Remicade, the brand name of infliximab, which is a "biologic infusion drug"¹ manufactured by Johnson & Johnson and Janssen Biotech (J&J) and used to treat inflammatory conditions such as rheumatoid arthritis and Crohn’s disease. For many years, Remicade was the only infliximab drug on the market, but that position was threatened when the Food and Drug Administration (FDA) began approving "biosimilars" of Remicade—that is, drugs produced by other companies that have been deemed by the FDA to have no clinically meaningful differences from Remicade. The thrust of RDC’s allegations is that J&J sought to maintain Remicade’s monopoly by engaging in an anticompetitive scheme referred to as a "Biosimilar Readiness Plan" (Plan), which consisted of, inter alia , (1) "[i]mposing biosimilar-exclusion contracts on insurers that either [i] require insurers to deny coverage for biosimilars altogether or [ii] impose unreasonable preconditions ... governing coverage"; (2) "[m]ulti-product bundling of J&J’s Remicade with other J&J drugs, biologics, and medical devices"; and (3) "[e]xclusionary agreements and bundling arrangements with healthcare providers similar to those entered into with insurers." JA 100.

To be clear, RDC’s own contractual relationship with J&J is limited to a 2015 Distribution Agreement (Agreement),² which is not alleged to be part of J&J’s Plan. The Agreement establishes RDC as an "Authorized Distributor of Record" and sets out various logistical obligations for its distribution of J&J’s pharmaceutical products, including Remicade. JA 169. While the Agreement does not specify an exact purchase price for Remicade, it does provide that J&J "will sell Products to the Distributor at the applicable Product’s Wholesale Acquisition Cost (the ‘WAC’ or ‘List Price’)." JA 172.

The Agreement also contains a "Dispute Resolution" term (i.e., arbitration clause), which provides, in pertinent part:

4.21 Dispute Resolution. (a) Any controversy or claim arising out of or relating to this agreement (including without limitation any controversy or claim involving the parent company, subsidiaries, or affiliates under common control of the Company or the Distributor (a "Dispute")), shall first be submitted to mediation according to the Commercial Mediation Procedures of the American Arbitration Association ("AAA") ....

(b) Any Dispute that cannot be resolved by mediation within 45 days ... shall be resolved by arbitration in accordance with the Commercial Arbitration Rules of the AAA ... and the Federal Arbitration Act, 9 U.S.C. § 1 et seq.

JA 188.

RDC brought claims under Sections 1 and 2 of the Sherman Act based on J&J’s alleged anticompetitive conduct, and J&J moved to compel arbitration on the basis that those claims "aris[e] out of or relat[e] to" the Agreement. The District Court denied J&J’s motion on the ground that RDC’s antitrust claims are not arbitrable because they "are separate from, and cannot be resolved based on," the Agreement. In re Remicade Antitrust Litig. , No. 18-cv-00303, 2018 WL 5314775, at *8 (E.D. Pa. Oct. 26, 2018) (alterations in original). In so concluding, the District Court relied heavily on this Court’s decision in CardioNet, Inc. v. Cigna Health Corp. , 751 F.3d 165 (3d Cir. 2014), where we explained—in the context of a clause providing for arbitration of disputes "regarding the performance or interpretation of the Agreement"—that whether the plaintiff’s claims were within the scope of the clause depended on whether "the claims at issue relate to the performance or interpretation of the Agreement." Id. at 174–75. Although the arbitration clause in this case used significantly broader language, the District Court reasoned that RDC’s antitrust claims likewise "did not arise from the Agreement [with J&J]," In re Remicade Antitrust Litig. , 2018 WL 5314775, at *8, because "whether [J&J] performed its obligations under the Agreement has no bearing on whether it harmed [RDC]," id. (alterations in original) (quoting CardioNet , 751 F.3d at 175 ). J&J timely appealed.

II. Discussion³

On appeal, the parties dispute (A) as a threshold matter, whether federal or state law governs the scope of an agreement to arbitrate, and (B) if state law does apply, whether the arbitration agreement here, properly interpreted, encompasses RDC’s statutory antitrust claims. We address each issue in turn.

A. The Law Governing the Scope of Arbitration

The Federal Arbitration Act (FAA) reflects the "national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts." Buckeye Check Cashing, Inc. v. Cardegna , 546 U.S. 440, 443, 126 S.Ct. 1204, 163 L.Ed.2d 1038 (2006) ; see 9 U.S.C. § 2 ("A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy ... arising out of such contract ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."). Because the underlying principle of all arbitration decisions is that "arbitration is strictly a matter of consent," Lamps Plus, Inc . v. Varela , ––– U.S. ––––, 139 S. Ct. 1407, 1415, 203 L.Ed.2d 636 (2019) (alterations omitted) (quoting Granite Rock Co. v. Teamsters , 561 U.S. 287, 299, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010) ), the "FAA requires courts to ‘enforce arbitration agreements according to their terms,’ " Lamps Plus , 139 S. Ct. at 1415 (quoting Epic Sys. Corp. v. Lewis , ––– U.S. ––––, 138 S. Ct. 1612, 1621, 200 L.Ed.2d 889 (2018) ). But before compelling any party to arbitrate pursuant to the FAA, a court must consider two "gateway" questions: (1) "whether the parties have a valid arbitration agreement at all" (i.e., its enforceability), and (2) "whether a concededly binding arbitration clause applies to a certain type of controversy" (i.e., its scope). Id. at 1416–17 (citation omitted); see Kirleis v. Dickie , McCamey & Chilcote, P.C. , 560 F.3d 156, 160 (3d Cir. 2009).

As we recently observed in Jaludi v. Citigroup , 933 F.3d 246 (3d Cir. 2019), "[i]n applying state law at step one, we do not invoke the presumption of arbitrability." Id. at 255 (citations omitted). "At step two, however, ‘in applying general state-law principles of contract interpretation to the interpretation of an arbitration agreement ... due regard must be given to the federal policy favoring arbitration.’ " Id. (quoting Volt Info. Scis., Inc. v. Bd. of Trs. , 489 U.S. 468, 475, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) ). Here, because "the parties do not contest the enforceability of the Agreement’s arbitration provision," In re Remicade Antitrust Litig. , 2018 WL 5314775, at *3, this case turns on step two, that is, whether the alleged antitrust violations fall within the scope of the Agreement’s arbitration clause providing for arbitration of any "controversy or claim arising out of or relating to" the Agreement, JA 188.

The parties disagree as to the applicable body of law used to interpret the scope of that clause. While J&J argues that it "is a matter of federal law" and the federal presumption in favor of arbitration therefore ends the inquiry, J&J Br. 8–9 (quoting Century Indem. Co. v. Certain Underwriters at Lloyd’s , 584 F.3d 513, 524 (3d Cir. 2009) (quoting China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp ., 334 F.3d 274, 290 (3d Cir. 2003) )), RDC contends that courts must apply " ‘ordinary state law principles to evaluate arbitration agreements’ (so long as they do not conflict with the FAA)," RDC Br. 18 (quoting MacDonald v. CashCall, Inc. , 883 F.3d 220, 228 (3d Cir. 2018) ). The truth, we conclude, lies somewhere in between. While RDC’s view generally accords better with Supreme Court precedent, at least as the starting point, see Lamps Plus , 139 S. Ct. at 1415, we take this opportunity to delve into the interplay between state and federal law and, in the process, to clarify our Court’s case law.

To place our holding today in context, we briefly review our case law to date. Early on, we held that "whether a particular dispute is within the class of those disputes governed by...