HM Compounding Services LLC et al v. Express Scripts, Inc.
MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that Defendant Express Scripts' Motion to Dismiss Plaintiffs' First Amended Complaint #129 is GRANTED in part. Counts III, IV and VI are dismissed. In all other respects the motion is DENIED. IT IS FURTHER ORDERED that Defendant Express Scripts' Motion to Dissolve the Temporary Restraining Order #153 is DENIED. IT IS FURTHER ORDERED that Defendant Express Scripts' Motion for Temporary Stay of Discovery and Protective Order #157 is DENIED as moot. IT IS FURTHER ORDERED that Plaintiffs' Motion for Civil Contempt #169 is DENIED. IT IS FURTHER ORDERED that a Rule 16 conference will be set by separate order.. Signed by District Judge John A. Ross on 7/9/15. (LGK)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
HM COMPOUNDING SERVICES, INC,
and HMX SERVICES, LLC,
EXPRESS SCRIPTS, INC.,
No. 4:14-CV-1858 JAR
MEMORANDUM AND ORDER
This matter is before the Court on the following motions: Defendant Express Scripts’
Motion to Dismiss Plaintiffs’ First Amended Complaint (“FAC”) (Doc. No. 129); Defendant
Express Scripts’ Motion to Dissolve the Temporary Restraining Order (Doc. No. 153);
Defendant Express Scripts’ Motion for Temporary Stay of Discovery and Protective Order (Doc.
No. 157); and Plaintiffs’ Motion for Civil Contempt. (Doc. No. 169) The motions are fully
briefed and ready for disposition. The Court held a hearing on the motions on April 22, 2015.
Plaintiff HM Compounding Services, LLC, is an independent compounding pharmacy
that provides customized medications to patients. Plaintiff HMX Services, LLC, is HM
Compounding Services, LLC’s New Jersey affiliated pharmacy. (Plaintiffs are collectively
referred to herein as “HMC”). Defendant Express Scripts, Inc. (“ESI”) is a prescription benefit
manager (“PBM”). PBMs administer the prescription pharmaceutical portion of health care
benefit programs, which are typically purchased by a plan sponsor. The parties’ relationship is
governed by a Pharmacy Provider Agreement entered into by and between ESI and Wholesale
Alliance, LLC d/b/a Third Party Station on behalf of HMC (the “Provider Agreement”), pursuant
to which HMC agreed to provide certain pharmacy services to ESI members in exchange for
ESI’s agreement to compensate HMC for those pharmacy services.
By letter dated July 22, 2014, HMC informed ESI it had become aware that ESI was
directly notifying providers that they were not to continue prescribing compounded medications
even if it was in the patient's best interest to receive them. Seven days later, on July 31, 2014,
ESI sent HMC a “notice of immediate termination” of the Provider Agreement, effective
September 1, 2014, based on alleged misrepresentations made by HMC to ESI regarding
“waiver/reduction” of patients’ copayments. By letter dated August 1, 2014, ESI responded to
HMC’s July 22, 2014 letter. In that letter, ESI did not deny making such statements to
prescribing physicians; rather, it took the position that ESI “has a legal right to communicate
with providers regarding benefit coverage issues.” (FAC, Doc. No. 126 at ¶ 110)
HMC brought this action on September 10, 2014 in the Supreme Court of the State of
New York, County of Nassau.1 On September 11, 2014, the New York State Court entered a
temporary restraining order (the “State Court TRO”) ordering ESI to “reinstate in full force and
effect nunc pro tunc” “the Network Pharmacy Agreement dated September 5, 2012, entered into
by and between HMC and Wholesale Alliance TPS, LLC d/b/a/ Third Party Station on behalf of
Third Party Payer ESI” (see Doc. No. 23-2 at 4 ¶ (e)), and enjoining ESI from, among other
things, “refusing to process and pay claims for payment submitted by HMC for compounded
medications prescribed by physicians for their patients who have prescription drug benefits
administered by [ESI].” (Id. at 3 ¶ (b))
The procedural history of the case is set out in the transferring court’s October 27, 2014 Memorandum
of Decision and Order in Paduano v. Express Scripts, Inc., 55 F. Supp. 3d 400 (E.D.N.Y. 2014).
The next day ESI removed the case to the United States District Court for the Eastern
District of New York. The parties consented to extend the State Court TRO until a determination
of pending motions to transfer venue. On October 3, 2014, the New York District Court vacated
the State Court TRO and entered a second temporary restraining order (the “Federal Court
TRO”) enjoining Express Scripts from “refusing to process and/or pay claims submitted by
[HMC] for the payment of prescriptions dated on or after September 11, 2014, or for the refill of
an existing refillable prescription after September 11, 2014, for compounded medications
prescribed by licensed physicians for their patients, which had heretofore been covered by their
insurance.” (Doc. No. 70 at 3 ¶ (b)) The District Court further ordered upon agreement of the
parties that the TRO remain in full force and effect until a hearing on the preliminary injunction.
(Id. at 4)
On October 27, 2014, the New York District Court severed HMC’s claims against ESI
and transferred them to this Court. (Doc. No. 108 at 54) The New York Court ruled that that part
of the Federal TRO applicable to HMC is extended until such time as the respective arbitrator
hears and determines any application for injunctive relief and that any requests to revisit the
terms should be directed to the appropriate arbitrator, or, with respect to ESI, the federal district
court in Missouri. (Id. at 59)
On December 1, 2014, HMC filed its FAC asserting eleven causes of action against ESI:
a violation of the Sherman Act, 15 U.S.C. § 1;
a violation of New York Antitrust Law, New York General Business Law § 340.1
a claim for benefits under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B);
a claim for injunctive relief under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3);
a claim for deceptive trade practices, in violation of New York General Business Law
a claim for violation of New Jersey's "Any Willing Provider" Laws, N.J.S.A. §§
a claim for breach of contract;
a claim for breach of the implied covenant of good faith and fair dealing;
a claim for tortious interference with a business expectancy;
a claim for declaratory relief; and
a claim for preliminary and permanent injunction.
A. Motion to dismiss
ESI moves to dismiss the FAC for failure to state a claim under Fed. R. Civ. P. 12(b)(6).
In considering a motion to dismiss under Rule 12(b)(6), the Court must assume all the facts
alleged in the complaint are true, and liberally construe the complaint in the light most favorable
to the plaintiff. Foster v. Deutsche Bank Nat’l Trust Co., 2012 WL 5285887, at *2 (E.D. Mo.
Oct. 25, 2012) (citing Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir. 2008)). The
allegations must be sufficient “to raise a right to relief above the speculative level,” however, and
the motion to dismiss must be granted if the complaint does not contain “enough facts to state a
claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555,
570 (2007). Thus, a dismissal under Rule 12(b)(6) should be granted “only in the unusual case in
which a plaintiff includes allegations that show, on the face of the complaint, that there is some
insuperable bar to relief.” Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 317 (8th
Cir. 2004) (quoting Frey v. Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995) (internal quotation
1. Antitrust claims2 (Counts I-II)
Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust
or otherwise, or conspiracy, in restraint of trade.” 15 U.S.C. § 1.
Not every agreement that
restrains competition violates the Sherman Act. See Craftsmen Limousine, Inc. v. Ford Motor
Co., 491 F.3d 380, 386 (8th Cir. 2007). Rather, the Sherman Act prohibits “only those practices
that impose an unreasonable restraint on competition.” Id. (quoting Arizona v. Maricopa Cnty.
