HEALTHCARE CORPORATION OF AMERICA v. DATA RX MANAGEMENT, INCORPORATED

Filing 46

OPINION fld. Signed by Judge Kevin McNulty on 3/27/13. (sr, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
HEALTHCARE CORPORATION OF
AMERICA,

:

Civ. No. 2:12-2910 (KM)

Plaintiff,
OPINION
V.

DATA RX MANAGEMENT, INC.,
Defendant-Counterclaimant.
DATA RX MANAGEMENT, INC.,-.
Third-Party Plaintiff,
V.

PRESCRIPTION CORPORATION
OF AMERICA,
Third-Party Defendant.

KEVIN MCNULTY, U.S.D.J.:
Healthcare Corporation of America (“RCA”)’ and Data Rx Management,
Inc. (“Data Rx”) were intermediaries in a chain linking pharmacies and a
pharmacy benefit plan. Data Rx operates a network of pharmacies; on their
behalf, it submits claims for prescriptions to HCA. For those pharmacy
prescription claims, RCA serves as a billing agent on behalf of its pharmacy
benefit plan clients, who pay the claims. RCA claims that Data Rx breached
their Pharmacy Claims Processing Agreement by overcharging, failing to
provide rebates, not obtaining prior authorizations for claims, and for owing
approximately $550,000 to its mail order pharmacy.
Data Rx has filed a counterclaim, alleging that RCA owes its pharmacy
network nearly $3 million in undisputed but unpaid claims. Based on this
Prescription Corporation of America (“PCA”) is a wholly owned subsidiary of
RCA. The two entities share the same office and website. For simplicity, I will refer to
HCA and PCA together as “RCA” except when it is necessary to distinguish their roles.
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Counterclaim, Data Rx has applied for a preliminary injunction requiring RCA
to turn over all of the outstanding money owed to Data Rx’s pharmacies or, in
the alternative, for the Court to freeze those funds.
Data Rx emphasizes that it, like RCA, is a middleman; Data Rx and RCA
simply pass through the money that the pharmacies are owed for prescriptions
they have already filled. If Data Rx is correct, RCA is opportunistically holding
money that it received solely as an intermediary, money that should have been
forwarded along the chain to the pharmacies. Whether there is a penalty to be
paid for such behavior remains to be seen; I must focus on the narrow issue
before me, which is an application for a preliminary injunction. Although Data
Rx has made a strong showing on the merits, its application must be denied
because it has not demonstrated that it is likely to suffer irreparable harm in
this moydama escase.Thatisnot -to sathat
Rxsc1aimscou1d- not
prevail on summary judgment or at trial, but at present, they do not furnish a
basis for injunctive relief.
I.

