SMART PHARMACY, INC. et al v. MEDCO HEALTH SOLUTIONS, INC.

Filing 46

OPINION. Signed by Judge Dennis M. Cavanaugh on 5/14/13. (jd, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
SMART PHARMACY, INC. and
HIGHLAND PHARMAC, LLC..,
individually, and on behalf of others
similarly situated,

:

Hon. Dennis M. Cavanaugh
OPINION

Plaintiff,

Civil Action No. I 1-cv-6485 (DMC) (JAD)

v.
MEDCO HEALTH SOLUTIONS, INC.,
Defendant.

DENNIS M. CAVANAUGH, U.S.D.J.:
This matter comes before the Court upon Motion to Dismiss by Defendant Medco Health
Solutions, Inc. (hereinafter ‘Defendant” or ‘Medco”). Pursuant to FED. R. Civ. P 78, no oral
argument was heard. Based on the following and for the reasons expressed herein, Defendant’s

Motion is denied.
L

BACKGROUND
Smart Pharmacy, Inc. and Highland Pharmacy, LLC, individually and on behalf of others

similarly situated (hereinafter, ‘Plaintiffs”) filed this lawsuit alleging that Defendant’s practices
in connection with the reimbursement for pharmaceutical services breached various state’s laws.
Plaintiffs seek to recover monies recouped by Defendant under allegedly abusive audit
procedures. Plaintiffs claim “Medco unilaterally and improperly retracts monies from the

pharmacy for the alleged discrepancies by withholding future reimbursements due and payable to
the pharmacy.” (Am. Compi.

¶

5). Plaintiffs allege Defendant’s actions are in breach of various

I

states’ contracts, conversion, promissory estoppel, and implied covenant of good faith laws. in
addition to Florida’s Prompt Payment law. Plaintiffs seek to represent three classes of
pharmacies nationwide in a putative class action filed pursuant to Fed. R. Civ. P. Rule 23(a).
(h)(2) and (b)(3) (“Vacation Supply Class,” “Florida Class,

“

and “Overpriced Compound

Class.’) (Am. Compi. ¶75).
Plaintiffs filed their original Complaint on November 4, 2011. (ECF No. 1). On
December 30, 2011, Defendant filed its first motion to dismiss. (ECF No. 10). On July 30, 2012,
this Court dismissed Plaintiffs’ original Complaint without prejudice. (ECF Nos. 18 and 19). On
August 24, 2012, Plaintiffs filed their First Amended Complaint. (Am. Compi., ECF No. 20),
The present Motion to Dismiss was filed by Defendant on October 10, 2012 (Def.’s Mot.. ECF
No. 30).
IL

STANDARD OF REVIEW
In deciding a motion under FED. R. Civ. P. 12(b)(6), the District Court is “required to

accept as true all factual allegations in the complaint and draw all inferences in the facts alleged
in the light most favorable to the [plaintiff].” Phillips v. Cnty. of Alleghçy, 515 F.3d 224, 228
(3d Cir. 2008).

‘[Aj complaint attacked by a Rule l2(b)(6) motion to dismiss does

not

need

detailed factual allegations.” Bell Ati. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However,
the plaintiffs “obligation to provide the grounds’ of his entitle[ment] to relief’ requires more
than labels and conclusions and a formulaic recitation of the elements of a cause of action will
not do.” Id. On a motion to dismiss, courts are ‘not bound to accept as true a legal conclusion
couched as a factual allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986). Plaintiff’s
complaint is subject to the heightened pleading standard set forth in Ashcroft v. Igbal:
To survive a motion to dismiss, a complaint must contain sufficient factual matter.
accepted as true, to “state a claim to relief that is plausible on its face.” A claim has facial

plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.
Determining whether a complaint states a plausible claim for relief will.
be a contextspecific task that requires the reviewing court to draw on its judicial experience and
common sense. But where the well pleaded facts do not permit the court to infer more
than the mere possibility of misconduct, the complaint has alleged but it has not
“show{nj” “that the pleader is entitled to relief”
.

.