Med. Soc’y, 457 U.S. 332, 342-43 (1982) (internal quotation marks omitted).
To establish a claim under Section 1 of the Sherman Act, a plaintiff must demonstrate
“(1) that there was a contract, combination, or conspiracy; (2) that the agreement unreasonably
restrained trade under either a per se rule of illegality or a rule of reason analysis; and (3) that the
restraint affected interstate commerce.” Reg’l Multiple Listing Serv. of Minnesota, Inc. v. Am.
Home Realty Network, Inc., 9 F. Supp. 3d 1032, 1039 (D. Minn. 2014) (quoting Insignia Sys.,
Inc. v. News Am. Mktg. In–Store, Inc., 661 F. Supp. 2d 1039, 1062 (D. Minn. 2009) (internal
quotation marks omitted)). Courts are generally hesitant to dismiss antitrust actions before the
The Court notes similar claims under sections 1 and 2 of the Sherman Act have been filed in federal
district courts by independent pharmacies against various PBMs, including Medco, Caremark and ESI.
See N. Jackson Pharmacy v. Express Scripts Inc., 345 F. Supp. 2d 1279 (N.D. Ala. 2004); N. Jackson
Pharmacy, Inc. v. Medco Health Solutions, Inc., 2004 WL 3372978 (N.D. Ala. 2004); N. Jackson
Pharmacy, Inc. v. Caremark RX, Inc., 385 F.2d 740 (N.D. Ill. 2005); Mike’s Med. Ctr. Pharmacy v.
Medco Health Solutions, Inc., No. 3:05-5108 (N.D. Cal.); Brady Enters., Inc. v. Medco Health Solutions,
Inc., 2003 WL 23902806 (E.D. Pa. 2003); Bellevue Drug Co. v. Advance PCS, 333 F. Supp. 2d 318 (E.D.
Pa. 2004). The Judicial Panel on Multidistrict Litigation consolidated these cases and transferred them to
the Eastern District of Pennsylvania in 2006. See In re Pharm. Benefit Managers Antitrust Litig., 452 F.
Supp. 2d 1352 (J.P.M.L. 2006).
The Donnelly Act, N.Y. Gen. Bus. L. § 340, is modeled on the Sherman Act and generally construed in
accordance with federal precedent. See Menkes v. St. Lawrence Seaway Pilots’ Ass’n, 269 Fed. Appx.
54, 55 n.3 (2d Cir. 2008) (citing cases). The Court will therefore evaluate HMC’s claims under the
Sherman Act and the Donnelly Act together.
parties have had an opportunity for discovery, “because the proof of illegal conduct lies largely
in the hands of the alleged antitrust conspirators.” Double D Spotting Serv., Inc. v. Supervalu,
Inc., 136 F.3d 554, 560 (8th Cir. 1998) (citing Huelsman v. Civic Ctr. Corp., 873 F.2d 1171,
1174 (8th Cir.1989)). Nevertheless, “[t]he essential elements of a private antitrust claim must be
alleged in more than vague and conclusory terms to prevent dismissal of the complaint on a
defendant’s Rule 12(b)(6) motion.” Id. at 558 (quoting Crane & Shovel Sales Corp. v. BucyrusErie Co., 854 F.2d 802, 805 (6th Cir. 1988) (internal quotation marks omitted).
Here, HMC alleges ESI conspired “to end all coverage for compound prescription
medications, and eliminate HMC and other independent compounding pharmacies as
competitors in the Relevant Market” (FAC at ¶¶ 48, 124), and that this conduct constitutes both a
per se and rule of reason claim under the Sherman Act. (Id. at ¶¶ 126-27)
Most antitrust claims are evaluated under the rule of reason. Craftsmen Limousine, 491
F.3d at 387; Minnesota Ass'n of Nurse Anesthetists v. Unity Hosp., 208 F.3d 655, 659 (8th Cir.
2000). Under this approach, an antitrust plaintiff must show an anticompetitive effect on the
relevant market. Flegel v. Christian Hosp., Northeast-Northwest, 4 F.3d 682, 688 (8th Cir. 1993).
Under the per se rule, certain types of restraints are so inherently anticompetitive that they are
illegal per se, without inquiry into the reasonableness of the restraint or the harm caused. Double
D Spotting Serv., 136 F.3d at 558 (citing Copperweld Corp. v. Independence Tube Corp., 467
U.S. 752, 768 (1984)). Per se treatment is applied only when the adverse impact on competition
is “obvious and substantial.” Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of
Rhode Island, 239 F. Supp. 2d 180, 189 (D.R.I. 2003). ESI argues the per se rule should not be
applied to HMC’s antitrust claims because the conduct asserted, i.e., refusal to deal and/or
boycott, is not the type with “immediately obvious” economic impacts. (Doc. No. 130 at 8-9)
A group boycott is “a narrow category of per se violation, limited to cases in which firms
with market power boycott suppliers or customers in order to discourage them from doing
business with a competitor.” Minn. Nurse Anesthetists, 208 F.3d at 659 (quoting FTC v. Indiana
Fed’n of Dentists, 476 U.S. 447, 458 (1986)). HMC alleges the agreement to boycott HMC is a
horizontal agreement between ESI and its co-conspirators, CVS Caremark Corporation (“CVS”),
Optum Rx (“ORx”) and Prime Therapeutics, LLC (“Prime”) (collectively referred to as the coconspirators)4, all of which are PBMs and operate at the same level of the market. (FAC at ¶¶ 1622, 124) In addition, ESI, CVSC, and Prime own and operate specialty pharmacies that compete
with HMC and ESI and each of the co-conspirators operate mail-order pharmacies that also
compete with HMC. (Id. at ¶¶ 13-19) Because PBMs manage 95 percent of all prescription drugs
covered by insurance, and because ESI and the co-conspirators exercise control over more than
80 percent of the PBM market, HMC argues these firms occupy a dominant position in the
prescription drug benefit market. ESI and the co-conspirators have used that power to preclude
HMC from obtaining access to reimbursements from health plans and insurance for prescription
medications—a supply necessary for HMC to compete. (Id. at ¶¶ 22, 115, 126(b)) Without
access to insurance plans for prescription medications, HMC alleges that it and other
independent compounding pharmacies will be driven out of business. (Id. at ¶ 115) HMC further
alleges on information and belief that ESI and its co-conspirators’ boycott is intended to channel
patients to their own competing pharmacies and has resulted in anticompetitive effects in the
market, including decreased output of prescription drugs, reduced consumer choice, and a
decline in the quality of prescription drugs available to patients. (Id. at ¶ 121)
HMC alleges ESI conspired with CVS, ORx and Prime, as well as “other individuals and entities,
known and unknown,” not named in the complaint. (FAC at ¶¶ 16-18, 20)
Although the question whether HMC’s allegations “comprise a per se claim is normally a
question of legal characterization that can often be resolved … on a motion to dismiss or for
summary judgment[,]” see Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I.,
373 F.3d 57, 61 (1st Cir. 2004), the Court will not dismiss HMC’s pro se claim at this time. See
Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 104 n. 26
(1984) (“Indeed, there is often no bright line separating per se from rule of reason analysis. Per
se rules may require considerable inquiry into market conditions before the evidence justifies a
presumption of anticompetitive conduct.”). Even if HMC fails to establish a per se violation of
the Sherman Act, the question remains whether the allegedly unreasonable restraint of trade
comports with the rule of reason, discussed below.
