Eufaula Drugs, Inc., et al. v. TDI Managed Care Services, Inc. et al

Filing 172

MEMORANDUM OPINION AND ORDER denying defendants' 117 MOTION for Summary Judgment; denying plaintiffs' 120 MOTION for Summary Judgment; denying as moot plaintiffs' 132 MOTION to Strike; denying as moot defendants' 136 MOTION to Strike. Signed by Hon. Chief Judge Mark E. Fuller on 3/12/2009. (Attachments: # 1 Civil Appeals Checklist)(cc, )

IN THE UNITED STATES DISTRICT COURT FOR T H E MIDDLE DISTRICT OF ALABAMA N O R T H E R N DIVISION E U F A U L A DRUGS, INC., et al., P l a i n t if f s , v. T D I MANAGED CARE SERVICES, IN C ., et al., D e f e n d a n ts . ) ) ) ) ) ) ) ) ) )

C A S E NO. 2:05-cv-293-MEF (W O )

M E M O R A N D U M OPINION AND ORDER T h is cause is before the Court on Defendants' Motion for Summary Judgment (Doc. # 117) filed on May 5, 2008. Also before the Court is Plaintiffs' Motion for Summary J u d g m e n t (Doc. #120) filed on May 5, 2008, Plaintiffs' Motion to Strike (Doc. #132) filed o n May 27, 2008, and Defendants' Motion to Strike (Doc. #136) filed on June 3, 2008. N a m e d Plaintiffs are two pharmacies that have brought breach of contract claims against D ef en d an ts TDI Managed Care Services, Inc. ("TDI") and Eckerd Health Services ("EHS"). P la in tif f s allege that Defendants failed to properly reimburse pharmacies for the drugs they d is p e n se d to patients in accordance with the terms of their contract. In their respective m o tio n s , both parties argue that they are entitled to summary judgment based on the u n a m b ig u o u s language of the contract. For the reasons stated below, this Court finds that D e f en d a n ts ' Motion for Summary Judgment is due to be DENIED and Plaintiffs' Motion for S u m m a ry Judgment is due to be DENIED.

I . FACTS AND PROCEDURAL HISTORY T h e two defendants named in this action are a single entity owned by J.C. Penney, Inc. a n d known during the early 1990s as TDI. In 1994, J.C. Penney acquired Eckerd Drugs, Inc., a n d "Eckerd Health Services" became the trade name under which TDI conducted business. T h is Court will, therefore, refer to Defendants collectively as EHS. E H S is a pharmacy benefits manager ("PBM") that contracts with insurers, managed c a re organizations, and employers to administer their prescription benefit plans. As part of its administration duties, EHS contracts with chain and independent pharmacies ("network p h a rm ac ie s " ) to dispense prescription drugs to people covered by the plans that EHS a d m in iste rs ("end users"). When an end user goes to a network pharmacy to fill a p re sc rip tio n , the pharmacy submits a request for approval to dispense the prescription and o b tain reimbursement from EHS; this request is known as a "claim." Such claims are tra n sm itte d to EHS instantaneously and electronically. When EHS approves a claim, it tra n sm its back to the pharmacy the total reimbursement amount, which includes the amount to be paid by EHS and the amount to be paid by the end user, for that prescription. E H S calculates the amount it will pay the pharmacy for the prescription using the A v e r ag e Wholesale Price ("AWP"). EHS typically reimburses brand drug prescriptions b a se d on a percentage discount from AWP for each brand drug prescription filled by the p h a rm a c y. EHS used a standard form contract, called the Pharmacy Network Agreement (" th e Agreement"), to contract with its network pharmacies. The Agreement defined "AWP"

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as "the current average wholesale price of a Covered Drug listed in First Databank's B l u e b o o k or other nationally recognized price source designated by [EHS]." Every brand d r u g has a unique AWP that is made available through certain drug database publishers. B e c a u s e AWP values fluctuate, PBMs receive periodic updates for each brand drug's AWP f r o m these publishers. E H S received AWP updates from the drug database publisher Medi-Span. Medi-Span o f f ers AWP update services on a daily, weekly , or monthly basis. The weekly publication M e d i-S p a n offers is the Master Drug Database ("MDDB"). Medi-Span's daily update s e rv ic e is the Daily Drug Update. Daily Drug Update would yield the shortest amount of tim e between a change in AWP and when a PBM's database would reflect the new AWP. M D D B would have a longer lag time in updating a PBM's AWP. Until October 28, 2003, E H S received weekly AWP updates from MDDB. After October 28, 2003, EHS switched to Daily Drug Update. D u r in g the class period, EHS contracted with approximately 10,000 pharmacies th ro u g h o u t the United States. Plaintiff Eufaula Drugs owns and operates a retail pharmacy in Eufaula, Alabama and entered into a contract with EHS to be a network pharmacy. P la in tif f Scott-Cook owns and operates a retail pharmacy in Dothan, Alabama and entered in to a contract with EHS to be a network pharmacy. Plaintiffs filed this action in the Circuit Court of Barbour County on February 14, 2 0 0 5 . Defendants filed a Notice of Removal in this Court on March 30, 2005. Finding that

