Grasso Enterprises, et al v. Express Script

Filing

OPINION FILED - THE COURT: James B. Loken, C. Arlen Beam and Bobby E. Shepherd AUTHORING JUDGE:James B. Loken (PUBLISHED) [4354519] [15-1578]

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 15-1578
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Grasso Enterprises, LLC, et al.
lllllllllllllllllllll Plaintiffs - Appellants
v.
Express Scripts, Inc.
lllllllllllllllllllll Defendant - Appellee
____________
Appeal from United States District Court
for the Eastern District of Missouri - St. Louis
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Submitted: September 24, 2015
Filed: January 11, 2016
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Before LOKEN, BEAM, and SHEPHERD, Circuit Judges.
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LOKEN, Circuit Judge.
Plaintiffs Grasso Enterprises, NERxD, and Wiley’s Pharmacy and
Compounding Services are compounding pharmacies that prepare and sell customized
compound drugs made in accordance with doctors’ prescriptions. Express Scripts,
Inc. (“ESI”), is a pharmacy benefits manager that contracts with health plan sponsors
and administrators to administer the pharmacy benefits provided in their group health
plans, many of which are governed by the Employee Retirement Income Security Act
(“ERISA”), 29 U.S.C. §§ 1001 et seq. Plaintiffs have entered into separate Provider

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Agreements with ESI, which provide that, as members of ESI’s pharmacy provider
network, Plaintiffs “look solely to ESI for payment of Covered Medications”
provided to health plan participants and beneficiaries. ESI pays Plaintiffs pursuant
to the Provider Agreements; the health plans reimburse ESI.
In June 2014, ESI announced a program to reduce the increasing costs being
incurred by health plans for compound drugs. As explained in a Declaration by ESI’s
Director of Investigations in Fraud, Waste, and Abuse Services, ESI “made
recommendations to its client health plan sponsors to help control the cost of
compound prescriptions, such as . . . removing coverage for certain expensive
compound ingredients.” ESI began denying compound drug claims in July 2014 and
fully implemented the program on January 1, 2015. Plaintiffs commenced this action
on November 18, 2014, alleging that ESI is systematically denying payment of
compound drug claims without adhering to the procedural requirements of ERISA’s
“Claims Regulation,” 29 C.F.R. § 2560.503-1. Plaintiffs asserted claims for relief
under two ERISA remedial provisions, §§ 502(a)(1)(B) and (a)(3), codified at 29
U.S.C. §§ 1132(a)(1)(B) and (a)(3).
Plaintiffs amended their complaint and moved for a preliminary injunction
declaring that ESI must pay all claims for compound medications until it is in
compliance with the Claims Regulation, ordering ESI to issue explanation-of-benefit
(EOB) forms complying with the Claims Regulation, and declaring that ESI must
provide a procedure for patients to request access to compound medications to
comply with the Patient Protection and Affordable Care Act, 42 U.S.C. § 300gg-6.
After hearing oral arguments, the district court1 denied the requested preliminary
injunction on numerous grounds. Plaintiffs appeal. We have jurisdiction to consider
an interlocutory appeal from the denial of a preliminary injunction. 28 U.S.C.

1

The Honorable Henry E. Autrey, United States District Judge for the Eastern
District of Missouri.
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§ 1292(a)(1). Concluding that Plaintiffs failed to meet the well-established standards
for preliminary injunctive relief, we affirm.2
I. Background
Plaintiffs attached to the First Amended Complaint summary plan descriptions
for four health plans (two not governed by ERISA). These documents describe the
role of ESI in administering the plans’ pharmacy programs. Some expressly caution
that not all compound drugs may be covered by the plan. But none describe the
coverage of compound drug benefits in detail. Plaintiffs allege that ESI determines
whether to pay or deny compound drug claims to plan beneficiaries. ESI asserts that
health plan sponsors set the plan terms, including which treatments and medications
are covered for plan participants and beneficiaries.3 The record does not clarify these
issues, which would be critical to judicial review of an adverse benefits determination
under ERISA. Plaintiffs assert these issues are irrelevant because they do not seek
review of any specific claim denial.
In the First Amended Complaint, each Plaintiff asserted claims for injunctive
relief in two capacities, as a “Plan-Designated Beneficiary,” based on the plan
descriptions of ESI’s role in the pharmacy programs, and as a “Participant-Designated
Beneficiary,” based on assignments Plaintiffs received from health plan beneficiaries
of “all rights to payment and other benefits” that the beneficiaries may have under
2