ESI raises three specific challenges to HMC’s antitrust claims: (1) HMC fails to allege an
unlawful agreement or conspiracy between ESI and its co-conspirators; (2) HMC fails to
adequately plead injury to competition in a relevant market; and (3) HMC has not alleged an
antitrust injury sufficient for standing. The Court will address each of these in turn.
Contract, combination or conspiracy
In order to allege a conspiracy under § 1 of the Sherman Act, HMC must show there was
concerted, as opposed to unilateral, action. Willman v. Heartland Hosp. E., 34 F.3d 605, 610 (8th
Cir. 1994). “The antitrust plaintiff should present direct or circumstantial evidence that
reasonably tends to prove that [the defendant] and others had a conscious commitment to a
common scheme designed to achieve an unlawful objective.” Monsanto Co. v. Spray–Rite Serv.
Corp., 465 U.S. 752, 764 (1984) (internal citation and quotation marks omitted). Mere
allegations of parallel conduct will not suffice. Twombly, 550 U.S. at 556-67 (“Without more,
parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some
unidentified point does not supply facts adequate to show illegality. Hence, when allegations of
parallel conduct are set out in order to make a § 1 claim, they must be placed in a context that
raises a suggestion of a preceding agreement[.]”).
In support of its motion, ESI argues HMC has not alleged a plausible agreement or
conspiracy among ESI and its purported co-conspirators. (Doc. No. 130 at 6-8) Citing Twombly,
ESI contends HMC has alleged “merely parallel conduct” that could just as well be independent
action. HMC responds that read as a whole, the FAC alleges more than enough factual matters to
suggest an agreement was made to satisfy Twombly’s pleading standard. (Doc. No. 142 at 5-9)
The Court agrees.
Here, HMC alleges ESI and each of the co-conspirators are active members of the
Pharmaceutical Care Management Association (“PCMA”), the national association that
“represent[s] America’s pharmacy benefit managers (PBMs).” (FAC at ¶ 56) The PCMA
“facilitates communication and collaboration among leaders in the PBM industry to shape the
industry’s direction and explore collaborative solutions to industry issues.” (Id. at ¶ 58) (internal
quotation marks omitted). Executives from ESI and each of the co-conspirators serve on the
PCMA’s Board of Directors, and regularly met in 2013 to discuss the PBM industry and explore
collaborative “solutions” to industry “issues.” (Id. at ¶¶ 57-59) Membership and participation in
a trade group facilitates collusion. See Evergreen Partnering Grp. v. Pactiv Corp., 720 F.3d 33,
49 (1st Cir. 2013); In re Text Messaging Antitrust Litig., 630 F.3d 622, 628 (7th Cir. 2010).
HMC further alleges ESI is the nation’s largest PBM; CVS and ORx are the second and
third largest respectively. (FAC at ¶¶ 13, 16-17) PBMs manage 95 percent of all prescription
drugs covered by insurance, and ESI and the co-conspirators dominate the PBM market with a
market share of over 80 percent. (Id. at 22) The highly concentrated nature of the PBM industry
also supports an inference of conspiracy. See Evergreen Partnering Grp., 720 F.3d at 48
(complaint adequately alleged Section 1 boycott violation with allegations that five defendants
controlled 90 percent of the market and participation of at least one defendant was necessary for
plaintiff to enter the market); In re Text Messaging Antitrust Litig., 630 F.3d at 628 (“[T]he
complaint in this case alleges that the four defendants sell 90 percent of U.S. text messaging
services, and it would not be difficult for such a small group to agree on prices and to be able to
detect ‘cheating’ (underselling the agreed price by a member of the group) . . . .”). See also Starr
v. Sony BMG Music Entm’t, 592 F.3d 314, 323-24 (2d Cir. 2010) (citing 7 Phillip E. Areeda and
Hebert Hovenkamp, Antitrust Law at § 1431a (2d ed. 2003) (allegation that “defendants control
over 80%” of the market supported inference of conspiracy); Todd v. Exxon Corp., 275 F.3d
191, 208 (2d Cir. 2001) (“Generally speaking, the possibility of anticompetitive collusive
practices is most realistic in concentrated industries.”).
In this context, HMC alleges that in 2013, ESI and its co-conspirators joined together to
study the market for compound prescriptions and collectively determine how to exclude
compound medicines in 2014. (FAC at ¶ 60) In 2014, ESI and the co-conspirators are alleged to
have sent letters to prescribing physicians containing false and misleading information regarding
compound medications and contacted prescribing physicians by telephone to impliedly threaten
them with retaliation if they continued to prescribe compound medicines. (Id. at ¶¶ 68-69)
Similar letters were sent to patients advising them that compound medications are not FDAapproved. (Id. at ¶¶ 71-72, 76) HMC further alleges ESI and the co-conspirators each required
prior authorizations from physicians for compound medications that exceeded a threshold dollar
amount, intentionally set to be an amount too low to cover most, if not all, compound medication
- 10 -
claims, and then each adjusted that threshold amount to ensure that compound medication claims
would categorically be denied. (Id. at ¶¶ 83-84)
Then, CVS and ESI announced new policies regarding copayments allegedly aimed at
excluding compound medications within days of each other in late May and early June of 2014.
(Id. at ¶¶ 87-88, 91) For example, on May 30, 2014, CVS announced that compounders must
include at least two scientifically valid studies in peer-reviewed journals supporting the clinical
efficacy of the additional ingredients, despite the lack of peer-reviewed medical literature on
compound preparation and individual ingredients. (Id. at ¶ 88) On or about June 3, 2014, ESI
launched its “Compound Management Solution” and a formal campaign to inform providers that
it would not pay claims for compound medications. HMC alleges ESI’s “Solution” will eliminate
the prior authorization option for compound medications and instead “automatically reject” any
claim for such medications. In addition, effective September 15, 2014, ESI eliminated coverage
for 1,000 compound ingredients. (Id. at ¶¶ 90-91) Likewise, ORx informed HMC that URAC
accreditation was required to provide network compounding services, despite the fact that URAC
does not have an accreditation program for compounding pharmacies. (Id. at ¶ 95) These policy
changes, made at or around the same time by multiple competitors, are also indicative of
conspiracy. See In re Text Messaging Antitrust Litig., 630 F.3d at 628 (“[C]omplex and
historically unprecedented changes in pricing structure made at the very same time by multiple
competitors, and made for no other discernible reason would support a plausible inference of
conspiracy.”) (citing Twombly, 550 U.S. at 557 n. 4) (internal quotation marks omitted)).
Further, CVS suspended HMC on June 30, 2014 – five days after ORx terminated HMC
and within one month of ESI’s issuance of its notice of termination to HMC. (FAC at ¶ 107-110)
The timing of, and similarity between, ESI and the co-conspirators’ actions following their
- 11 -
PCMA meeting in 2013, provides a plausible relationship between the PCMA meeting and these
For these reasons, the Court finds HMC has sufficiently alleged a preceding agreement to
engage in concerted action. See Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 184
(2d Cir. 2012) (“[T]o present a plausible claim at the pleading stage, the plaintiff need not show
that its allegations suggesting an agreement are more likely than not true or that they rule out the
possibility of independent action, as would be required at later litigation stages such as a defense
motion for summary judgment[.]”).
