Albert's Pharmacy, Inc. et al v. Catamaran Corporation
MEMORANDUM (Order to follow as separate docket entry) re 58 MOTION to Strike filed by Lakeview Pharmacy of Racine, Inc. Signed by Honorable Malachy E Mannion on 3/31/17. (bs)
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF PENNSYLVANIA
LAKEVIEW PHARMACY OF
CIVIL ACTION NO. 3:15-290
Pending before the court is a motion to strike filed by plaintiff Lakeview
Pharmacy of Racine, Inc. (“Lakeview”). (Doc. 58). The plaintiff requests that
this court strike the third affirmative defense listed in defendant Catamaran
Corporation’s (“Catamaran’s”) answer, (Doc. 57), filed in response to the
plaintiff’s second amended complaint, (Doc. 53). For the foregoing reasons,
the plaintiff’s motion is DENIED.
The plaintiff is an independently owned community pharmacy. (Doc. 53
¶1). The plaintiff has one retail and one long-term care pharmacy. (Id. ¶27).
The defendant is a pharmaceutical benefit manager (“PBM”) providing
prescription drug benefit services. (Id. ¶¶1, 8). The defendant was formerly
known as SXC Health Solutions, Inc. (“SXC”). (Id. ¶6). In 2012, SXC acquired
Catalyst Health Solutions, Inc. (“Catalyst”), a large PBM, through a corporate
merger. (Id. ¶7). SXC then rebranded itself as the current defendant,
Catamaran. (Id.). The defendant has acquired other PBMs since the SXCCatalyst merger, including Restat LLC and Walgreens Health Initiative. (Id.
PBMs contract with insurance companies, self-insured employers, and
government entities (“plan sponsors”) to administer prescription drug benefit
programs. (Id. ¶16). A PBM will, typically, develop a list of drugs covered by
a particular plan sponsor; this list is often called a “formulary.” (Id. ¶19). Retail
pharmacies access the PBM network by contracting with the specific PBM
acting as the middleman between the plan sponsors and the members of that
plan (“plan members”). (Id. ¶20). The plan members are the pharmacies’
customers. (Id.). Retail pharmacies interact with a variety of PBMs, which is
wholly dependant on the particular plan member or customer; the customer’s
insurance card will identify the particular PBM using a six-digit Rx Bin number.
The relationship between the defendant, a PBM, and independent
pharmacies is contractual in nature, but the defendant does not directly
negotiate with pharmacies. (Id. ¶25). The contract is negotiated through a
pharmacy services administration organization (“PSAO”) serving as the
pharmacy’s agent. (Id. ¶¶26, 88). The plaintiff’s relationship with the
defendant is based on contracts, also known as provider agreements, that the
defendant negotiated with a PSAO. (Id. ¶27). The particular provider
agreement at issue in this case is an agreement negotiated between the
plaintiff’s PSAO, an entity known as TriNet, and the defendant before the
defendant rebranded itself (the SXC Provider Agreement).
The plaintiff alleges that the defendant uses confidentiality agreements
with PSAOs to keep critical aspects of provider agreements hidden from
independent pharmacies, including the plaintiff. (Id. ¶28). The defendant has
denied this allegation. (Doc. 57 at 14). The plaintiff alleges that the defendant
has precluded the plaintiff and other independent pharmacies from obtaining
copies of “fully executed contracts that govern all aspects of their drug
reimbursement” from the defendant. (Doc. 53 ¶29). The defendant has
admitted that it does not provide copies of provider agreements to non-parties
to those agreements. (Doc. 57 at 14). The pharmacies do receive provider
manuals and state-specific addendums. (See Doc. 53 ¶¶36, 99). The plaintiff
relies on a 2013 Provider Manual it received. (See id. ¶36). It is not clear if the
pharmacies receive anything else, though, based on the plaintiff’s allegations
the pharmacies do not receive the full contract.1 It is also not clear how many
“versions” of a provider manual exist. (See id.).