-

-

Ashcroft v. lqbal, 556 U.S. 662. 678-679 (2009) (quoting Twombly, 550 U.S. at 557, 750).
111.

l)ISCUSSION
A. Promissory Estoppel Claims
Counts Seven, Eight and Nine of the Amended Complaint assert a claim of promissory

estoppel against Defendant on behalf of the three putative classes based on Plaintiffs’ reliance on
Defendant’s alleged promise to pay for prescriptions through Defendant’s Te1ePAID®’ system.
Plaintiffs allege that Defendant made a “clear and definite promise” to pay each pharmacy an
agreed upon amount through its acceptance of the claims through Te1ePAID®. (Am. Compi.

¶

1 80, 1 88, 1 96). Through the making of these promises,” Plaintiffs allege Defendant expected
them to rely on these promises and, indeed, they did rely on these promises to their detriment.
(Id.

¶

183, 191, 199). In doing so, Plaintiffs claim they were damaged when Defendant audited

these submissions and found it overpaid the pharmacies. (Id.

¶J

186, 194, 202).

“Promissory estoppel is made up of four elements: (1) a clear and definite promise; (2)
made with the expectation that the promisee will rely on it; (3) reasonable reliance; and (4)
definite and substantial detriment.”

Toll Bros., Inc. v. Board of Chosen Freeholders of

Burlington. 994 A. 2d 1. 19 (N.J. 2008) (citing Lobiondo v. OCallaghan. 767 A. 2d 515 (N.J.
Super. Ct. App. Div. 2003)).
Defendant argues that Plaintiff cannot make out a claim for promissory estoppel because
‘In the Complaint, Plaintiffs refer to the TeIePAID system as TeIePAID©, but Defendant refers to the system as
Te1ePAID® in its Motion to Dismiss. As the system is Defendant’s, the Court will refer to it as TeIePAID® in this
Opinion unless in a direct quote of the Amended Complaint or Plaintiff’s other pleadings.

3

they fail to properly plead the first and third elements. First, Defendant argues that PlaintilTh’
claims must be dismissed because “the ‘purported promises’ made by [Defendant] are not ‘clear
and definite’ as required under New Jersey law.” (Def.’s Mot. 5). Additionally. Defendant argues
that Plaintiffs reliance on the alleged promise was not reasonable, as the promised prices were
not final and were subject to audit by Defendant. (j).
The first issue is whether the complaint adequately alleges a “clear and definite” promise
from Defendant as to the price it was going to pay to each pharmacy. Chapter 8.1 of Defendant’s
Pharmacy Services Manual, provided to the pharmacies, states the following:
All of the claims you submit to Medco are subject to audit. Medcos Pharmacy
Audit Program helps to ensure that you are submitting and dispensing claims in
accordance with the Manual and that you comply with program guidelines. The
audit program also helps to protect against fraud. waste and abuse. Provider
agrees that Medco’s Pharmacy Audit Program is the final step in determining
whether a prescription claim is entitled to reimbursement.
(Pharmacy Services Manual, Exh. A to Def’s Mot.) Defendant argues “under the clear and
unambiguous terms

of

the Agreement, Plaintiffs are not promised or entitled to an

specific

amount of reimbursement for any prescriptions unless and until Medco chooses to perform an
audit of Plaintiffs’ submissions through Te1ePAID®.
The Amended Complaint alleges the following facts:
21. Defendant created a proprietary on-line system of “adjudicating” prescriptions
with pharmacies in its network called the Te1ePAID© system. Adjudication is
2
the process whereby the pharmacy and Medco agree on the terms of a prescription
drug claim submitted by the pharmacy to Medco, including the price of the
prescription.
22. Only after the parties have a meeting of the minds as to price for a given
prescription through Te1ePAID©, do the Plaintiffs (and members of the Classes)
fill and dispense the prescription.
23. Based on the course of dealings between the parties. the adjudicated price set
forth through TeIePA1D© is the contract price.
24. Based on the general usage in trade, the price set forth through TeIePAJD© is
the contract price.
Plaintiffs’
2 Amended Complaint uses TeIePAID© instead of TeIePAID®.