Injury to competition in a relevant market
It is HMC’s burden to define the relevant market. Double D Spotting Serv., 136 F.3d at
560. “The definition of the relevant market has two components—a product market and a
geographic market.” Id. (quoting Bathke v. Casey’s Gen. Stores, Inc., 64 F.3d 340, 345 (8th Cir.
1995) (internal quotation marks omitted)). “The relevant product market includes all reasonably
interchangeable products.” Id. (citing Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d
430, 436 (3d Cir. 1997)). The geographic market is defined by considering the “commercial
realities” faced by consumers. Id. (citing Bathke, 64 F.3d at 345). “It includes the geographic
area in which consumers can practically seek alternative sources of the product, and it can be
defined as the market area in which the seller operates.” Id. (quoting Tampa Elec. Co. v.
Nashville Coal Co., 365 U.S. 320, 327 (1961) (internal quotation marks omitted)).
HMC alleges the relevant service market affected by ESI and the co-conspirator’s
conduct is “pharmacy services that are reimbursed by insurance, including, but not limited to, the
compounding, filling, and dispensing of prescription medications.” (FAC at ¶ 52) The relevant
product market “is prescription drugs that are reimbursed by insurance, including, but not limited
- 12 -
to, compounded prescription drugs” (Id.), and the relevant geographic market for activity that
affects HMC is the Eastern United States, including, but not limited to, New York and New
Jersey. (Id. at ¶ 53) HMC further alleges the conduct of ESI and the co-conspirators has had the
effect of “unreasonably restraining, suppressing, and eliminating competition in the provision of
pharmacy services and the dispensation of prescription drugs covered by insurance in all markets
in which HMC did and could operate in interstate commerce.” (Id. at ¶ 54)
ESI argues HMC’s proposed relevant market fails to adequately account for comparable
substitutes in the marketplace. (Doc. No. 130 at 10-11) Specifically, HMC limits the market to
“prescription drugs that are reimbursed by insurance,” when the reality of the marketplace is that
some consumers are insured, some are not, and different consumers’ insurance coverage differs
depending on their health plans. (Id. at 11) ESI further argues that in an attempt to give the
appearance of broader harm to the market, HMC aligns itself with unnamed “other independent
compounding pharmacies.” As a result, the boundaries of the relevant product market cannot be
In response, HMC argues there are material distinctions between insured and uninsured
patients, including quantity and ability to pay. In other words, there are not enough uninsured
patients capable of purchasing prescription medications to constitute an interchangeable source
of demand. (Doc. No. 142 at 14-15) Indeed, in Stop & Shop, the court acknowledged the number
of retail customers whose purchases of prescription drugs are not reimbursed by insurance
“could be so small a group that foreclosure of a large percentage of reimbursed customers would
still be fatal,” but stated this would have to be proved. 373 F.3d at 67.
There is no requirement that market definition be pled with specificity. Cost Mgmt.
Servs., Inc. v. Washington Natural Gas Co., 99 F.3d 937, 950 (9th Cir. 1996). An antitrust
- 13 -
complaint therefore survives a Rule 12(b)(6) motion unless it is apparent from the face of the
complaint that the alleged market suffers a fatal legal defect. And since the validity of the
relevant market is typically a factual element rather than a legal element, alleged markets may
survive scrutiny under Rule 12(b)(6) subject to factual testing on summary judgment or at trial.
See High Technology Careers v. San Jose Mercury News, 996 F.2d 987, 990 (9th Cir. 1993)
(holding that the market definition depends on “a factual inquiry into the commercial realities
faced by consumers”) (internal quotation marks omitted)). Accordingly, granting all factual
inferences in HMC’s favor, the Court finds HMC has sufficiently pled a relevant market.
ESI also argues HMC has not adequately pled facts explaining how ESI’s allegedly
anticompetitive conduct actually restrained trade or harmed consumers. In other words, HMC
has not pled a market injury – only injury to itself. (Doc. No. 130 at 9-10)
The FAC alleges the conduct of ESI and the co-conspirators has had a “substantial and
continuing anticompetitive effect on the Relevant Market” in the following ways:
a) eliminating compounding pharmacy services and compound medications from the
b) substantially decreasing the output and/or supply of pharmaceutical services and
prescription drugs in the Relevant Market;
c) depriving patients of meaningful choice in and access to pharmaceutical services and
prescription drugs in the Relevant Market;
d) depriving patients of medically-necessary pharmaceutical services and prescription
drugs in the Relevant Market;
e) reducing or eliminating the prescription of compound medications by physicians in
the Relevant Market;
f) diverting patients away from Plaintiff HMC and other independent compounding
pharmacies to Defendant ESI and the Co-conspirators’ various mail-order and
specialty pharmacies that are in competition with Plaintiff HMC and other
independent compounding pharmacies in the Relevant Market, including, but not
- 14 -
limited to, Accredo, Freedom Fertility Pharmacy, and Express Scripts Pharmacy,
among others; and
g) hindering innovation, price-competition, and patient choice in the delivery of
pharmaceutical services and prescription drugs in the Relevant Market by imposing
and maintaining high barriers to entry and participation therein.
(FAC at ¶127)
Allegations of anti-competitive effects sufficient to state a claim under § 1 of the
Sherman Act include the elimination of a market competitor, a decrease in output, reduced
consumer choice, and a decline in the quality of goods. See Full Draw Prods. v. Easton Sports,
Inc., 182 F.3d 745, 755 (10th Cir. 1999) (identifying “the elimination of a competitor” as the
“anticompetitive effect of the boycott” in a group boycott claim under Section 1); Reg’l Multiple
Listing Serv. of Minnesota, Inc. v. Am. Home Realty Network, Inc., 960 F. Supp. 2d 958, 985
(D. Minn. 2013) (“Significant anti-competitive effects may include . . . a decrease in output, or a
decline in quality.”) (internal quotation marks omitted)). See also N. Jackson Pharmacy v.
Express Scripts, where the court found allegations that defendants’ “practices harms consumers .
. . by eliminating independent pharmacists nationwide”; “defendants’ anticompetitive conduct is
done with the purpose and specific intent to expand . . . their stranglehold on the market of
insurance reimbursed prescription drug sales”; defendants’ “practices will ultimately drive
independent pharmacists out of business,” which will “harm competition in the marketplace,” all
adequately alleged anti-competitive effects under the Federal Rules’ “simplified pleading
standard.” 345 F. Supp. 2d at 1291 (internal quotation marks omitted).
Finally, to have standing to assert a private damages action under federal antitrust laws, a
plaintiff must allege it has suffered an antitrust injury. Lovett v. Gen. Motors Corp., 975 F.2d
518, 520 (8th Cir. 1992) (citations omitted). An antitrust injury is “a loss that Congress intended
- 15 -
to prevent with the antitrust laws and that flows from the unlawfulness of the defendant’s acts.”
Id. (citing Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)).