BACKGROUND

RCA and Data Rx linked pharmacies with the pharmacy benefit plans
that reimburse them for filling prescriptions. They worked together to process
claims. In this case, RCA’s benefit plan client was Middlesex County. Data Rx’s
clients consisted of a network of pharmacies where plan beneficiaries would
have their prescriptions filled. In simplified form, the process is as follows: A
person insured under the Middlesex County plan presents a prescription to one
of the pharmacies in Data Rx’s network. That pharmacy confirms though a
database maintained by Data Rx and RCA that the individual is a covered
beneficiary of the Middlesex plan. Based on that assurance, the pharmacy fills
the individual’s prescription. The pharmacy then invoices Data Rx for the cost
of the drugs and the pharmacist’s dispensing fee. Data Rx performs services,
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including the adjudication of claims and application of rebates. Data Rx then
invoices RCA for the Pharmacy Charges. RCA periodically bills its client, the
Middlesex County pharmacy benefit plan. Middlesex County pays RCA’s
invoice. The money then flows back down the chain, through RCA and Data
Rx, to the pharmacies that filled the prescriptions. RCA and Data Rx retain
their processing fees (Data Rx gets a flat fee of $1.50 per transaction). The
The aggregate amount of outstanding drug costs and dispensing fees due to all
of Data RX’s pharmacies is the subject of Data Rx’s application for injunctive relief.
The Court will refer to this amount as the “Pharmacy Charges.”
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balance is used to reimburse the pharmacy for the drugs it dispensed. Thus
the vast bulk of the money that flows through RCA and Data Rx is not their
money; it belongs to the pharmacies who dispensed the drugs based on the
assurance of payment from the Middlesex County pharmacy benefits plan.
These relationships are governed by numerous contracts, two of which
are particularly relevant here:
The first is the Pharmacy Claims Processing Agreement between HCA
and Data Rx (the “RCA Agreement”), which became effective May 1, 2010. In
relevant part, it required (1) Data Rx to adjudicate each claim and to pay a
rebate for each qualified prescription and (2) RCA to pay Data Rx’s invoices
within fourteen days of receiving the necessary funds from Middlesex County.
(Appendix A to Agreement, Ex. A to Compi. [ECF No. 1]).
The second pertinent agreement is the claims processing contract
between Middlesex County and Data Rx, dated around January 28, 2011 (the
“Middlesex Contract”). An exhibit to the Middlesex Contract designates RCA’s
subsidiary, PCA, as the billing agent. The Middlesex Contract called for Data
Rx to send biweekly invoices for its services. Within two weeks of Middlesex
County’s receipt of those invoices, the Middlesex Contract required it to pay
them through PCA. Around December 2010 or 201 1, RCA stopped paying
Data Rx’s Pharmacy Charges and Processing Fees, retaining them instead.
Over the next five months, Data Rx placed HCA on oral and written notice of its
failure to pay. The amount of Pharmacy Funds outstanding, according to Data
Rx, is $2,995,211.41.
In short, RCA has been paid by Middlesex County, but has not
transferred these funds down the line to Data Rx. Data Rx, as a result, has not
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paid most of the money owed to its network pharmacies.

The Counterclaim states that RCA ceased paying Data Rx in late 2010.
(Counterclaim ¶ 17 [ECF No. 5]). The affidavit of Brian Vossler, Data Rx’s Executive
Vice President states that this occurred in December 2010. (Vossler Aff. ¶ 9 [ECF No.
10-41). Data Rx’s moving papers state that the date is December 2011 (Data Rx Br. at
6 [ECF No. 10-3]). HCA’s Answer to the Counterclaim states that it stopped paying
invoices in December 2011. (Answer to Counterclaim ¶ 17 [ECF No. 40]).

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At oral argument, Data Rx’s counsel stated that Data Rx has advanced
approximately $900,000 to certain pharmacies whose claims had been left unpaid as a
result of RCA’s having impounded the disputed funds.

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RCA, it turns out, believes it is entitled to withhold the money because it
has claims of its own against Data Rx. On May 15, 2012, RCA filed the
Complaint in this action, alleging that Data Rx overcharged it, did not pay
RCA’s mail order pharmacy, did not obtain required prior authorizations, and
failed to provide rebate and data services pursuant to the Agreement. The
Complaint asserts causes of action for breach of contract, breach of warranties,
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and tortious interference with prospective economic advantage. In short,
according to RCA, Data Rx has breached their contract and rendered deficient
performance.
On June 19, 2012, Data Rx filed an answer, a counterclaim (the
“Counterclaim”), and a third party complaint against PCA. The Counterclaim
and third party complaint reflect the factual allegations outlined above: it

1iegethtiicA is. hQ1dingthcThrmacy Charges and Processing Fees due to
Data Rx and its pharmacies under the RCA Agreement. The Counterclaim
includes causes of action for breach of contract, unjust enrichment,
promissory estoppel, and tortious interference.
On August 3, 2012, Data Rx filed this Application for Injunctive Relief
seeking an order directing RCA and PCA to pay over the Pharmacy Charges, or,
in the alternative, enjoining RCA and PCA from dissipating the Pharmacy
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Charges. Data Rx says it is likely to succeed on the merits because the RCA
Because this is the first opinion filed in this case, I note that jurisdiction
appears to be proper because diversity of citizenship exists and the amount in
controversy exceeds $75,000. 28 U.S.C. § 1332. Both HCA and its subsidiary, PCA,
are New Jersey corporations and their principal place of business is in New Jersey.
Data Rx is a Texas corporation with its principal place of business in Georgia. Venue
is proper because a substantial portion of the events and omissions giving rise to the
action occurred in New Jersey. 28 U.S.C. § 1391.