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it had subject matter jurisdiction, this Court denied Plaintiffs' Motion to Remand on April 1 4 , 2006. On June 25, 2008, the Court granted Plaintiffs' class certification. II. JURISDICTION AND VENUE T h is Court has subject matter jurisdiction over this action pursuant to the Class Action F a i r n e s s Act of 2005, 28 U.S.C. § 1332(d) ("CAFA"). See Eufaula Drugs, Inc. v. TDI M a n a g e d Care Servs., Inc., No. 05-cv-293 (M.D. Ala. Dec. 14, 2005) (holding that this a c tio n "commenced" after the effective date of CAFA); id. (Apr. 14, 2006) (holding that $ 5 ,0 0 0 ,0 0 0 amount in controversy requirement under CAFA was satisfied); see also Main D r u g , Inc. v. Aetna U.S. Healthcare, Inc., 455 F. Supp. 2d 1317 (M.D. Ala. 2005) (Fuller, C .J .) (holding CAFA applied to class action filed under nearly identical factual circu m stan ce s). T h e parties do not contest venue, and the Court finds an adequate factual basis for v e n u e in this Court. I I I . SUMMARY JUDGMENT STANDARD U n d e r Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is a p p ro p ria te "if the pleadings, depositions, answers to interrogatories, and admissions on file, to g e th e r with the affidavits, if any, show that there is no genuine issue as to any material fact a n d that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. C a tre tt, 477 U.S. 317, 322 (1986). The party asking for summary judgment "always bears th e initial responsibility of informing the district court of the basis for its motion, and

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id e n tif yin g those portions of `the pleadings, depositions, answers to interrogatories, and a d m is s io n s on file, together with the affidavits, if any,' which it believes demonstrate the a b se n c e of a genuine issue of material fact." Id. at 323. The movant can meet this burden b y presenting evidence showing there is no dispute of material fact, or by showing the nonm o v in g party has failed to present evidence in support of some element of its case on which it bears the ultimate burden of proof. Id. at 322-23. O n c e the moving party has met its burden, Rule 56(e) "requires the nonmoving party to go beyond the pleadings and by [its] own affidavits, or by the `depositions, answers to in t e rr o g a to r ie s , and admissions on file,' designate `specific facts showing that there is a g e n u in e issue for trial.'" Id. at 324. To avoid summary judgment, the nonmoving party " m u s t do more than simply show that there is some metaphysical doubt as to the material f a cts ." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). On the o th e r hand, a court ruling on a motion for summary judgment must believe the evidence of th e non-movant and must draw all justifiable inferences from the evidence in the non-moving p a rty's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). After the n o n m o v in g party has responded to the motion for summary judgment, the court must grant su m m a ry judgment if there is no genuine issue of material fact and the moving party is e n title d to judgment as a matter of law. See Fed. R. Civ. P. 56(c).

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I V . DISCUSSION A . Breach of contract i. Pennsylvania contract law F e d e ra l courts sitting in diversity case must apply the choice of law rules of the f o ru m state. See Klaxon Co. v. Stentor Elc. Mfg. Co., 313 U.S. 487, 496 (1941); Clanton v . Inter.Net Global, 435 F.3d 1319, 1323 (11th Cir. 2006). Alabama courts generally re sp e c t choice of law provisions in contracts and apply the chosen law to substantive is s u e s . See Stovall v. Universal Constr. Co., 893 So. 2d 1324, 1326 (Ala. 2004); see also B la lo c k v. Perfect Subscription Co., 458 F. Supp. 123, 126-7 (S.D. Ala. 1978). The A g re e m e n t specifies that it is to be interpreted using the law of Pennsylvania. Therefore, A la b a m a 's choice of law rules dictate that this Court apply the substantive law of P e n n s ylv a n ia when interpreting the Agreement. To establish a breach of contract under Pennsylvania law, a party must show (1) e x is te n c e of a contract, (2) breach of a duty imposed by the contract, and (3) damages re s u ltin g from that breach. CoreStates Bank, N.A. v. Cutillo, 723 A.2d 1053 (Pa. Super. 1 9 9 9 ) . If a contract contains unambiguous terms, then a court interprets those terms as a m a tte r of law. See Cmty. Coll. of Beaver County v. Cmty. Coll. of Beaver County, Soc'y o f the Faculty, 375 A.2d 1267, 1275 (Pa. 1977); Lapio v. Robbins, 729 A.2d 1229, 1232 (P a . Super. 1999). To prevail on summary judgment, a party must prove that the c o n tra c t's language is clear and unambiguous. White v. Keystone Ins. Co., 775 A.2d 812