In its amended complaint, HMC alleges that “[a]s a direct and proximate result of
Defendant ESI and the Co-conspirators’ concerted conduct, … HMC has been and will continue
to be irreparably injured and financially damaged in its business and property in that, among
other things, … HMC has suffered and will continue to suffer significant lost revenue and net
profits from the substantial decrease in reimbursements from compound medicines covered by
health insurance policies and plans. In addition, [HMC] has not received reimbursements for
thousands of prescriptions already filled and submitted to Defendant ESI.” (FAC at ¶ 128) ESI
asserts this is insufficient to establish an antitrust injury required for standing. ESI argues that
reimbursements for covered medications were a benefit of membership in its pharmacy provider
network and that its termination of the provider agreement – not any alleged anticompetitive
conduct – is the proximate cause of HMC’s claimed injuries. (Doc. No. 130 at 13-14)
Relying on Doctor’s Hosp. of Jefferson, Inc. v. Se. Med. Alliance, Inc., 123 F.3d 301 (5th
Cir. 1997), HMC responds that its alleged injury – financial loss caused by its exclusion from the
market by group boycott – is precisely the type of injury the antitrust laws were intended to
prevent. (Doc. No. 142 at 16) In Doctor’s Hosp., a hospital which had been replaced by a health
care plan as a provider sued the plan and the replacement hospital, alleging violations of federal
and state antitrust laws. The court held the hospital established antitrust standing because
standing did not require a showing of injury to competition in the marketplace. Id. at 304-06.
ESI replies that while injury to competition is not an element of antitrust injury in the
Fifth Circuit, in the Eighth Circuit, “the requisite antitrust injury must reflect the anticompetitive
effect either of the violation or of the anticompetitive acts made possible by the violation.” See
- 16 -
In re Canadian Import Antitrust Litig., 470 F.3d 785, 791 (8th Cir. 2006); Steel v. City of
Bemidji, 257 F.3d 902, 906 (8th Cir. 2001). (Doc. No. 146 at 10) The Eighth Circuit went on to
state, however, that “we also consider the causal connection between the alleged antitrust
violation and harm to the plaintiff [and] the directness or indirectness of the asserted injury …”
Canadian Import, 470 F.3d at 791. Thus for purposes of a motion to dismiss, HMC has
sufficiently pled an antitrust injury by asserting that ESI excluded it as a competitor from the
In sum, after construing the allegations in the light most favorable to HMC, the Court
finds HMC’s amended complaint adequately alleges violations of Sherman Act. The Court
likewise concludes HMC has adequately alleged claims against ESI under New York antitrust
law. Accordingly, ESI’s motion to dismiss HMC’s antitrust claims will be denied.
2. ERISA claims (Counts III-IV)
HMC asserts claims as an ERISA beneficiary for benefits under ERISA § 502(a)(1)(B),
29 U.S.C. § 1132(a)(1)(B) and for injunctive relief under ERISA § 502(a)(3), 29 U.S.C. §
1132(a)(3). (FAC at ¶¶ 141-167) In relevant part, ERISA allows a plan participant or beneficiary
to file a civil action “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.” § 1132(a)(1)(B). An insured may seek an injunction or other appropriate equitable relief to
enforce ERISA or the plan's provisions. See § 1132(a)(3).
ESI argues these claims should be dismissed because HMC fails to allege any terms of
any ERISA plans requiring approval of payment for compound medications, citing Midwest
Special Surgery, P.C. v. Anthem Ins. Co., 2010 WL 716105 (E.D. Mo. Feb. 24, 2010). (Doc. No.
130 at 16-18) ESI further argues that even if the health plans are ERISA plans, HMC does not
- 17 -
have standing to assert an ERISA claim because it is neither a “participant” nor a “beneficiary”
under any ERISA plan at issue, citing Pascock Valley Hosp. v. Local 464A UFCW Welfare
Reimbursement Plan, 388 F.3d 393, 400 (3d Cir. 2004); Dallas Cnty. Hosp. Dist. v. Assocs.
Health & Welfare Plan, 293 F.3d 282, 289 (5th Cir. 2002). (Id. at 20) Finally, ESI argues it is not
a named plan administrator and thus not a proper ERISA defendant. (Id. at 18 n.7)
HMC responds that its claims are based on ESI’s violation of ERISA claim procedures
and thus does not require citation to specific plan provisions. (Doc. No. 142 at 18-20) To state a
claim for violation of ERISA claim procedures, a beneficiary need only plead facts showing an
ERISA administrator denied benefits in violation of the procedures set forth in § 1133 and 29
C.F.R. 2560.501(1)(g) governing notification of an adverse benefit determination. (Id. at 18) In
addition, HMC asserts it has standing as an ERISA “beneficiary” because its patients, who are
ERISA Plan participants, or the ERISA Plans themselves, designated HMC to receive benefits
under the ERISA plans. (Doc. No. 142 at 21)
To establish the application of ERISA claim procedures, HMC alleges ESI “administers
and manages the prescription drug benefit components” of various “employer and employeeorganization sponsored plans that provide participants with medical benefits” and “group health
plans.” HMC alleges on information and belief that these plans are Employee Welfare Benefit
Plans under ERISA and/or are covered by ERISA claims procedures under the Affordable Care
Act, 42 U.S.C. § 300gg-19(a)(2)(A) (“the ERISA plans”). (FAC at ¶ 142) HMC further alleges,
on information and belief, that it was and is an ERISA “beneficiary” because it has the right to
directly receive the benefits of its patients who are participants in the ERISA plans pursuant to
the terms of those plans. (Id. at ¶ 143) Lastly, HMC alleges, on information and belief, that ESI
was the plan and/or claims administrator for the prescription drug components of the ERISA
- 18 -
Plans, either because the plan documents designated ESI as such or because ESI in fact exercised
its discretion in adjudicating individual claims for prescription drug benefits under the ERISA
Plans. (Id. at ¶ 147)
Allegations made “upon information and belief” may state a claim after Iqbal and
Twombly; however, the claim must still be based on factual content that makes liability
plausible. See Klohs v. Wells Fargo Bank, N.A., 901 F. Supp. 2d 1253, 1259 n. 2 (D. Haw.
2012). Here, HMC fails to state any factual allegations which would clarify the grounds on
which its ERISA claims are based. HMC has not identified any ERISA plan(s) or plan term(s)
entitling it to payment for compound medications. See Midwest Special Surgery, P.C. v. Anthem
Ins. Cos., 2010 WL 716105, at *3 (E.D. Mo. Feb. 24, 2010), where the court found plaintiff
failed to allege a specific plan term conferring a benefit when the complaint sought general
“reimbursement for medical services provided to Defendants’ plan participants under numerous
health plans which qualify as employee welfare benefit plans as defined by ERISA.” Id. at *2.
Further, HMC has not alleged sufficient facts regarding an assignment of benefits from
either the participants or the applicable ERISA Plans to create derivative standing. HMC alleges
ESI reimbursed it directly for the prescriptions it filled for patients who were ERISA Plan
participants (see FAC at ¶ 144), and contends this direct payment was only possible because
either the participants or the applicable ERISA Plans designated it to receive such payments in
place of the plan participants themselves. (Doc. No. 142 at 21) Cf. In re Wellpoint, Inc. Out-OfNetwork “UCR” Rates Litig., 865 F. Supp. 2d 1002, 1042 (C.D. Cal. 2011) (where the court
found provider plaintiffs had ERISA standing based on allegations that “[t]o facilitate direct
payments from insurers, Dr. Henry’s patients sign a form assigning their health benefits to him
before treatment[,]” and that “Dr. Peck … obtained assignments from his patients, through which
- 19 -
he was paid directly by WellPoint for Providing Healthcare to its insureds.”) (internal quotation
Because HMC fails to state any factual allegations which would clarify the grounds on
which its ERISA claims are based, these claims will be dismissed without prejudice.
