AMERISOURCEBERGEN DRUG CORPORATION v. PRIMROSE PHARMACY, LLC et al

Filing 16

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE GERALD A. MCHUGH ON 2/1/17. 2/1/17 ENTERED AND COPIES EMAILED TO COUNSEL AND COPY TO LEGAL.(jaa, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

AMERISOURCEBERGEN DRUG
CORPORATION,
Plaintiff,
v.
PRIMROSE PHARMACY, LLC; KARL
BLASS-SCHULTZ; KARL BUCHOLZ;
ALTHEA GROUP, LLC,
Defendants.

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CIVIL ACTION
No. 16-6106

MCHUGH, J.

February 1, 2017
MEMORANDUM

Plaintiff Amerisourcebergen Drug Corporation (“ABDC”) has sued Defendant Primrose
Pharmacy (“Primrose”) for various alleged breaches of contract related to ABDC’s exclusive
right to act as Primrose’s intermediary in the processing of health care reimbursements.
Primrose moves to dismiss, contending that ABDC must arbitrate its claims. Because Primrose
relies upon an arbitration clause that does not bind ABDC, its motion will be denied.
ABDC collects and consolidates reimbursement payments made to Primrose Pharmacy
for prescription benefits claims. This dispute began after one large payor of such
reimbursements, CVS-Caremark (“Caremark”), conducted an audit of Primrose’s claims for
reimbursement and concluded that Primrose had overcharged Caremark by more than three
million dollars. If true, this could place ABDC at risk under the array of contracts governing
relationships between the parties. To protect its interest, ABDC invoked what it contends is a
contractual right to hold in escrow reimbursement payments due to Primrose, because of concern
that ABDC might be required to refund overpayments to Caremark.

Shortly after ABDC began withholding payments to Primrose, the flow of
reimbursement payments into ABDC on Primrose accounts – which generally had amounted to
around $500,000 each month – dramatically decreased to the point where “almost no”
reimbursements destined for Primrose were paid to ABDC. ABDC therefore asserts that, in
violation of the exclusivity provisions in various contracts with ABDC, Primrose began “secretly
and improperly processing [its] claims through related pharmacies.” Complaint at 10.
Various contracts govern the relationship between ABDC and Primrose, and between
Primrose and third parties. One such contract under which ABDC has sued – the Master
Program Agreement (“MPA”) between ABDC and Primrose – incorporates the Caremark
Provider Manual, which governs relations between Primrose and Caremark, the entity allegedly
overcharged. That document has an expansive arbitration clause as follows:
Any and all disputes between Provider [ Primrose] and Caremark [including
Caremark’s current, future, or former employees, parents, subsidiaries, affiliates,
agents and assigns (collectively referred to in this Arbitration section as
“Caremark”)], including but not limited to, disputes in connection with, arising
out of, or relating in any way to, the Provider Agreement or to Provider’s
participation in one or more Caremark networks or exclusion from any Caremark
networks, will be exclusively settled by arbitration. This arbitration provision
applies to any dispute arising from events that occurred before, on or after the
effective date of this Provider Manual.
Caremark Provider Manual at 44-45 (emphasis added).
According to Primrose, this Manual was incorporated into the MPA Term Sheet, which
was then incorporated into the MPA, leading Primrose to argue that ABDC must arbitrate this
dispute. Assuming such “incorporation” took place, Primrose’s argument lacks merit. In its
submissions to the Court, Primrose simply ignores the language defining the scope of the
arbitration clause. On its face, the clause applies only to disputes between Primrose and
Caremark. The alleged incorporation does not change the plain language of the clause limiting

the entities to which it can apply. Nor does it intuitively make sense that an arbitration clause
from an agreement governing the conduct of a “provider” would govern the actions of a payment
processor such as ABDC.
The question currently before me is whether there “is a valid agreement to arbitrate
between the parties.” Century Indem. Co. v. Certain Underwriters at Lloyd's, London,
Subscribing to Retrocessional Agreement Nos. 950548, 950549, 950646, 584 F.3d 513, 527 (3d
Cir. 2009). Or, as the Court of Appeals stated in Medtronic Ave., Inc. v. Advanced
Cardiovascular Systems, Inc., 247 F.3d 44, 54 (3d Cir. 2001), “for a court to enter an order
compelling arbitration there must be sufficient evidence that the parties consented to arbitration
in an express agreement.” In no sense is the language of this subsidiary agreement sufficient to
constitute such an express agreement, particularly when the Credit Agreement which forms the
main basis for ABDC’s suit expressly consents to jurisdiction in the Eastern District of
Pennsylvania. Exh. A to Compl. Nothing in Rent-A-Center West v. Jackson, 561 U.S. 63 (2010)
can rescue Defendants from their inability to identify a valid agreement to arbitrate between
these parties.
Primrose further argues that arbitration is necessary because the “gateway issue”
– whether ABDC has incurred or will incur liability to Caremark on Primrose’s behalf –
concerns a potential dispute between Primrose and Caremark. But the essence of this suit is
ABDC’s contention that Defendants have violated the exclusivity agreement between them.
Although Plaintiff might have been motivated to assert a contractual breach because of concern
about an underlying liability, the basic factual question is whether Primrose is unlawfully
diverting reimbursements. The consequences of any such diversion is an issue of damages.
That issue may in turn depend upon whether Caremark is correct about Primrose’s alleged

overcharges, and such a dispute will presumably be arbitrated. 1 None of that changes the fact
that ABDC never agreed to arbitrate disputes with Primrose – not through the incorporated
clause pertaining to disputes between Primrose and Caremark nor through any other contract.
ABDC cannot be forced to arbitrate its claims based on promises made by other
companies to each other. Accordingly, Primrose’s Motion to Compel Arbitration is denied. An
appropriate order follows.

/s/ Gerald Austin McHugh
United States District Judge

1

Primrose argues in its Reply that if forced to litigate in this court, it could be held doubly liable for the amounts
due under the audit – once to ABDC in this suit, and again to Caremark in arbitration. ECF Doc. 11 at 6. Avoiding
double recovery is a problem easily addressed by proper case management and framing of issues for resolution.