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(P a . Super. 2001). If a contract contains terms subject to different yet reasonable interpretations, then a court may consider industry custom or usage to explain their meaning. See Resolution T r u st Corp. v. Urban Redev. Auth., 638 A.2d 972, 975 (Pa. 1994) (explaining that the p a ro l evidence rule does not apply in its ordinary strictness where the existence of ind u stry custom explains the meaning of words). Even without ambiguity, evidence of in d u s try custom or trade usage is always admissible and relevant to demonstrate that the w o rd s used in a commercial contract have a specialized meaning in the trade or industry. Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189, 1193 (Pa. 2001). ii. "Nationally recognized price source" P la in tif f s claim that EHS's use of weekly AWP updates through MDDB breached th e Agreement, which defined AWP as "the current average wholesale price of a Covered D rug listed in First Databank's Bluebook or other nationally recognized price source d e sig n a te d by [EHS]." (emphasis added.) The parties differ on their interpretation of a " n a tio n a lly recognized price source." Plaintiffs contend that EHS designated publisher M e d i -S p a n as its price source and that the Agreement required EHS to use the most f re q u e n t AWP updates available from Medi-Span, the Daily Drug Update. In contrast, E H S argues that it designated the publication MDDB as its "nationally recognized price s o u rc e " and that the Agreement, therefore, did not require it to use Daily Drug Update. E H S has submitted scant affidavit and deposition testimony that MDDB and Daily

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D ru g Update are "nationally recognized price sources." In addition, EHS has not s u b m itte d any evidence that MDDB and Daily Drug Update are separate and distinct " n a tio n a lly recognized price sources." Indeed, Plaintiff argues that the testimony s u b m itte d supports the conclusion that Medi-Span is the "nationally recognized price s o u rc e " and MDDB and Daily Drug Update are merely two of Medi-Span's products. The Court finds conflicting facts in the record on the meaning of "nationally recognized p ric e source" and a lack of evidence that industry custom explains its meaning. Therefore, the Court finds there is a genuine issue of material fact on whether EHS b r e a c h e d the Agreement with Plaintiffs and that neither party is entitled to judgment as a m atte r of law. B . Damages U n d e r Pennsylvania law, a party cannot prevail on a breach of contract claim u n le s s that party can show that they suffered damages as a result of that breach. See C o re S ta tes Bank, N.A. v. Cutillo, 723 A.2d 1053 (Pa. Super. 1999); Logan v. Mirror P r in tin g Co. of Altoona, 600 A.2d 225, 227 (Pa. Super. 1991). P lain tiff s allege that network pharmacies have lost approximately $16.1 million in re im b u rs e m en ts that they would have received if EHS had used Daily Drug Update. EHS arg u es that Plaintiffs did not suffer any damages and were actually overpaid by EHS. In lig h t of the conflicting estimates in the record, the Court finds that the evidence is s u f f i c ie n t to create a triable issue on Plaintiffs' damages.

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C . Motions to Strike All of the motions to strike presently before this Court are due to be DENIED AS M O O T due to the fact that whether or not any of the evidence at issue was stricken would n o t alter this Court's ruling. V . CONCLUSION F o r the reasons stated above, it is hereby ORDERED that: (1) Defendants' Motion for Summary Judgment (Doc. # 117) is DENIED; (2) Plaintiffs' Motion for Summary Judgment (Doc. #120) is DENIED; (3) Plaintiffs' Motion to Strike (Doc. #132) is DENIED as moot; (4) Defendants' Motion to Strike (Doc. #136) is DENIED as moot. D O N E this the 12 th day of March, 2009. /s/ Mark E. Fuller CHIEF UNITED STATES DISTRICT JUDGE

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