3. New York Deceptive Trade Practices Act (Count V)
New York’s General Business Law § 349 is a consumer protection statute making
deceptive acts or practices in the conduct of business unlawful. To state a claim under § 349, a
plaintiff must allege: (1) the act or practice was consumer-oriented; (2) the act or practice was
misleading in a material way; and (3) the plaintiff was injured as a result. Pelman ex rel. Pelman
v. McDonald’s Corp., 396 F. Supp. 2d 439, 444 (S.D.N.Y. 2005) (internal citations omitted).
Further, where there is a simultaneous claim for breach of contract, a plaintiff must plead losses
“independent of the loss caused by the alleged breach of contract.” Spagnola v. Chubb Corp.,
574 F.3d 64, 74 (2d Cir. 2009).
ESI argues this claim must be dismissed because HMC does not plead materially
misleading conduct or significant public harm. (Doc. No. 130 at 21-24) After drawing all
reasonable inferences in HMC’s favor, the Court finds HMC has presented a sufficient factual
basis to state a claim for violation of GBL § 349.
First, HMC sufficiently alleges the act or practice was consumer-oriented. HMC alleges
ESI and its co-conspirators contacted patients directly by letter to inform them that their
compound medicines would no longer be covered by their prescription benefit policies and
included misleading statements about those medications in those letters, namely that such
medications were not FDA-approved for a specific condition. (FAC at ¶¶ 70-71, 73-78) Second,
HMC sufficiently alleges this action was misleading in a material respect in that ESI misled
- 20 -
patients and doctors into believing that compound drugs are unsafe and not medically necessary
or appropriate treatments, while omitting the fact that compound drugs are specifically exempt
from the FDA approval process and appropriate when prescribed a doctor. (Id.) Finally, HMC
alleges it has suffered injury including, “inter alia, payments for prescription drugs that should be
covered under patients’ health insurance policies and/or plans.” (Id. at ¶ 174) HMC has also pled
ESI’s violation of § GBL 349 “deprived patients – including New York residents/consumers – of
access to medically necessary compound medications,” a loss independent of the loss caused by
the alleged breach of contract. Accordingly, ESI’s motion to dismiss this claim will be denied.
4. New Jersey “Any Willing Provider” Laws (Count VI)
Generally, any willing provider (“AWP”) laws provide a legal recourse to excluded
providers and provide people with more selection and freedom to choose their health provider.
Am. Drug Stores, Inc. v. Harvard Pilgrim Health Care, Inc., 973 F. Supp. 60, 62 (D. Mass. 1997)
(citing William J. Bahr, Comment, Although Offering More Freedom to Choose, “Any Willing
Provider” Legislation is the Wrong Choice, 45 U. Kan. L. Rev. 557, 570 (1997)).
In 1994, New Jersey enacted an AWP law which provides that a pharmacy cannot be
excluded from an HMO if it “accepts the terms” of the HMO. “[N]o pharmacy or pharmacist
shall be denied the right to participate as a preferred provider or as a contracting provider under
the same terms and conditions currently applicable to all other preferred or contracting providers
. . . provided the pharmacy or pharmacist is registered . . . and accepts the terms and conditions
of the policy.” See N.J.S.A. §§ 17B:26-2.1i, 17B:27-46.1i.
HMC alleges ESI’s improper termination of HMC from its networks without cause, and
the provisions of the Agreement providing for such termination without cause, violate New
- 21 -
Jersey’s AWP law. (FAC at ¶¶ 178, 183) ESI argues this claim should be dismissed because the
law does not give rise to a private right of action. (Doc. No. 130 at 24-26)
The precedent concerning AWP laws is limited. However, in Trilogy Health Care, LLC
v. Medco Health Solutions, Inc., 2013 WL 4832708, at *2 (D.N.J. Sept. 10, 2013), the court was
not persuaded by a pharmacy’s argument that a pharmacy benefits manager’s discretion to
terminate it under a Provider Agreement was limited by AWP laws in the various states in which
the pharmacy was licensed. The court in Trilogy went on to find the pharmacy had not offered
“even a colorable argument” that a particular AWP statute gives rise to a private right of action
against a PBM rather than an insurer. Id. Accordingly, the Court will dismiss this claim.
5. Breach of contract (Count VII)
To state a claim for breach of contract, a plaintiff must plead the traditional elements of
formation, performance, breach and damages. See Gen. Mills Operations, LLC v. Five Star
Custom Foods, Ltd., 789 F. Supp. 2d 1148, 1155 (D. Minn. 2011). Here, HMC alleges ESI
breached the Provider Agreement by terminating it without cause and failing to provide it with
proper notice or opportunity to cure pursuant to Appendix A of the Provider Manual. (FAC at ¶¶
186-189) HMC further alleges that as a result of ESI’s termination without cause, proper notice
or opportunity to cure, HMC has suffered damages, including “lost revenue and net profits from
the substantial decrease in reimbursements for compound prescription medications covered by
health insurance policies and/or plans, the inability to locate alternative revenue sources to
replace (or partially replace) the substantial revenue lost from ESI’s improper termination of the
Agreement, and inability to recover reimbursements for thousands of prescriptions already filled
and submitted to [ ] ESI.” (Id. at ¶ 190)
- 22 -
ESI argues this claim should be dismissed because it rests on a provision of the Provider
Agreement not at issue in this dispute. Specifically, HMC is taking the position that ESI
breached a provision of the Provider Agreement, which, according to HMC’s allegations, does
not apply to ESI’s termination of HMC because the Agreement allows for termination without
cause on 30 days’ notice, which ESI provided. (Doc. No. 130 at 27; Doc. No. 146 at 15) The
Court is not reviewing the merits of the claim at this stage of the proceedings. These are matters
to be determined by the evidence. The Court finds Count VII is sufficiently pled.
6. Breach of the implied covenant of good faith and fair dealing (Count VIII)
Related to the breach of contract claim is the claim that ESI breached the implied
covenants of good faith and fair dealing. (See FAC at ¶ 193) ESI argues this claim must be
dismissed because like the claim for breach of contract, HMC fails to identify an operative
provision in the Provider Agreement. (Doc. No. 130 at 28-29) Again, the Court is not reviewing
the merits of the claim at this stage of the proceedings. The Court finds Count VIII is sufficiently
7. Tortious interference with a business expectancy (Count IX)
To state a claim for tortious interference with a business expectancy under Missouri law,
the following elements must be pled and proved: “(1) a contract or valid business expectancy, (2)
defendant's knowledge of the contract or relationship, (3) an intentional interference by the
defendant inducing or causing a breach of the contract or relationship, (4) absence of justification
and (5) damages.” Wash Solutions, Inc. v. PDQ Manuf., Inc., 395 F.3d 888, 895 (8th Cir. 2005)
(citing Serv. Vending Co. v. Wal–Mart Stores, Inc., 93 S.W.3d 764, 769 (Mo. Ct. App. 2002)).5
“In general, conduct lacks justification when a defendant has employed ‘improper means’ to
ESI concedes “the requisite elements” of a tortious interference claim are “substantively identical”
under Missouri, New York, and New Jersey Law (See Doc. No. 30 at 29, n.12). HMC does not waive its
right to later move for application of New York or New Jersey law. (See Doc. No. 142 at 31 n. 24)
- 23 -
further the defendant’s interests to the detriment of the plaintiff.” Ozark Emp’t Specialists, Inc. v.