Generally, a PBM will handle claim processing as the middle man
In the original complaint, the pharmacies, including the remaining
plaintiff, alleged that they received “plan data sheets” or other summary-form
documents, which are typically short and contain only certain principal terms
of the provider agreement. (Doc. 1 ¶111). This allegation is not included in the
second amended complaint. Either this original allegation did not apply to
Lakeview, specifically, or it did and it is simply not included in the second,
amended version of the complaint.
between plan members and plan sponsors. This process begins when a
customer/plan member presents his or her insurance and drug prescription
card to a pharmacist. (Id. ¶30). The pharmacist will then submit a product
selection code to the PBM, fill the prescription, and charge the customer/plan
member the co-pay set by his or her plan sponsor. (Id. ¶¶31–32). It is at this
point of sale that the pharmacist learns the amount of reimbursement for the
product from the PBM; this process is referred to as claim adjudication. (Id.
¶¶32–33). Although the pharmacist learns the reimbursement amount at the
point of sale, actual reimbursement to the pharmacy occurs on a bi-monthly
cycle. (Id. ¶34).
In addition to processing reimbursements, in some cases the defendant
also sets the reimbursement rate for products and services. (Id. ¶37). The
plaintiff alleges that for brand name drugs the defendant reimburses at a
percentage of the average wholesale price (“AWP”) of the drug, plus a
dispensing fee. (Id. ¶38). The AWP is tied to pricing metrics published by
third-party sources. (Id.). In contrast, for multi-source generic drugs, the
defendant sets reimbursement based on a maximum allowable cost (“MAC”),
which is a discount from the AWP. (Id. ¶42). The defendant’s MAC price list
specifies the maximum per unit reimbursement to be paid to a pharmacy for
a generic drug, regardless of the manufacturer of the drug, in an attempt to
encourage pharmacies to seek the lowest price from a wholesaler for that
drug. (Id. ¶45). The defendant’s MAC lists form part of its formulary. (Id. ¶47).
The defendant does not disclose the formula or methodology it uses to
calculate and adjust its MAC prices. (Id. ¶48).
The plaintiff alleges that the defendant’s MAC prices/formulas are not
tied to market conditions for the particular, multi-source generic drug being
priced. (Id. ¶49). The plaintiff alleges that the defendant penalizes
independent pharmacies like the plaintiff by using the lowest of multiple MAC
prices for reimbursement. (Id. ¶54). Most state Medicaid MAC lists are,
allegedly, directly linked to the pharmacy’s acquisition cost or indirectly linked
to that cost using corollary cost measures. (Id. ¶51). The plaintiff alleges that
the defendant’s MAC methodology is not linked to acquisition costs.
The plaintiff also alleges that the defendant manipulates its MAC prices
based on market price adjustments to a drug by a manufacturer. The plaintiff
alleges that the defendant delays increasing its MAC price reimbursement
rate if there is an increase by manufacturers of that drug, but that the
defendant immediately decreasing the reimbursement if there is a decrease
in the price of the drug. (See id. ¶¶63–69). The plaintiff alleges that the speed
at which the defendant updates its MAC lists is not commercially reasonable.
The plaintiff’s 2013 Provider Manual provides the pricing mechanism to
be used by the defendant, in addition to the actual SXC Provider Agreement.
(See id. ¶91).The 2013 Provider Manual does allow the defendant to amend
its MAC prices, but requires the defendant to “utilize client or plan parameters,
Medi-Span[,] or other national source[s], and internal processes as a
reference but not as the sole determinant of price.” (See id. ¶101). It also
states that the pharmacy’s “[r]eimbursement will be limited by the pharmacies
submitted ingredient cost plus dispensing fee.” (Id.). The plaintiff also alleges
that the provider agreement between itself and the defendant requires that
there be a single MAC price for a particular drug filled in particular quantity at
a particular time. (Id. ¶105).
The plaintiff’s 2013 Provider Manual also provides a mechanism for the
pharmacy to challenge a MAC priced reimbursement. (Id. ¶94). The plaintiff’s
MAC pricing appeals were submitted through its PSAO, TriNet, and only the
PSAO received the results of that appeal. (Id. ¶96). The plaintiff alleges that
the defendant routinely rejects these appeals even if the MAC price is below
the pharmacy’s acquisition cost. (Id. ¶116). The plaintiff also alleges that the
defendant does not reimburse retroactively even if an appeal is successful.