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HCA’s initial Answer to the Counterclaim, dated July 23, 2012, “neither
admit[ted] nor den[ied]” essential allegations, including ones based on facts well within
HCA’s control. That pleading practice is apparently common enough in state court,
but it is not really an option here. RE. Bartkus & E.J. Sher, New Jersey Federal Civil

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Procedure, § 7-5 at 248 (2013). Under the Federal Rules, an allegation “is admitted if a
responsive pleading is required and the allegation is not denied.” Fed. R. Civ. P.
8(b)(6). Of course, the Federal Rules do not hold parties to a standard of omniscience.
Where a party legitimately answers that it lacks knowledge or information sufficient to

form a belief about a particular allegation, this will have the effect of a denial. Fed. R.
Civ. P. 8(b)(5).
Data Rx filed its application for a preliminary injunction in reliance on RCA’s
non-denials of the critical allegations, and the Court noted on the docket that it
expected this issue to be addressed at oral argument. The predictable response was a
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Agreement requires RCA to timely pay Data Rx’s invoices. Data Rx argues that
it will suffer irreparable harm because its business depends on timely paying
its network pharmacies; that RCA and PCA will not suffer any irreparable harm
because the funds it is holding are due to the pharmacies; and that the public
interest favors granting the injunction. RCA opposes the motion, arguing that
it is effectively a premature motion for partial summary judgment and that
Data Rx meets none of the prerequisites for a preliminary injunction. On
February 27, 2013, the Court heard oral argument on Data Rx’s application for
a preliminary injunction.
II.

LEGAL STANDARD

“A plaintiff seeking a preliminary injunction must establish

11] that be is likely to succeed on the merits,
[21 that he is likely to suffer irreparable harm in the absence
of preliminary relief,
[3] that the balance of equities tips in his favor, and
[4] that an injunction is in the public interest.”
Winter v. Natural Res. Def Council, Inc., 555 U.S. 7, 20 (2008) (line breaks and
numbering added); accord American Express Travel Related Servs., Inc. v.
Sidamon-Eristoff 669 F.3d 359, 366 (3d Cir. 2012); Kos Pharms., Inc. v. Andrx
Corp., 369 F.3d 700, 708 (3d Cir. 2004); see Adams v. Freedom Forge Corp.,
204 F.3d 475, 486 (3d Cir. 2000) (movant bears the burden of establishing
these elements).
These four factors guide the Court’s inquiry, but the Third Circuit has
made clear that a court may not grant injunctive relief, “regardless of what the
equities seem to require,” unless the plaintiff carries its burden of establishing
“both (1) that they are likely to experience irreparable harm without an
injunction and (2) that they are reasonably likely to succeed on the merits.”
Adams, 204 F. 3d at 484; accord Hoxworth v. Blinder, Robinson & Co., 903 F.2d
186, 197 (3d Cir. 1990) (placing particular weight on the probability of
motion to amend the Answer to the Counterclaim, which Magistrate Judge Hammer
granted on December 18, 2012. Data Rx did not revise its preliminary injunction
motion in response to the amended Answer [ECF 40], but proceeded with the motion,
mutatis mutandis.
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irreparable harm and the likelihood of success on the merits, stating: “[W]e
cannot sustain a preliminary injunction ordered by the district court where
either or both of these prerequisites are absent.” (quoting In re Arthur
Treacher’s Franchisee Litig., 689 F.2d 1137, 1143 (3d Cir. 1982)); Morton v.
Beyer, 822 F.2d 364, 367 (3d Cir. 1987); Freixenet, S.A. v. Admiral Wine &
Liquor Co., 731 F.2d 148, 151 (3d Cir. 1984).
III.