Beeman, 80 S.W.3d 882, 896 (Mo. Ct. App. 2002) (citation omitted). Improper means are those
that are independently wrongful, such as threats, misrepresentation of fact, restraint of trade, “or
any other wrongful act recognized by statute or the common law.” Nitro Distrib., Inc. v. Alticor,
Inc., 565 F.3d 417, 428 (8th Cir. 2009) (citing Nazeri v. Missouri Valley College, 860 S.W.2d
303, 317 (Mo. 1993)). Conversely, no liability arises if the defendant had an unqualified legal
right to do the act complained of. Id.
HMC alleges ESI intentionally interfered with its business expectancy in the “continued
sale of compound medications to patients in the Eastern United States,” by, inter alia, coercing
physicians to stop prescribing compound medicines, attempting to induce patients to cease
purchasing compound medicines, and precluding HMC from filling prescriptions for its patients
covered by insurance. (FAC at ¶¶ 198 (a)-(f), 199) As a result, HMC alleges it has suffered and
will continue to suffer significant damages, including lost revenue and profits caused by the
decrease in reimbursements for compound medications covered by health insurance policies
and/or plans. (Id. at ¶ 201) ESI moves to dismiss this count on the grounds that HMC has not
sufficiently alleged facts regarding its business expectancy or ESI’s “improper means.” (Doc.
No. 130 at 29-30)
To prevail on a tortious interference with business expectancy claim, the business
expectancy must be valid or reasonable and cannot be too indefinite or remote. Ozark, 80 S.W.3d
at 893 (citing Bell v. May Dep't Stores Co., 6 S.W.3d 871, 876 (Mo. banc 1999)). Here, HMC
alleges a business expectancy in the continued sale of compound medications to patients in the
Eastern United States, including but not limited to, New York and New Jersey. (FAC at ¶ 196;
see also id. at ¶¶ 10-12, 23-33 (describing HMC’s business and sale of compounded medications
- 24 -
to patients)). HMC also alleges ESI used improper means, specifically, threats, misleading
letters, and improper termination of HMC, to interfere with its expectancy, resulting in a
substantial decrease in revenues and net profits. (FAC at ¶¶ 115-116, 201) The Court finds this
count is sufficiently pled.
8. Declaratory judgment (Count X)
HMC seeks a judgment declaring that any termination without cause provisions
contained in the Provider Agreement between HMC and ESI are severable from the remainder of
the Agreement and void as unconscionable with respect to HMC’s termination. (FAC at ¶ 208)
ESI argues there is no contract in existence because the Provider Agreement was terminated and
thus no controversy ripe for determination. (Doc. No. 130 at 31-32) HMC responds that the
validity of the without cause provisions is ripe because ESI has announced its intention to rely on
them to limit HMC’s damages to the 30-day notice period contained therein. (Doc. No. 142 at
33-34) In reply, ESI argues HMC’s argument demonstrates it has an adequate remedy at law.
(Doc. No. 146 at 18)
The Declaratory Judgment Act provides that any federal court, “[i]n a case of actual
controversy within its jurisdiction ... may declare the rights and other legal relations of any
interested party seeking such declaration, whether or not further relief is or could be sought.” 28
U.S.C. § 2201(a). The phrase “case of actual controversy” refers to the type of “cases” and
“controversies” justiciable under Article III. See MedImmune, Inc. v. Genentech, Inc., 549 U.S.
118, 126 (2007). Courts have acknowledged the difficulty in setting out a precise test for
determining whether there is such a controversy. “Basically, the question in each case is whether
the facts alleged, under all the circumstances, show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient immediacy and reality to warrant the
- 25 -
issuance of a declaratory judgment.” Maytag Corp. v. Int'l Union, United Auto., Aerospace &
Agric. Implement Workers of Am., 687 F.3d 1076, 1081 (8th Cir. 2012) (citing Maryland Cas.
Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, (1941)).
Courts have considerable discretion in determining whether or not a declaratory judgment
action should be entertained. Medimmune, 549 U.S. at 136. If a petition for declaratory relief
contains facts supporting its allegations and those facts demonstrate a justiciable controversy, the
petition is sufficient and cannot be dismissed. Clearly, HMC is a party whose rights are affected
by an Agreement which sets out, among other things, the terms for claims reimbursement – the
sole foundation of the parties’ business relationship. As such, HMC is entitled to a declaration of
those rights under that Agreement, whether ESI’s attempt to terminate it was valid and effectual
or not. The legal consequences and rights ensuing from the termination, if valid, or the attempt to
terminate it, if invalid, must be determined, and may be declared. See Hyatt Int'l Corp. v. Coco,
302 F.3d 707, 712 (7th Cir. 2002) (relevant Article III considerations include whether the
contractual dispute is real, in the sense that it is not factually hypothetical; whether it can be
immediately resolved by a judicial declaration of the parties' contractual rights and duties; and
whether “the declaration of rights is a bona fide necessity for the natural defendant/declaratory
judgment plaintiff to carry on with its business.”).
9. Injunctive relief (Count XI)
Lastly, ESI argues that dismissal of HMC’s substantive counts renders its claim for
preliminary and permanent injunctive relief moot. (Doc. No. 130 at 32-33) Because the majority
of HMC’s alleged claims are sufficient to withstand a motion to dismiss, ESI’s motion to dismiss
HMC’s injunctive relief claim will be denied.
- 26 -
In sum, HMC’s complaint satisfies the requirements of Rule 12(b)(6) with respect to
Counts I and II (antitrust claims), Count V (deceptive trade practices), Count VII (breach of
contract), Count VIII (breach of the implied covenant of good faith and fair dealing), Count IX
(tortious interference with a business expectancy), Count X (declaratory relief), and Count XI
(injunctive relief). The complaint fails to allege claims under Counts III and IV (ERISA claims)
and those counts will, therefore, be dismissed without prejudice. Count VI (violation of AWP
law) will be dismissed on the grounds that the statute does not give rise to a private right of
action against a PBM.
B. Motion to dissolve TRO
ESI moves for an order dissolving the Federal TRO as it relates to HMC. As discussed
above, the State Court TRO entered on September 11, 2014 ordered ESI to “reinstate in full force
and effect nunc pro tunc” “the Network Pharmacy Agreement dated September 5, 2012, entered
into by and between HMC and Wholesale Alliance TPS, LLC d/b/a/ Third Party Station on
behalf of Third Party Payer ESI” (see Doc. No. 23-2 at 4 ¶ (e)), and enjoined ESI from, among
other things, “refusing to process and pay claims for payment submitted by HMC for
compounded medications prescribed by physicians for their patients who have prescription drug
benefits administered by [ESI].” (Id. at 3 ¶ (b)) Following removal to the New York District
Court, the parties consented to extend the State Court TRO until a determination of pending
motions to transfer venue.
On October 3, 2014, the New York District Court vacated the State Court TRO and
entered the Federal Court TRO enjoining Express Scripts from “refusing to process and/or pay
claims submitted by [HMC] for the payment of prescriptions dated on or after September 11,
2014, or for the refill of an existing refillable prescription after September 11, 2014, for
- 27 -
compounded medications prescribed by licensed physicians for their patients, which had
heretofore been covered by their insurance.” (Doc. No. 70 at 3 ¶ (b)) The District Court further
ordered upon agreement of the parties that the TRO remain in full force and effect until a hearing
on the preliminary injunction. (Id. at 4) On October 27, 2014, the transferring court instructed
that, with respect to ESI, “[a]ny requests to revisit the terms [of the Federal TRO] should be
directed to the … federal district court in Missouri.”