(Id. ¶97). The defendant admits that it has not reimbursed the plaintiff after a
successful MAC price appeal. (Doc. 57 at 45).
On February 9, 2015, the plaintiff, along with twenty-eight other
independently owned community pharmacies, originally filed this action
against the defendant asserting several breach of contract claims based on
various provider agreements with the defendant. (See Doc. 1). The original
claims included the following: (1) breach of contract under the Uniform
Commercial Code (Count I); (2) breach of the duty of good faith and fair
dealing in setting prices for prescription drugs (Count II); (3) breach of the
duty of good faith and fair dealing during the MAC pricing appeals (Count III);
and (4) breach of the duty of good faith and fair dealing for failing to update
MAC prices (Count IV). (Id.).
On April 20, 2015, the defendant filed a motion to compel arbitration,
coupled with a motion to dismiss any non-arbitrable claims. (Doc. 11). The
defendant attached an affidavit and several exhibits to that motion listing the
various plaintiff pharmacies, their associated PSAO, and copies of
corresponding provider agreements. (Doc. 11-2). On April 30, 2015, the
original plaintiffs informed the court that they would not challenge the
defendant’s arguments with respect to arbitration. (Doc. 12). The parties
stipulated that any plaintiff pharmacy with an arbitration clause in its
corresponding provider agreement would be given time to verify that
agreement with its agent and also agreed that all claims relating to a contract
with an arbitration clause would be stayed pending arbitration. (Id.).
In light of the exhibits attached to the motion and the plaintiffs’ failure to
challenge the validity of the arbitration clauses in the various provider
agreements, on July 16, 2015, the court partially resolved the defendant’s
motion by granting the motion to compel arbitration with respect to all parties
except for the current plaintiff, Lakeview. (Doc. 20). Lakeview’s PSAO was
listed as TriNet and the agreement between TriNet and the defendant did not
contain an arbitration clause. (Doc. 11-2 at 3, 111–127). Then, on December
9, 2015, the court granted in part and denied in part the defendant’s motion
to dismiss with respect to Lakeview as the remaining plaintiff. (Doc. 29).
Specifically, the court granted the defendant’s motion to dismiss with respect
to Counts I, II, and IV, but denied the motion to dismiss with respect to Count
On December 23, 2015, the plaintiff filed its first motion for leave to file
an amended complaint. (Doc. 30). On June 13, 2015, the court granted in part
and denied in part the plaintiff’s request for leave. (Doc. 42). The court
allowed the plaintiff to remove factual allegations relating to parties that were
no longer part of the action and allowed the plaintiff to plead an express
breach of contract claim using three different theories. The court denied the
plaintiff’s attempt to replead the UCC claim that was dismissed and would not
allow the plaintiff to add a claim based on the legal theory of quantum meruit.
On June 16, 2016, the plaintiff filed an amended complaint which, in
accordance with the court’s decision, contained two counts, one for express
breach of contract (Count I) and one based on the implied duty of good faith
and fair dealing (Count II). (Doc. 47). Count I was premised on three theories:
(1) that the defendant’s failure to use certain independent sources in its MAC
pricing methodology constituted a breach of contract; (2) that the defendant’s
decision to set reimbursement prices below acquisition costs constituted a
breach of contract; and (3) and that the defendant’s use of multiple MAC
prices for reimbursement constituted a breach of contract. Count II was
identical to the claim pled in Count III of the original complaint, (Doc. 1),
alleging that the defendant breached the duty of good faith and fair dealing in
its handling of MAC pricing appeals.