ANALYSIS

Data Rx is seeking an order directing RCA and PCA to turn over
approximately $3 million to cover the outstanding Pharmacy Charges, or, in
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the alternative, that it be put in a trust. Data Rx, as the applicant for
preliminary injunctive relief, carries a heavy burden. I find that its likelihood of
success on this claim is quite good. But because it has not shown that it is
likely to suffer irreparable harm, preliminary Injunctive relIef is not
appropriate, and I will deny the motion.
A. Likelihood of Success on the Merits

Data Rx’s primary counterclaim is for breach of contract based on RCA’s
failure to pay over the Pharmacy Charges and Processing Fees pursuant to the
terms of the RCA Agreement.
“To establish a breach of contract claim, a [counterclaimant] has the
burden to show that the parties entered into a valid contract, that the
[counterclaimant defendant] failed to perform his obligations under the
contract and that the [counterclaimant] sustained damages as a result.”
Murphy v. Implicito, 392 N.J. Super. 245, 265, 920 A.2d 678, 689 (App. Div.
2007). Failure to make contractually required payments constitutes a material
breach. Magnet Resources, Inc. v. Summit MRJ Inc., 318 N.J. Super. 275, 287,
723 A.2d 976, 982 (App. Div. 1998).
The parties do not disagree that a valid contract existed. The HCA
Agreement states that “the funds for the Data Rx Services described herein
are due and payable within fourteen (14) days of receipt of funds.” (RCA
Agreement ¶ 3). Appendix A to the RCA Agreement states that “Data Rx shall
At oral argument, Data Rx acknowledged that of the outstanding Pharmacy
Charges, approximately $500,000 is owed to HCA’s own mail order pharmacy.
Therefore, the amount that is truly in dispute is approximately $2.5 million. HCA’s
Complaint alleges that the amount due to its mail order pharmacy is $543,876.01,
although at oral argument, counsel represented the amount is closer to $700,000.
(Complaint ¶ 11).
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bill [RCA] for cost of drugs which shall be Data Rx’s network contracted prices
plus transaction and administration fees
twice per month.” (Appendix A to
HCA Agreement ¶ 11).
.

.

.

A question arises as to why RCA should feel entitled to hold the
pharmacies’ money hostage to secure its claims against Data Rx. HCA does not
meaningfully dispute that it is holding a significant amount of money due to
pharmacies who are not parties to this action. RCA concedes that Data Rx has
sent invoices for the Pharmacy Charges and Processing Fee, and it has
conceded at oral argument that it does not challenge the amount of these
invoices. RCA admits that it has been paid by Middlesex County for past
prescriptions filled by the pharmacies. (Counterclaim ¶ 20; Answer to
Counterclaim ¶ 20). HCA has not turned these funds over to Data Rx. Instead,
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Jthas. retainecL these lunds as ecurity for itsyetunproven -contract claims.
against Data Rx. RCA, whether in its papers or at oral argument, has not
identified any contractual provision that would authorize this kind of self-help.
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I find that Data Rx is likely to succeed on the merits of its breach of contract
claim.
This matter was not presented to the court as a motion for summary
judgment, nor was RCA put on notice to respond to it as such. I note, however,
that at present, RCA has not put forth any arguments or facts that, on an
appropriate motion at the appropriate time, would stand in the way of entry of
judgment on Data Rx’s claim.
B. Irreparable Harm
Where Data Rx’s application for a preliminary injunction falters is on the
irreparable harm element. In its moving papers and at oral argument, Data Rx
advanced three arguments in support of a finding of irreparable harm: First,
whatever quarrel RCA has with Data Rx, the money it is withholding is almost
all due to the network pharmacies, not Data Rx. Second, RCA is holding the $3
million because it might go bankrupt. Third, Data Rx’s business reputation will