In deciding a preliminary injunction motion, the district court considers four
factors: “(1) the threat of irreparable harm to the movant; (2) the state of balance
between this harm and the injury that granting the injunction will inflict . . . ; (3) the
probability that movant will succeed on the merits; and (4) the public interest.”
Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc).
3

The record contains evidence that one health plan sponsor notified plan
participants that it adjusted the plan by introducing a list of non-covered compound
ingredients following ESI’s announcement of its compound drug program.
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their applicable health plans “for past, current, or future compounds, ingredients, or
medications,” and authorizing the pharmacy “to pursue any and all remedies to which
[the beneficiaries] may be entitled, including the use of legal action in any court
against the health plan, insurer, or its administrator.” One assignment document for
each Plaintiff was attached to the First Amended Complaint. The assignors were
identified as Patients “A,” “B,” and “C,” with their names redacted. The district court
concluded that Plaintiffs have standing to assert ERISA claims only as assignees of
patient beneficiaries.
The First Amended Complaint alleged that ESI, implementing its compound
drug program, denied claims by Patients A, B, and C for refills of existing compound
drug prescriptions that ESI had previously filled. Plaintiffs alleged that “ESI’s legally
defective and void computer-generated boilerplate notifications” violated numerous
subparts of the detailed Claims Regulation. In support of Plaintiffs’ motion for a
preliminary injunction, the managing member of Grasso Enterprises declared that,
“[s]ince the roll out of the program in June, approximately 60-70% of existing ESI
prescriptions that have always been approved are now being rejected.” The managing
member of NERxD LLC declared that “[w]e are experiencing a 20-40% drop in our
monthly gross revenues, and it appears that the key reason is ESI’s scheme.” The
owner of Wiley’s Pharmacy declared that the ESI portion of his business began
declining in June 2014.
II. The Statutory Framework
ERISA includes a provision addressing the procedures for resolving disputes
between health plan administrators and plan participants and beneficiaries:

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§ 1133. Claims procedure
In accordance with regulations of the Secretary [of Labor], every
employee benefit plan shall -(1) provide adequate notice in writing to any participant or
beneficiary whose claim for benefits under the plan has been
denied, setting forth the specific reasons for such denial, written
in a manner calculated to be understood by the participant, and
(2) afford a reasonable opportunity to any participant whose
claim for benefits has been denied for a full and fair review by the
appropriate named fiduciary of the decision denying the claim.
29 U.S.C. § 1133. The ERISA Claims Regulation implements this provision, setting
forth detailed procedural requirements that apply when a plan sponsor or
administrator denies a claim for health care benefits. “The statute and the regulations
were intended to help claimants process their claims efficiently and fairly” by
requiring plan administrators to support their decisions so that claimants can
“adequately prepare . . . for any further administrative review, as well as an appeal to
the federal courts.” Richardson v. Cent. States, S.E. & S.W. Areas Pension Fund, 645
F.2d 660, 665 (8th Cir. 1981). Consistent with this focus, the Claims Regulation
provides a specific remedy for non-compliance:
(l) . . . In the case of the failure of a plan to establish or follow claims
procedures consistent with the requirements of this section, a claimant
shall be deemed to have exhausted the administrative remedies available
under the plan and shall be entitled to pursue any available remedies
under section 502(a) of the Act on the basis that the plan has failed to
provide a reasonable claims procedure that would yield a decision on the
merits of the claim.
29 C.F.R. § 2560.503-1(l) (emphasis added); see Brown v. J.B. Hunt Transp. Servs.,
Inc., 586 F.3d 1079, 1085-86 (8th Cir. 2009) (failure to provide claimant a full and