On June 23, 2016, the plaintiff filed a second motion to amend its
complaint. (Doc. 48). The plaintiff wished to correct technical errors in the first
amended complaint. The motion was unopposed by the defendant. On June
27, 2016, the court granted the plaintiff’s request and allowed the plaintiff to
correct these errors. (Doc. 51). The plaintiff’s second amended complaint was
filed on June 30, 2016. (See Doc. 53). On July 14, 2016, the defendant filed
an answer to the second amended complaint, including responses to the
plaintiff’s allegations in the second amended complaint and eight affirmative
defenses. (Doc. 57). Currently at issue is the defendant’s third affirmative
defense which states, “Any portion of Lakeview’s claims that are based on an
alleged breach of the [a]greement that occurred more than one year prior to
the filing of the Complaint are barred by Section 9.1 of the SXC Provider
Agreement.” (Doc. 57 at 59). Section 9.1 provides a one-year limitations
period for bringing claims. (See id.).
On July 26, 2016, the plaintiff filed the current motion seeking to strike
the defendant’s third affirmative defense pursuant to Federal Rule of Civil
Procedure 12(f). (Doc. 58). A brief in support of the motion was filed
separately on August 2, 2016. (Doc. 59). On August 9, 2016, the defendant
filed a brief in opposition to the plaintiff’s motion. (Doc. 60). The plaintiff filed
a reply brief on August 16, 2016. (Doc. 61). Thus, the plaintiff’s motion has
been fully briefed and is now ripe for resolution.
STANDARD OF REVIEW
Rule 12(f) provides that “[t]he court may strike from a pleading an
insufficient defense or any redundant, immaterial, impertinent, or scandalous
matter.” FED. R. CIV. P. 12(f). This may be done by the court sua sponte or
on a motion filed by a party. FED. R. CIV. P. 12(f)(1)–(2). “The purpose of a
motion to strike is to clean up the pleadings, streamline litigation, and avoid
unnecessary forays into immaterial matters.” McInerney v. Moyer Lumber &
Hardware, Inc., 244 F. Supp. 2d 393, 402 (E.D. Pa. 2002). These motions
“serve a useful purpose by eliminating insufficient defenses and saving the
time and expense which would otherwise be spent in litigating issues which
would not affect the outcome of the case.” United States v. Kramer, 757 F.
Supp. 397, 410 (D.N.J. 1991). However, they are “not favored and usually will
be denied unless the allegations have no possible relation to the controversy
and may cause prejudice to one of the parties.” McInerney, 244 F. Supp. 2d
at 402. Striking a pleading “is a drastic remedy to be resorted to only when
required for the purposes of justice” and should be used “sparingly.” DeLa
Cruz v. Piccari Press, 521 F. Supp. 2d 424, 428 (E.D. Pa. 2007) (quoting
North Penn Transfer, Inc. v. Victaulic Co. of Am., 589 F. Supp. 154, 158 (E.D.
The motion should be decided on the basis of the pleadings alone.
North Penn Transfer, 859 F. Supp. at 159. In assessing the pleadings, the
court may also consider documents whose contents are alleged in the
complaint so long as no party questions the authenticity of those documents.
See Pryor v. Nat’l Collegiate Athletic Ass’n, 288 F.3d 548, 560 (3d Cir. 2002)
(directly addressing the standard under Rule 12(b)(6) for motions to dismiss).
Where the motion to strike is premised on the insufficiency of a defense, this
insufficiency should be “clearly apparent.” North Penn Transfer, 859 F. Supp.
at 158 (quoting Cipillone v. Liggett Grp., Inc., 789 F.2d 181, 188 (3d Cir.
1986)). A defense is insufficient if it is not recognized as a defense to the
cause of action. Id. The defense may be deemed insufficient and stricken
“only if the defense asserted could not possibly prevent recovery under any
pleaded set or inferable set of facts.” Id. at 159 (quoting United States v.
Pennsalt Chems. Corp., 262 F. Supp. 101 (E.D. Pa. 1967)). The motion
should not be granted where the sufficiency “depends on disputed issues of
fact.” Id. In addition, the motion should not be used as a means to determine
“disputed and substantial questions of law.” Id.
The parties do not dispute that the limitations period in the SXC
Provider Agreement is a recognized defense under the laws of the state of
Illinois.2 See, e.g., Can. Life Assurance Co. v. Salwan, 817 N.E.2d 1021, 1027
(Ill. App. Ct. 2004). Instead, the plaintiff’s motion is premised on two
arguments: (1) that the one-year limitations period in the SXC Provider
Agreement is unconscionable under Illinois law and, thus, the defense is
When sitting in diversity the court applies the choice of law principles
of the forum state—here, Pennsylvania—to determine the controlling law.
Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496–97 (1941);
Maniscalco v. Brother Int’l (USA) Corp., 709 F.3d 202, 206 (3d Cir. 2013).
Pennsylvania courts, generally, honor the intent of contracting parties and will
enforce a choice of law provision in a contract unless:
(a) the chosen state has no substantial relationship to
the parties or the transaction and there is no other
reasonable basis for the parties’ choice, or (b)
application of the law of the chosen state would be
contrary to a fundamental policy of a state which has
a materially greater interest than the chosen state in
the determination of the particular issue.
Gay v. Creditform, 511 F.3d 369, 389 (3d Cir. 2007) (quoting RESTATEMENT
(SECOND) CONFLICT OF LAWS §187 (1971)).
The SXC Provider Agreement provides that the laws of the state of
Illinois and of the United States of America will govern the interpretation,
validity, and effect of the agreement. (Doc. 60-1 ¶12.2). The parties agree that
Illinois law governs this dispute. The defendant has its principle place of
business in Illinois. (Doc. 53 ¶6; Doc. 57 at 4). As such, there is a reasonable
basis for the parties choice of law provision and it will be honored by this
insufficient and (2) that the defense should be stricken because it is
inconsistent with the defendant’s answers to the allegations in the plaintiff’s
second amended complaint. With respect to the first argument, there are
significant issues of fact and questions of law that must be resolved before
the court can fully assess the plaintiff’s argument regarding unconscionability.
The plaintiff’s second argument is without merit and is inconsistent with the
entire basis for this action. Accordingly, the plaintiff’s motion will be denied.
In Illinois, the statute of limitations for a breach of contract action is ten
years. 735 ILL. COMP. STAT. ANN. 5/13-206. “[P]arties to a contract may agree
upon a shortened contractual limitations period to replace the statute of
limitations so long as it is reasonable.” Can. Life Assurance, 817 N.E.2d at
1027. In addition, under Illinois law, a contract provision will be deemed
unconscionable if it is either procedurally or substantively unconscionable.
Kinkel v. Cingular Wireless LLC, 857 N.E.2d 250, 263 (Ill. 2006). Thus,
“[u]nconscionability can be either procedural or substantive or a combination
of both.” Razor v. Hyundai Motor Am., 854 N.E.2d 607, 622 (Ill. 2006). The
court can make neither finding on the basis of the pleadings alone.
“Procedural unconscionability refers to a situation where a term is so
difficult to find, read, or understand that the plaintiff cannot fairly be said to
have been aware he was agreeing to it.” Kinkel, 857 N.E.2d at 264 (quoting
Razor, 854 N.E.2d at 622). “This analysis also takes into account the disparity
of bargaining power between the drafter of the contract and the party claiming
Procedural unconscionability consists of some
impropriety during the process of forming the contract
depriving a party of a meaningful choice. Factors to
be considered are all the circumstances surrounding
the transaction including the manner in which the
contract was entered into, whether each party had a
reasonable opportunity to understand the terms of the
contract, and whether important terms were hidden in
a maze of fine print; both the conspicuousness of the
clause and the negotiations relating to it are
important, albeit not conclusive factors in determining
the issue of unconscionability. To be a part of the
bargain, a provision limited the defendant’s liability
must, unless incorporated into the contract through
prior course of dealings or trade usage, have been
bargained for, brought to the purchaser’s attention or
be conspicuous. . . . [T]he mere fact that both parties
are businessmen [does not] justify the utilization of
unfair surprise to the detriment of one of the parties.
. . . Rather, freedom to contract is enhanced by a
requirement that both parties be aware of the burdens
they are assuming.
Id. at 264–65 (quoting Franks Maint. & Eng’g, Inc. v. C. A. Roberts Co., 408
N.E.2d 403, 410 (Ill. App. Ct. 1980)) (internal citation placement omitted).