RCA’s initial answering strategy, see n.6, supra, may reflect its inability to deny
the essentials of Data Rx’s claims.
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RCA is essentially claiming recoupment or setoff, based on its claims against
Direct Rx. That would not, in my view, bar a finding that Direct Rx has established its
claims. Whether execution of any such partial judgment should be stayed pending
resolution of RCA’s offsetting claims would be, of course, a separate issue.
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suffer as its network pharmacies continue to go unpaid. Tied to this third
argument is Data Rx’s point that the system works only because the
pharmacies at the end of the chain fill prescriptions trusting that they will
receive reasonably prompt payment; if that faith goes unrewarded, the whole
structure must eventually crumble. These arguments, however appealing, are
unavailing in the context of preliminary injunctive relief.
Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.s.
308 (1999), while not precisely on point, suggests that a preliminary injunction
would be inappropriate. There, plaintiffs had sought a preliminary injunction
restraining Grupo Mexicano from transferring assets. Plaintiffs alleged that
Grupo Mexicano was at risk of insolvency, or already insolvent; that it was
planning preferential transfers of its most valuable assets to its Mexican
creditarsanththattheseactionsodirustrteanyJdgmentp1aintjffs
obtain. Id. at 312-13. The Supreme Court held that a plaintiff who sued for
breach of contract seeking damages, a remedy at law, could not obtain a
preliminary injunction against the assets of a debtor against whom it had no
judgment. Id. at 332-33.’°
The Third Circuit has explained that to satisfy the irreparable harm
prong, the applicant must “demonstrate[] a significant risk that he or she will
experience harm that cannot adequately be compensated after the fact by
monetary damages. This is not an easy burden.” Adams v. Freedom Forge
Corp., 204 F.3d 475, 484-85 (3d Cir. 2000) (internal citations omitted). Where
an injury is “purely economic in nature and thus compensable in money,” a
finding of irreparable harm is unlikely. Morton v. Beyei, 822 F.2d 364, 371—72
(3d Cir. 1987).
It is not, however, impossible: if the movant can show “something
uniquely threatening about the particular loss of money,” the irreparable harm
requirement may be met. Adams, 204 F.3d at 485. I nevertheless reject Data
Grupo Mexicano does not prohibit the issuance of a preliminary injunction in an
action for equitable relief. 527 U.S. at 324—25 (distinguishing Deckert v. Independence
Shares Corp., 311 U.s. 282 (1940), noting that in Deckert “the preliminary injunction
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‘was a reasonable measure to preserve the status quo pending a fmal determination of
the questions raised by the [equitable] bill”’). Data Rx has pled in the alternative a
claim of promissory estoppel, a quasi-contractual remedy with roots in equity
jurisprudence. The remedy that Data Rx seeks, however and the only one that is
appropriate is money damages. Cf Bsales v. Texaco, Inc., 516 F. Supp. 655, 664
(D.N.J. 1981) (vacating preliminary injunction for quasi-contract claims in litigation
over leased service station parcels because “[t]he plaintiffs’ exclusive remedy for the
wrongs they allege is damages,” not specific performance).
—