4

25. The TeTePAID© adjudication is supported by consideration in that Plaintiffs
(and the class members) pay approximately $0.10 to $0.99 per on-line
submission.
26. According to the Agreement between Medco and Plaintiffs (and the class
members): Medco will pay Pharmacy for covered services provided by Pharmacy
to Eligible Persons in accordance with the payment rate information
communicated via the Te1ePATD© System, less the applicable co-payment/co
insurance, deductible or other payment to be paid directly by the Eligible Person.
27. Medco remits payment to the Pharmacy on a bi-weeki or semi-monthly
basis. for prescription drug claims submitted to it by the Pharmacy through
Te1ePAID©.
28. Medco and PlaintilTs (as well as the putative members of the Classes)
establish “mini-contracts” each time an offered price is communicated through the
TeIePAID© System by Medco and Plaintiffs accept the offer by filling the
prescription. Once Medco processes the claims submission, this becomes an
enforceable contract, requiring Medco to reimburse Plaintiffs (and the members
of the Classes) at the rate communicated through the TeIePAID© System.
29. In addition, by filling the prescription based on the price and information
communicated through the TeIePAID© System. Plaintiffs (and the members of
the Classes) rely on Medco’s reasonable promise to reimburse them for those
prescriptions at the rates set forth therein.
At this point in the litigation, the Court is convinced that Plaintiffs have sufficiently pled
a clear and definite promise made by I)efendant to the Plaintiffs. While Defendant maintains the
right to audit Plaintiffs claims submissions, the Court does not believe that this type of audit is
factually similar to those in the cases cited by Defendants that gave rise to a finding of
“indefinite promises.” See Del Sontro v. Cendant Corp., Inc., 223 F. Supp. 2d 563, 574-75
(D.N.J. 2002); Aircraft Inventory Corp. v. Falcon Jet Corp., 18 F.Supp.2d 409. 416 (D.N.J.1998)
(Indefinite promises or promises subject to change by the promisor are not “clear and definite”
and cannot give rise to a claim for promissory estoppel.); see also Scagnelli v. Schiavone, No.
09-3660, 201,2 WL 3578163, at *8 (D.N.J. Aug. 20, 2012) (Promises “subject to change” are
‘too vague to be enforced”); Watson v. City of Salem, 934 F. Supp. 643. 661 (D.N.J. 1995)
(dismissing plaintiffs claim for promissory estoppel where the promise was “conditional and
contingent” upon satisfaction of a future condition).

Here, Defendants represented that the

promise of payment should be relied on. Plaintiffs argue:
In stark contrast to the facts and purported ‘promises’ in Del Sontro. Scagnelli and
Watson, Medco did not promise to do something in the future for Plaintiffs.
Rather, Medco clearly and definitively promised (and in fact, expressly
instructed) Plaintiffs to rely upon the pricing information transmitted to them at
the point of sale through Medco’s Te1ePAID® system. Thus, Medco is making a
clear and definite promise as to the price of the prescription, not a promise to do
(or not do) something in the future.
(Pl.’s Opp’n Br, 14). This Court agrees. Accepting all facts as true for purposes of this
Motion, it would be inappropriate to dismiss the promissory estoppel claims at this time based on
the facts pled in the Amended Complaint. See Phillips. 5 15 F. 3d at 231.
Defendant next argues that “as the Pharmacy Services Manual governing the Plaintiffs’
relationship with Medco expressly provides that Medco may audit or review claims submitted
through the Te1ePAID® system as the ‘final step’ in determining the proper amount owed for
each prescription

.

.

.

it was not reasonable for Plaintiffs to rely on these alleged ‘promises,’ as

they were subject to audit and change.” (Def. ‘s Mot. 5).
Again, the Court disagrees. As the Plaintiffs have sufficiently pled a promise to give rise
to a claim of promissory estoppel. the Court also finds that this reliance was reasonable.
Defendant’s Manual, which is incorporated by reference into the parties’ Agreement. instructs
Plaintiffs to “rely on the Te1ePAID® system to receive accurate information regarding the
specilIc patient, group, prescription drug, co-payment/coninsurance, and pricing pertaining to the
claim submitted.” (Exh. A to Def.’s Mot.) The Amended Complaint also alleges that Defendant
did in fact pay Plaintiffs for each of the claims at the price it agreed to pay them through the
TeIePAID® system at the point of sale; thus the Court finds Plaintiffs have sufficiently pled that
reliance on the promise was reasonable. Defendant’s Motion to Dismiss Counts Seven, Eight,
and Nine of the Amended Complaint is therefore denied.