Here, the plaintiff’s argument is premised on the fact that a PSAO,
TriNet, negotiated the SXC Provider Agreement on behalf of the plaintiff. The
plaintiff contends it had no opportunity to review the contract and agree to its
terms and that the disparity between the defendant and the plaintiff is evident.
In response, the defendant asserts that the plaintiff should be imputed with
knowledge since TriNet was serving as its agent in the underlying
negotiations. In further response to this, the plaintiff asserts that the
defendant requires PSAOs to keep the terms of the agreement confidential
from pharmacies and, thus, knowledge cannot be imputed to the plaintiff
under traditional principles of agency. Whether the defendant requires PSAOs
to keep the confidentiality of provider agreements from the pharmacies they
are negotiating on behalf of is, at this stage, a disputed issue of law and fact
that cannot be resolved on the pleadings alone.
“An agent must make known to his principal all material facts within the
agent’s knowledge which may in any way affect the transaction and subject
matter of his agency, and the agent’s knowledge relative to the transaction is
imputed to its principle.” Protective Ins. Co. v. Coleman, 494 N.E.2d 1241,
1250 (Ill. App. Ct. 1986) (internal citation omitted). Thus, when an agent
learns of a fact within the scope of the agency relationship, the principle has
constructive notice of these facts. Lombardo v. Reliance Elevator Co., 733
N.E.2d 874, 882 (Ill. App. Ct. 2000). “The rule charging a principle with the
knowledge of his agent is subject to the qualification that the agent is at liberty
to communicate his knowledge and that it is his duty to do so.” Neuberg v.
Clute, 126 N.E.2d 648, 651 (Ill. 1955). In addition, “[a]n exception to this rule
exists where the agent’s interests are adverse to the principle.” McRaith v.
BDO Seidman, LLP, 909 N.E.2d 310, 331 (Ill. App. Ct. 2009).
Here, the plaintiff has expressly stated that the PSAO that negotiated
its agreement with the defendant, i.e., TriNet, was acting as its agent in the
underlying negotiation. (Doc. 53 ¶88). The court could only find one allegation
that suggested that TriNet was under a duty not to disclose information to the
plaintiff, an allegation that the defendant expressly denied. In paragraph
twenty-eight of the second amended complaint, the plaintiff alleged as follows:
Catamaran exploits independent pharmacies’
required reliance on PSAOs in order to keep critical
aspects of the contracts hidden from Plaintiff and
other independent pharmacies. Catamaran does this
through confidentiality agreements with PSAOs.
(Id. ¶28). The defendant denied the entirety of this allegation. (Doc. 57 at 14).
There are no other facts to indicate the relationship between the plaintiff and
its PSAO. Thus, whether or not TriNet’s knowledge can be imputed to the
plaintiff remains an issue of law and fact that the court cannot resolve at this
Next, the court disagrees that the bargaining disparity between the
parties is evident on the pleadings alone and is enough to find the limitation
clause procedurally unconscionable. In this instance, the provider agreement
was negotiated by TriNet and the defendant. There is nothing in the pleadings
to suggest that the relative bargaining power between these two entities was
unequal—PSAOs generally negotiate contracts in bulk, likely giving them
more bargaining power than a sole pharmacy acting on its own behalf.
Moreover, Illinois law requires an analysis of the totality of the
circumstances in making unconscionability determinations. Kinkel, 857 N.E.2d
at 264–65. While disparity of bargaining power is relevant to the inquiry, it is
not dispositive. Id. The court would require more facts before it could
determine that the bargaining power between TriNet and the defendant was
so unequal that the limitations clause should be deemed procedurally
unconscionable as a matter of law. Accordingly, the plaintiff’s motion to strike
unconscionability will be denied.