—

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Rx’s arguments because the alleged harm here is purely economic in nature.
Data Rx has failed to demonstrate that the harm here goes beyond what would
be compensable in damages.
First, the relationship between Data Rx and RCA has terminated, so the
amount in dispute pursuant to Data Rx’s claims is not increasing. There is no
ongoing money hemorrhage that requires an equitable tourniquet; the parties
are fighting over a discrete sum of money.
Second, Data Rx has not demonstrated that “damages could very
conceivably run beyond [HCA’s] ability to pay them.” Eli Lilly & Co. v. Premo
Pharm. Labs., Inc., 630 F.2d 120, 137 (3d Cir. 1980). Post-Grupo Mexicano, this
would be a doubtful basis for a finding of irreparable harm in any case. Data
Rx brought to the Court’s attention that a private equity firm is purchasing
RCA and merging it into an existing, similar business. Counsel for HCA
represented on the record that the surviving entity will retain legal liability for
any damage award in this action. Counsel stated as well that the combined
company is projected to have significantly greater revenues than RCA alone.
Data Rx did not dispute either proposition. It has not demonstrated a
significant risk that it could not recover any judgment it might receive.
Third, Data Rx’s reputational harm argument has been rejected by the
Third Circuit. “[A] plaintiff in a breach of contract case cannot convert
monetary harm into irreparable harm simply by claiming that the breach of
contract has prevented it from performing contracts with others and that this
subsequent failure to perform will harm the plaintiff’s reputation.” Bennington
Foods LLC v. St. Croix Renaissance, Grp., LLP, 528 F.3d 176, 178-79 (3d Cir.
2008); see Frank’s GMC Truck Ctr., Inc. v. Gen. Motors Corp., 847 F.2d 100, 102
(3rd Cir. 1989) (“[t]he availability of adequate monetary damages belies a claim
of irreparable injury”); In re Arthur Treacher’s Franchisee Litig., 689 F.2d 1137,
1145 (3rd Cir. 1982) (“we have never upheld an injunction where the claimed
injury constituted a loss of money, a loss capable of recoupment in a proper
action at law”).
Data Rx has alleged that the trust on which its supply chain is based will
erode if a preliminary injunction is not granted. It has not, however, (1)
presented any sworn statements from pharmacies stating that such a chilling
effect is taking place, or (2) differentiated this supply chain from any other
where suppliers take on financial risk by dispensing products in advance of
receiving payment. In short, Data Rx has not submitted proof of loss of
reputation or demonstrated that its pharmacy network is different from “other
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types of commerce in such a way that normal breach of contract remedies
could not provide a remedy.” Bennington, 528 F.3d at 179.”

-

In short, this case does not present the kind of harm to Data Rx’s
reputation that might support preliminary injunctive relief. Bennington, supra,
distinguished two cases in which “the reputation of the plaintiff was directly
endangered by the defendant’s actions.” 528 F.3d at 179-180 (emphasis
added). Thus, for example, the misleading use of the plaintiff’s trademarks, as
in Pappan Enters., Inc. v. Hardee’s Food Sys., Inc., 143 F.3d 800 (3d Cir. 1998),
is routinely recognized as irreparable harm. And in Fitzgerald v. Mountain
Laurel Racing, Inc., 607 F.2d 589 (3d Cir. 1979), the defendant racetrack
operator’s suspension of a trainer and harness racer on suspicion of cheating
was the ordinary stuff of a libel action. But I conclude, along with Bennington,
same-category:
-------

There is nothing in this case to distinguish it from a myriad of
other breach of contract cases. Thus, there is no reason to make
the extended causal inferences necessary to find irreparable harm
to reputation. Any damage [Data Rxl may suffer as a result of
[RCA’s] alleged breach of contract—to the extent it is not
speculative—can be proven as an element of the breach of contract
claim against [RCA].
528 F.3d at 180.
Although Data Rx has shown it is likely to succeed on the merits, it has
not demonstrated that it is suffering, or likely to suffer, irreparable injury. I
will forgo analysis of the balance of harms and the public interest, the third
and fourth preliminary injunction factors. See Bennington, 528 F.3d at 179.
(“As we find that Bennington has not met [the] heightened standard [for a
mandatory preliminary injunction] and that there is no possibility of
irreparable harm on the record before us, there is no need to analyze the other

At any rate, Data Rx may presumably stave off some of the reputational harm
by telling its network pharmacies why they have not been paid i.e., because HCA is
holding the money as part of this dispute. Data Rx has also acknowledged that it has
significant fmancial resources; it might be able to cover some or all of the Pharmacy
Charges while this matter is pending. I do not imply that Data Rx has an obligation to
inform the pharmacies of the HCA dispute or to advance money on unpaid claims; it
may or it may not. I cite these facts only in connection with the irreparable harm
calculus.
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-

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prongs of the test.”) The lack of irreparable injury, even standing alone,
requires that I deny the motion for a preliminary injunction.
IV.

CONCLUSION

For the reasons stated above, Data Rx’s application for a preliminary
injunction is DENIED. An appropriate order follows.

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1

KEVIN MCNULTY
United States District Judge
Dated: March 27, 2013

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