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fair review of the decision to discontinue plan benefits “excuses [claimant’s] failure
to exhaust before bringing suit under § 1132(a)”).
Because administrative exhaustion “serves many important purposes,” review
of benefits appeal procedures is more appropriate when “the reviewing court reviews
the claims administrator’s final decision to deny a claim, rather than the initial
denial.” Galman v. Prudential Ins. Co. of Am., 254 F.3d 768, 770 (8th Cir. 2001).
In conducting this review, our sister circuits do not require technical compliance with
each subpart of the Claims Regulation. Rather, “[c]hallenges to ERISA procedures
are evaluated under the substantial compliance standard.” Lafleur v. La. Health Serv.
& Indem. Co., 563 F.3d 148, 154 (5th Cir. 2009), quoting Wade v. Hewlett-Packard
Dev. Co. LP Short Term Disability Plan, 493 F.3d 533, 539 (5th Cir. 2007), and cases
cited. While we have not expressly adopted this substantial compliance standard, we
have applied a substantively equivalent standard, evaluating whether a plan’s entire
claim denial process provided the claimant “a full and fair review of her claim.”
Midgett v. Wash. Grp. Int’l Long Term Disability Plan, 561 F.3d 887, 896 (8th Cir.
2009); see Davidson v. Prudential Ins. Co. of Am., 953 F.2d 1093, 1096 (8th Cir.
1992).
As the Supreme Court has repeatedly emphasized, “ERISA’s carefully crafted
and detailed enforcement scheme provides strong evidence that Congress did not
intend to authorize other remedies that it simply forgot to incorporate expressly.”
Great-W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209 (2002) (quotations
omitted). Plaintiffs seek preliminary and permanent injunctive relief under two of
these remedial provisions. Section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), provides
that “a participant or beneficiary” may sue “to recover benefits due to him under the
terms of his plan, to enforce his rights under the terms of the plan, or to clarify his
rights to future benefits under the terms of the plan.” Section 502(a)(3), 29 U.S.C.
§ 1132(a)(3), provides that “a participant, beneficiary, or fiduciary” may sue “(A) to
enjoin any act or practice which violates any provision of this subchapter or the terms
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of the plan, or (B) to obtain other appropriate equitable relief” to redress violations
or enforce the provisions of ERISA or the terms of the plan. “[T]he term ‘equitable
relief’ in § 502(a)(3) must refer to those categories of relief that were typically
available in equity.” Great-W., 534 U.S. at 210 (quotation omitted).
III. Discussion
A. Plaintiffs seek injunctive relief as assignees of patients who claim coverage
of their compound drug prescriptions as participants or beneficiaries of health care
plans. Like a number of circuits, we have held that an assignee of welfare plan
medical benefits may sue under § 502(a)(1)(B) for wrongful denial of a benefit claim,
provided the assignment was authorized by the ERISA plan. See Lutheran Med. Ctr.
of Omaha v. Contractors Health & Welfare Plan, 25 F.3d 616, 619 (8th Cir. 1994);
Ark. Blue Cross & Blue Shield v. St. Mary’s Hosp., 947 F.2d 1341, 1349-50 (8th Cir.
1991) (ERISA preempts contrary state law); accord City of Hope Nat’l Med. Ctr. v.
HealthPlus, Inc., 156 F.3d 223, 228-29 (1st Cir. 1998); Cagle v. Bruner, 112 F.3d
1510, 1515 (11th Cir. 1997), and cases cited; see also Pascack Valley Hosp. v. Local
464A UFCW Welfare Reimb. Plan, 388 F.3d 393, 400-01 n.7 (3d Cir. 2004). “Antiassignment clauses in ERISA plans are valid and enforceable.” Spinedex Physical
Therapy USA Inc. v. United Healthcare of Ariz., Inc., 770 F.3d 1282, 1296 (9th Cir.
2014). ESI does not challenge Plaintiffs’ assertion that they are holders of valid
assignments from patient beneficiaries.
Each Plaintiff as assignee “stands in the shoes of the assignor, and, if the
assignment is valid, has standing to assert whatever rights the assignor possessed.”
Misic v. Bldg. Serv. Emps. Health & Welfare Trust, 789 F.2d 1374, 1378 n.4 (9th
Cir. 1986). The assignor -- and therefore each Plaintiff as assignee -- may sue “to
recover benefits due to him under the terms of his plan.” § 502(a)(1)(B). If the plan’s
failure to follow claims procedures consistent with the requirements of the Claims
Regulation denied the claimant a reasonable opportunity for full and fair review of
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the decision to discontinue pharmacy benefits, the claimant may sue without
exhausting plan remedies. Brown, 586 F.3d at 1084-86. This allows for timely
judicial enforcement of the claimant’s right to benefits under the plan.
In most cases, the appropriate remedy for a violation of 29 U.S.C. § 1133(2)
and the Claims Regulation is not an award of benefits by the court, but rather a
“remand to the plan administrator so the claimant gets the benefit of a full and fair
review.” Id. at 1087, quoting Syed v. Hercules Inc., 214 F.3d 155, 162 (3d Cir. 2000)
(Alito, J.). In some cases, however, the reviewing court may determine that the
administrative record, though procedurally flawed, established that the denial of
benefits “was not supportable,” in which case the court may award the denied benefit