The plaintiff also argues that the provision is substantively
unconscionable because it is unreasonable, particularly because it is so short
and because it was not directly negotiated with the plaintiff and disclosed to
the plaintiff. Substantive unconscionability “refers to terms that are
‘inordinately one-sided in one party’s favor.’” Kinkel, 857 N.E.2d at 267
(quoting Razor, 854 N.E.2d at 622). It “concerns the actual terms of the
contract and examines the relative fairness of the obligations assumed,
asking whether the terms are so one-sided as to oppress or unfairly surprise
an innocent party.” Phoenix Ins. Co. v. Rosen, 949 N.E.2d 639, 647 (Ill. 2011)
unconscionability, as discussed above, refers to “some impropriety during the
process of forming the contract depriving a party of meaningful choice.” Id.
(quoting Kinkel, 857 N.E.2d at 264).
As an initial matter, the fact that the limitations period was not disclosed
and negotiated through an agent refers to procedural unconscionability and
agency/imputation analysis that the court cannot properly address at this
stage. Moreover, this is not a proper basis for finding the limitations clause
The plaintiff then argues that the limitations period is unreasonable
because it is so short in comparison to the statute of limitations for contract
actions. The plaintiff also argues that the period is unreasonably short given
the defendant’s alleged delay in adjusting MAC prices and during MAC pricing
appeals and given the complexity of the claims. The plaintiff has not cited a
single case to suggest that a one year limitations period in a contract is per
se unreasonable. The court is also not persuaded that the alleged complexity
of the claims makes the provision substantively unconscionable, at least not
on the face of the pleadings alone. The court cannot properly address the
plaintiff’s remaining arguments at this stage.
As explained above, in Illinois, the statute of limitations for a breach of
contract action is ten years, but this may be shortened by the parties so long
as the shortened time period is reasonable. 735 ILL. COMP. STAT. ANN. 5/13206; Can. Life Assur., 817 N.E.2d at 1027. Provisions requiring suit within a
year have been upheld by Illinois courts. See, e.g., Medrano v. Prod. Eng’g
Co., 774 N.E.2d 371, 375–76 (Ill. App. Ct. 2002). “[T]here is nothing facially
unreasonable about a one-year limitations period.” WFC Commodoties Corp.
v. Alston, No. OOC0044, 2000 WL 33534178, at *1 (N.D. Ill. Mar. 8, 2000).
Thus, the fact that the statute of limitations is ten years while the parties
contract provides for only one year is not enough, in itself, to find that the
provision is per se unreasonable or “so one-sided as to oppress or unfairly
surprise an innocent party.” Phoenix Ins., 949 N.E.2d at 647.
The plaintiff also argues that the time period is unreasonable given the
defendant’s delay in adjusting its MAC prices and its delay in responding to
MAC pricing appeals. The defendant has denied the majority of these
allegations in its answer. (Doc. 57 ¶¶31–33, 45). Thus, whether this is true or
not remains disputed and cannot be the basis for striking the defendant’s
affirmative defense at this stage.
Lastly, while the plaintiff characterizes its legal claims as “complex,” the
court is not exactly sure how that is relevant to bringing a claim in a timely
manner in accordance with the parties’ agreement. While the court
encourages the exercise of due diligence before bringing a claim, the court
is unpersuaded that this alone should be reason enough to deem a one-year
limitations period substantively unconscionable. Accordingly, the plaintiff’s
motion to strike the defendant’s third affirmative defense based on
substantive unconscionability will be denied.
The Defendant’s Answer
Next, the plaintiff argues that the defendant’s third affirmative defense
is inconsistent with its answers to the allegations set forth in the second
amended complaint. The plaintiff reads the defendant’s answers as
suggesting that the plaintiff is not a party to the agreement and, thus, the
plaintiff cannot be bound by the one-year limitations period. The defendant
responds by correctly asserting that if the plaintiff is not bound then the
plaintiff’s claim, necessarily, fails because there is no contractual relationship
between the parties. From the court’s reading of the pleadings, the
defendant’s responses do not lead to the conclusion that the plaintiff
suggests. If it did, the plaintiff would not have a claim.
The defendant’s third affirmative defense clearly states, “Any portion of
Lakeview’s claims that are based on an alleged breach of the [a]greement
that occurred more than one year prior to the filing of the Complaint are
barred by Section 9.1 of the SXC Provider Agreement.” (Doc. 57 at 59).
