Antitrust Law Daily Wrap Up, ANTITRUST—3rdCir: Prescription Benefits Manager Waived Right to Arbitrate Retail Pharmacies' Antitrust Claims, (Nov 16, 2012)

By Jeffrey May, J.D.

Retail pharmacies do not have to arbitrate antitrust claims against prescription benefits manager (PBM) AdvancePCS, the U.S. Court of Appeals in Philadelphia has ruled (In Re: Pharmacy Benefit Managers Antitrust Litigation, November 15, 2012, Barry, M.).

The pharmacies brought a putative class action lawsuit on behalf of themselves and all other similarly-situated pharmacies that contracted with AdvancePCS to sell drugs for a prescription drug benefit plan. They alleged that AdvancePCS had conspired with its plan sponsors to reduce the contractual amount paid to retail pharmacies below the levels that would prevail in a competitive marketplace.

The pharmacies contracted with AdvancePCS to provide prescription drugs and related pharmacy services to persons covered by drug benefit plans administered by AdvancePCS. The contracts contained a broadly-worded arbitration clause.

The pharmacies' antitrust claim against AdvancePCS arose out of the contract and thus fell within the scope of the arbitration clause. However, the lower court erred in compelling arbitration. AdvancePCS had waived its right to arbitrate by actively litigating the case in federal court for more than ten months while remaining silent about arbitration.

The complaint was filed in August 2003. In September 2003, AdvancePCS moved to dismiss the complaint, arguing that the plaintiffs lacked standing and had not sufficiently alleged either horizontal collusion to state a per se violation of the antitrust laws or sufficient injury to competition to allege a rule of reason violation. In March 2004, the motion to dismiss was denied. Shortly thereafter, AdvancePCS filed an answer to the complaint. In June 2004, some ten months after the complaint was filed, but before any discovery began, AdvancePCS filed a motion to compel arbitration.

The Third Circuit identified six factors to aid the analysis of waiver questions in its 1992 decision in Hoxworth v. Blinder, Robinson & Co., Inc. (980 F.2d 912). The six nonexclusive factors are: (1) timeliness or lack thereof of the motion to arbitrate; (2) extent to which the party seeking arbitration has contested the merits of the opposing party’s claims; (3) whether the party seeking arbitration informed its adversary of its intent to pursue arbitration prior to seeking to enjoin the court proceedings; (4) the extent to which a party seeking arbitration engaged in non-merits motion practice; (5) the party’s acquiescence to the court’s pretrial orders; and (6) the extent to which the parties have engaged in discovery.

The complaining pharmacies made a showing on five of the six Hoxworth factors, according to the court. Because no discovery took place, the sixth factor cut significantly against a finding of waiver. On the whole, however, there was significantly more to support waiver than to compel arbitration.

The case is No. 12-1430.

H. Laddie Montague, Jr. (Berger & Montague) for Appellants. Michael D. Leffel (Foley & Lardner) for Appellee.

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