rather than remanding. Richardson, 645 F.2d at 665. And the Seventh Circuit adds
an additional remedy in a situation that has not come before this court but could be
relevant to these prescription benefit disputes with ESI -- if the plan fails to
substantially comply with the Claims Regulation in terminating a benefit “to which
the administrator had previously determined the claimant was entitled,” the court may
order reinstatement of the benefit as of the date it was terminated and remand to the
plan for reconsideration of its procedurally flawed decision to terminate. Compare
Schneider v. Sentry Grp. Long Term Disability Plan, 422 F.3d 621, 629 (7th Cir.
2005), quoting Hackett v. Xerox Corp. Long-Term Disability Income Plan, 315 F.3d
771, 775 (7th Cir. 2003), with Love v. Nat’l City Corp. Welfare Benefits Plan, 574
F.3d 392, 398 (7th Cir. 2009).
“The basis of injunctive relief in the federal courts has always been irreparable
harm and inadequacy of legal remedies.” Beacon Theatres, Inc. v. Westover, 359
U.S. 500, 506-07 (1959). “Failure to show irreparable harm is an independently
sufficient ground upon which to deny a preliminary injunction.” Watkins Inc. v.
Lewis, 346 F.3d 841, 844 (8th Cir. 2003). It is well established that “[i]rreparable
harm occurs when a party has no adequate remedy at law, typically because its
injuries cannot be fully compensated through an award of damages.” Gen. Motors
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Corp. v. Harry Brown’s, LLC, 563 F.3d 312, 319 (8th Cir. 2009). Here, plan
beneficiaries have an adequate remedy at law, a suit under § 502(a)(1)(B) that will
overturn the initial denial of a compound drug pharmacy benefit if that medication
was in fact covered under the plan. There is no need for injunctive relief under
§ 502(a)(3), or for equitable relief to enforce or clarify the beneficiary’s rights under
the plan under § 502(a)(1)(B). Indeed, the grant of equitable relief declaring what
procedures are needed to substantially comply with the Claims Regulation would
disrupt efficient plan administration and in some cases would conflict with the ERISA
policy that reviewing courts should review final decisions to deny claims for benefits,
rather than the initial denials.
In these circumstances, the district court did not abuse its discretion in denying
the preliminary injunction requested by Plaintiffs as assignees of plan beneficiaries.
Indeed, it would have been legal error to grant that relief. It is telling that Plaintiffs
cite no reported decision, and we have found none, where a circuit court has upheld
a private plaintiff’s claim for injunctive relief mandating the future procedures an
ERISA plan must follow to comply with the Claims Regulation.
B. Alternatively, Plaintiffs argue they have standing to bring a civil action
under ERISA § 502(a)(1) or (3) in their own right, as “plan-designated beneficiaries,”
based on summary plan descriptions describing how pharmacy benefit programs
administered by ESI will be implemented. The district court, consistent with every
circuit that has considered the question, concluded that “the Pharmacies do not have
standing under ERISA to assert harm to themselves” because they are not ERISA
beneficiaries. We agree. As the Second Circuit cryptically resolved this issue in
Rojas v. Cigna Health & Life Ins. Co., 793 F.3d 253, 258 (2d Cir. 2015), “right to
payment [directly from ESI] does not a beneficiary make.”
The Seventh Circuit recently explained that this is not an issue of Article III
standing to seek relief in federal court. “The issue . . . is not whether [the health care
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providers] have standing but whether their claim comes within the zone of interests
regulated by a specific statute.” Pa. Chiropractic Ass’n v. Indep. Hosp. Indem. Plan,
Inc., 802 F.3d 926, 928 (7th Cir. 2015). “Whether a plaintiff comes within the zone
of interests is an issue that requires us to determine, using traditional tools of
statutory interpretation, whether a legislatively conferred cause of action encompasses
a particular plaintiff’s claim.” Lexmark Int’l, Inc. v. Static Control Components, Inc.,
134 S. Ct. 1377, 1387 (2014) (quotations omitted).
ERISA defines a “beneficiary” as “a person designated by a [plan] participant,
or by the terms of an employee benefit plan, who is or may become entitled to a
benefit thereunder.” 29 U.S.C. § 1002(8). While Plaintiffs may be entitled to direct
payments from ESI by operation of one or more ERISA plans, direct payment is
simply a convenient way to reimburse health care providers, whereas the statutory
term beneficiary “clearly refers to those individuals who share in the benefits of
coverage -- medical services and supplies covered under their health care policy.”
Rojas, 793 F.3d at 258. Thus, “Plaintiffs are not ‘beneficiaries’ as ERISA uses that
term, so they are not entitled to the procedures established by § 1133 and the [Claims
Regulation].” Pa. Chiropractic, 802 F.3d at 930.
Based on these persuasive authorities, the district court correctly determined
that Plaintiffs may only seek injunctive relief under § 502(a)(1)(B) or (a)(3) as
assignees of ERISA plan beneficiaries.4 Of course, Plaintiffs may also have claims
4