In support of its motion to dissolve, ESI argues the Federal TRO has extended beyond the
14 days prescribed in Rule 65(b)(2) and must, therefore, be treated as a preliminary injunction.
(Doc. No. 154 at 2) ESI further argues HMC cannot meet its burden of showing that continued
injunctive relief is warranted, noting that HMC has assigned a specific dollar amount to each
reimbursement claim it contends ESI has denied. Because these damages can be remedied if
HMC prevails on the merits of its breach of contract claim, HMC has an adequate remedy at law
and cannot demonstrate irreparable harm. (Id. at 5-6)
The TRO, by its express terms and by agreement of the parties, is to remain in full force
and effect until a hearing on the preliminary injunction, a situation clearly contemplated by Rule
65. See Rule 65(b)(2) (“The order expires at the time after entry – not to exceed 14 days – that
the court sets, unless before that time the court, for good cause, extends it for a like period or the
adverse party consents to a longer extension.”). Moreover, a hearing on a motion to dissolve a
TRO “cannot be considered to be a hearing on a preliminary injunction,” where neither the
parties nor the court “treated the … hearing as a hearing on an application for a preliminary
injunction,” the plaintiffs “made no attempt at that time to present their case for a preliminary
injunction[,]” and “[t]he court itself did not indicate that it was undertaking a hearing on a
preliminary injunction.” Granny Goose Foods, Inc. v. Bhd. of Teamsters and Auto Truck Drivers
- 28 -
Local No. 70, 415 U.S. 423, 442 (1974). Finding no changed circumstances, the motion to
dissolve the TRO will be denied.
C. Motion for temporary stay of discovery and protective order
ESI moved for an order staying all discovery in this action pending the Court’s ruling on
its motion to dismiss and for protective order precluding HMC’s Rule 30(b)(6) deposition in its
entirety. The Court resolved this motion in its ruling on HMC’s motion to compel Rule 30(b)(6)
deposition. HMC served a Rule 30(b)(6) notice of deposition on ESI calling for the production of
a corporate representative to testify regarding ESI’s compliance with the TRO issued by the New
York District Court. (Doc. No. 149) The Court granted HMC’s motion to compel in part and
directed HMC to clarify the topics to be covered in the deposition. (Doc. No. 168) The Court
also deferred entering a scheduling order in this case, effectively staying discovery. (Id.) Only
after a scheduling order has been entered by this Court may discovery proceed. See Fed.R.Civ.P.
26(d). Accordingly, ESI’s motion for temporary stay of discovery and protective order will be
denied as moot.
D. Motion for civil contempt
HMC’s motion for contempt is based on an alleged violation of the Federal TRO,
specifically paragraph (b), which enjoins ESI:
From refusing to process and/or pay claims submitted by … HMC for the payment of
prescriptions dated on or after September 11, 2014, or for the refill of an existing
refillable prescription after September 11, 2014, for compounded medications prescribed
by licensed physicians for their patients, which had heretofore been covered by their
(Doc. No. 70 at ¶ (b)) HMC argues that since the entry of the TRO, ESI has refused to process
and/or pay a single claim submitted by the New Jersey Pharmacy on or after September 11, 2014
– a direct violation of the TRO. (Doc. No. 169 at ¶¶ 4-5) In response, ESI argues it has paid all
- 29 -
valid claims submitted through HMC’s in-network pharmacy, i.e., claims submitted to ESI
pursuant to the terms of the contract between its affiliate Medco Health Solutions and HMC’s
Brooklyn, New York pharmacy. (Doc. No. 174 at 11-12)
“The party moving for contempt sanctions bears the burden of proving facts warranting a
civil contempt order by clear and convincing evidence.” Chicago Truck Drivers v. Bhd. Labor
Leasing, 207 F.3d 500, 504 (8th Cir. 2000). That burden is met if the party is able to
demonstrate: “(1) that a court order was in effect; (2) that the order required certain conduct by
the respondent; and (3) that the respondent failed to comply with the court's order.” Piggly
Wiggly Clarksville, Inc. v. Mrs. Baird's Bakeries, 177 F.3d 380, 382 (5th Cir. 1999). “A
contempt order must be based on a party's failure to comply with a ‘clear and specific’
underlying order.” Chaganti & Assocs., P.C. v. Nowotny, 470 F.3d 1215, 1223 (8th Cir. 2006)
(quoting Int'l Bhd. of Elec. Workers, Local Union No. 545 v. Hope Elec. Corp., 293 F.3d 409,
418 (8th Cir. 2002)). However, “[i]f the acts done are clearly in contravention of the court's
decree, the intention is of no consequence. The absence of willfulness does not relieve an
individual from civil contempt[.]” N.L.R.B. v. Ralph Printing & Lithographing Co., 433 F.2d
1058, 1062 (8th Cir. 1970).
The parties have widely disparate views of what the New York District Court meant
when it enjoined ESI from refusing to process and/or pay claims submitted by HMC for
compounded medications if those claims were covered by a patient’s insurance prior to
September 11, 2014. ESI contends it terminated its contract with HMC effective September 1,
2014, and was not required to reinstate that contract in order to maintain the status quo. (Doc.
No. 174 at 1-2) HMC argues the plain terms of the Federal TRO require ESI to reimburse claims
submitted by HMC irrespective of the existence of a contract. (Doc. No. 171 at 7) Both in
- 30 -
briefing and at the hearing, there was much discussion about off the record conversations with
the New York District Court judge seeking clarification of the TRO as it applied to ESI.
Given the lack of clarity around the intent of the Federal TRO, the Court cannot conclude
there was a clear violation of the order sufficient to warrant a finding of contempt. See
Imageware, Inc. v. U.S. W. Commc'ns, 219 F.3d 793, 797 (8th Cir. 2000) (“No one should be
held in contempt for violating an ambiguous order . . . A contempt should be clear and certain.”);
Chicago Truck Drivers v. Bhd. Labor Leasing, 207 F.3d 500, 504 (8th Cir.2000) (“The party
moving for contempt sanctions bears the burden of proving facts warranting a civil contempt
order by clear and convincing evidence.”). Based on the facts presented and under the law,
HMC’s motion for contempt will be denied.
IT IS HEREBY ORDERED that Defendant Express Scripts’ Motion to Dismiss
Plaintiffs’ First Amended Complaint  is GRANTED in part. Counts III, IV and VI are
dismissed. In all other respects the motion is DENIED.
IT IS FURTHER ORDERED that Defendant Express Scripts’ Motion to Dissolve the
Temporary Restraining Order  is DENIED.
IT IS FURTHER ORDERED that Defendant Express Scripts’ Motion for Temporary
Stay of Discovery and Protective Order  is DENIED as moot.
IT IS FURTHER ORDERED that Plaintiffs’ Motion for Civil Contempt  is
IT IS FURTHER ORDERED that a Rule 16 conference will be set by separate order.
Dated this 9th day of July, 2015.
- 31 -
JOHN A. ROSS
UNITED STATES DISTRICT JUDGE
- 32 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?