6

B. Claims brought by Plaintiff that arose on or before December 31, 2008
Plaintiffs’ Amended Complaint also brings counts on behalf of the Vacation Supply Class
and the Florida Class arising under Defendant’s Agreements with provider pharmacies at any
time within the last six years. Defendant argues that pursuant to the Pharmacy Services Manuals
in effect, all disputes arising on or before December 3 1, 2008 are subject to mandatory.
individual arbitration.” (Def. ‘5 Mot. 8). Thus Defendant moves this Court to dismiss any claims
arising on or before December 31, 2008.
Medco’s 2006/2007 and 2007/2008 Pharmacy Services Manuals expressly require all
disputes. controversies or claims to be submitted to arbitration under the American Arbitration
Association’s rules:
No civil action concerning any dispute, controversy, or claim between Pharmacy
and Medco shall be instituted before any court. Any such dispute, controversy, or
claim must be submitted to arbitration administered by the American Arbitration
Association (“AAA”) under AAA rules. This arbitration requirement
covers
any claim based on contract, tort, statute, common law, or equity, whether based
on past, ongoing, or future conduct.
.

.

.

(Exh, A to Def. ‘s Mot.) The arbitration provision also states that “[a]ny arbitration will he
conducted as an individual arbitration. Neither Pharmacy nor Medco consents to or agrees to any
arbitration on a class, consolidated, joined or representative basis.” (Id.)
Defendant correctly points out that the expiration of a contract does not automatically
extinguish the parties’ duty to arbitrate a dispute arising under the contract unless the parties’
express an intent to override their prior agreement. See Nolde Bros., Inc. v. Local No. 358.
Bakery & Confectionary Workers Union. AFL-CIO, 430 U.S. 243, 255 (1977) (“where the
dispute is over a provision of the expired agreement, the presumptions favoring arbitrability must
be negated expressly or by clear implication.”)
Plaintiffs cite to two portions of Defendant’s Manuals to argue that the parties did in fact
7

express a clear and unmistakable intent to override the arbitration agreement. First. the Manuals
subsequent to the 2007/2008 Manual state ‘[tjhis version of the Manual supersedes and replaces
all prior versions of the manual.” (2009/2010 Manual and 2011 Manual. Exh. A to Mizeski Cert..
ECF No. 35-i). Additionally, subsequent Manuals include a “Governing Law and Jurisdiction”
section. These sections provide:
All disputes and matters between Provider and Medco arising out of Provider s
Agreement with Medco shall be litigated before the U.S. District Court for the
District of New Jersey, or, as to those lawsuits to which the Federal Court lacks
subject matter jurisdiction, before a court located in Bergen County, New Jersey.
The Provider’s Agreement with Medco shall be governed, construed. and
enforced in accordance with the laws of the State of New Jersey.
(Section 6,15 of the 2009/2010 Manual and Section 6.26 of the 2011 Manual. Exh. A. to Mizeski
Cert.). The Court is convinced that these amendments to the Manuals are expressions of the
parties’ clear intention to expressly supersede and replace the arbitration provision in the
previous 2007/2008 Manual. While Defendant cites to certain case law outside of this Circuit. it
is neither binding nor persuasive with regards to the present motion. Thus Defendant’s Motion to
Dismiss Plaintiffs Claims based on transactions arising on or before December 31. 2008 is also
dismissed.
I

CONCLUSION
For the foregoing reasons, Defendant’s Motion to Dismiss is denied. An appropriate

order follows this Opinion.

Dennis M. Cavanaugh. U.
Date:
Original:
cc:

May/_,2013
Clerk’s Office
1-Ion. Joseph A. Dickson, U.S.M.J.
All Counsel of Record
8

.

.J.