Even if Plaintiffs did have “standing” to assert ERISA claims as plan
“beneficiaries,” the district court did not abuse its discretion in denying the requested
preliminary injunction because (i) Plaintiffs requested a preliminary injunction
requiring affirmative action providing them substantially the relief sought after a trial
on the merits, which “goes beyond the purpose of a preliminary injunction.” Sanborn
Mfg. Co. v. Campbell Hausfeld/Scott Fetzer Co., 997 F.2d 484, 490 (8th Cir. 1993);
and (ii) Plaintiffs’ speculative claim that ESI’s compound drug program was
irreparably injuring their revenues, profits, and customer base failed to meet their
burden to establish irreparable injury. “In order to demonstrate irreparable harm, a
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against ESI for breach of their separate Provider Agreements, but no such claims have
been asserted and, if asserted, would not be governed by ERISA and the Claims
Regulation. As the Seventh Circuit wisely noted in Pa. Chiropractic, 802 F.3d at 928,
to resolve separate contractual disputes between health care providers and claims
administrators, ERISA does not require the administrator “to use procedures that are
designed for retail-level disputes between a plan’s participants and their . . . plan
administrator [the Claims Regulation] rather than procedures designed for wholesalelevel disputes between an [administrator] and providers under network contracts.”
See also Alt. Med. & Pharmacy, Inc., v. Express Scripts, Inc., No. 4:14 CV 1469,
2014 WL 4988199, at *6-7 (E.D. Mo. Oct. 7, 2014).
The district court’s Memorandum and Order dated March 4, 2015, denying
Plaintiffs motion for a preliminary injunction is affirmed.
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party must show that the harm is certain and great and of such imminence that there
is a clear and present need for equitable relief.” Novus Franchising, Inc. v. Dawson,
725 F.3d 885, 895 (8th Cir. 2013) (quotation omitted). Plaintiffs’ additional
contention that they are entitled to a preliminary injunction under the Patient
Protection and Affordable Care Act was so inadequately presented that it requires no
further discussion.
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