Section 9.1 provides as follows:
The parties agree that any action arising out of or
relating to this Agreement must be commenced within
one (1) year of the date of the breach, or the date the
breach reasonably should have been discovered,
whichever is later/. [sic] Any action not brought within
the one (1) year time period will be barred without
regard to any other limitations period set forth by law.
(Id.; see also Doc. 60-1 at 6). It is hornbook contract law that a party will not
be bound to this particular provision unless the party is bound to the contract
The alleged inconsistency in the third affirmative defense is based on
the defendant’s answers to allegations stated in paragraphs twenty-nine and
eighty-nine of the plaintiff’s second amended complaint. Paragraph twentynine of the plaintiff’s second amended complaint states as follows:
Catamaran has precluded Plaintiff and other
independent pharmacies that use a PSAO from even
obtaining copies of the fully executed contracts that
govern all aspects of their drug reimbursement from
Catamaran; it was only through third-party discovery
in this case that Plaintiff was able to obtain copies of
at least some of these contracts.
(Doc. 53 ¶29). The defendant responded to this allegation as follows:
Catamaran admits that it maintains the confidentiality
of its contractual relationships with pharmacy services
administration organizations [PSAOs] and that it does
not provide copies of such contracts to non-parties to
those agreements, including per the terms of the
agreements. Catamaran lacks sufficient knowledge to
form a belief as to the remaining allegations set forth
in paragraph 29 and, therefore, denies same.
(Doc. 57 at 14).
Similarly, paragraph eighty-nine of the second amended complaint
alleges that “[t]he product of the ‘negotiations’ [between Catamaran and
PSAOs] are provider Agreements, which are made confidential and are kept
secret from Plaintiff and other independent pharmacies.” (Doc. 53 ¶89). In
response, the defendant, again, “admit[ted] that it maintains the confidentiality
of its contractual relationships with [PSAOs] . . . and that it does not provide
copies of such contracts to non-parties to those agreements, per the terms
of the agreements.” (Doc. 57 at 41).
The plaintiff reads the above answers as the defendant admitting the
plaintiff is not a party to the provider agreement at issue in this case. The
court does not. The plaintiff’s allegations refer to the “[p]laintiff and other
independent pharmacies” as one unit. (Doc. 53 ¶¶29, 89). Thus, the
allegations suggest that the defendant does not share provider agreements
with more than one pharmacy. The defendant responds to the plaintiff’s
allegations regarding multiple pharmacies, the plaintiff and other independent
pharmacies, by using the plural form in its response—i.e., the phrase
“contractual relationships” and the term “contracts.” The court reads the
defendant’s responses as referring to several provider agreements, not just
the SXC Provider Agreement with the plaintiff.
Reading the plaintiff’s allegations and the defendant’s responses as
referring to several contracts which may, or may not be, negotiated through
the same PSAO, the fact that the defendant admits it does not provide copies
of those contracts to non-parties does not lead to the conclusion that the
plaintiff is a non-party to the SXC Provider Agreement. The fact that the
defendant does not share all contracts with all PSAOs and their associated
pharmacy with all pharmacies en masse does not automatically lead to the
conclusion that the plaintiff is not a party to the provider agreement at issue
in this case, the SXC Provider Agreement. The plaintiff’s reading of the
response takes a leap in logic that this court is not prepared to take without
further facts. If the defendant does, in fact, view the plaintiff as a non-party to
the agreement at issue in this case, that fact is not clearly apparent from the
pleadings alone. Contrary to the plaintiff’s assertion, the court sees nothing
inconsistent between the defendant’s third affirmative defense and the
defendant’s answer to the second amended complaint. Accordingly, the
plaintiff’s request to strike the third affirmative defense based on the
defendant’s responses will be denied.
In light of the foregoing, the plaintiff’s motion to strike the defendant’s
third affirmative defense, (Doc. 58), will be DENIED. An appropriate order
s/ Malachy E. Mannion
MALACHY E. MANNION
United States District Judge
Dated: March 31, 2017
O:\Mannion\shared\MEMORANDA - DJ\CIVIL MEMORANDA\2015 MEMORANDA\15-0290-04.wpd
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