A & C Discount Pharmacy LLC v. Prime Therapeutics LLC
MEMORANDUM OPINION AND ORDER denying 22 Motion to Stay filed by A & C Discount Pharmacy LLC; denying without prejudice 6 Motion to Dismiss for Failure to State a Claim filed by Prime Therapeutics LLC; and granting plaintiff A & C Discount Pharmacy LLC leave to replead. (Ordered by Judge Sidney A Fitzwater on 10/17/2016) (Judge Sidney A Fitzwater)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
A & C DISCOUNT PHARMACY
L.L.C., D/B/A MEDCORE PHARMACY §
PARTNERS 10, LP,
§ Civil Action No. 3:16-CV-0429-D
PRIME THERAPEUTICS LLC,
After defendant Prime Therapeutics LLC (“Prime”) removed this case to this court
and filed a motion to dismiss this action under Fed. R. Civ. P. 12(b)(6), plaintiff A & C
Discount Pharmacy L.L.C. d/b/a Medcore Pharmacy Partners 10, LP (“Medcore”) filed the
instant motion to stay this lawsuit and compel arbitration. Concluding that Medcore waived
its right to arbitration, the court denies the motion to stay and compel arbitration. The court
also denies Prime’s Rule 12(b)(6) motion to dismiss and grants Medcore leave to file a
second amended complaint.
Medcore filed suit in state court on January 21, 2016, seeking an injunction and
declaratory judgment based on an alleged anticipatory breach of contract by Prime. On
February 16 Prime timely removed the case to this court.1
On March 29 Prime filed a Rule 12(b)(6) motion to dismiss for failure to state a claim.
Medcore, in turn, filed a motion to remand, which the court denied on June 9. Medcore did
not respond to Prime’s motion to dismiss. Instead, on June 23—the date Medcore’s response
to Prime’s motion to dismiss was due2—Medcore moved to compel arbitration based on its
agreement with Prime. Prime opposes the motion, contending that Medcore has waived its
right to arbitration.
“[T]here is a strong federal policy in favor of enforcing arbitration agreements.”
Texaco Exploration & Prod. Co. v. AmClyde Engineered Prods. Co., 243 F.3d 906, 909 (5th
Cir. 2001) (quoting Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. at 213, 217 (1985) (internal
quotation marks omitted)); see also Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 24-25 (1983) (“[A]ny doubts concerning the scope of arbitrable issues should be
resolved in favor of arbitration, whether the problem at hand is the construction of the
contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.”).
Like all contractual rights, a right to arbitration can be waived. Nicholas v. KBR, Inc., 565
F.3d 904, 907 (5th Cir. 2009). Because of the strong preference for arbitration, however,
Prime’s original and first amended notices of removal were both defective. It cured
the defect in its second amended notice of removal.
On April 18 the court granted Medcore’s unopposed motion and extended the due
date until seven days after the court decided Medcore’s motion to remand.
waiver is strongly disfavored, and the party advocating waiver must meet a heavy burden.
Id. Whether a party has waived arbitration is a fact-dependent inquiry. Id. at 910. The Fifth
Circuit will uphold a finding of waiver only when a party has “substantially invoke[d] the
judicial process to the detriment or prejudice of the other party.” Id. at 907 (quoting Miller
Brewing Co. v. Fort Worth Distrib. Co., 781 F.2d 494, 496-97 (5th Cir. 1986)).
A party substantially invokes the judicial process if it “evinces a desire to resolve the
arbitrable dispute through litigation rather than arbitration.” Gulf Guar. Life Ins. Co. v.
Conn. Gen. Life Ins. Co., 304 F.3d 476, 484 (5th Cir. 2002). Subject to certain exceptions,
the Fifth Circuit presumes such a desire when a plaintiff files suit without asserting an
arbitration clause. See Nicholas, 565 F.3d at 908. The Fifth Circuit also requires a showing
of “detriment or prejudice” even when the party seeking to compel arbitration elects to
proceed before the court. Compare id. with Cabinetree of Wis., Inc. v. Kraftmaid Cabinetry,
Inc., 50 F.3d 388, 390 (7th Cir. 1995). But “where a party fails to demand arbitration . . . ,
and, in the meantime engages in pretrial activity inconsistent with an intent to arbitrate, the
party later opposing a motion to compel arbitration may more easily show that its position
has been compromised, i.e., prejudiced.” Nicholas, 565 F.3d at 910 (quoting Republic Ins.
Co. v. PAICO Receivables LLC, 383 F.3d 341, 347 (5th Cir. 2004)) (internal quotation marks
Although prejudice analysis varies according to the facts of each case, three factors
may be particularly relevant:
First, while discovery relating to non-arbitrable claims is not
prejudicial, where the pretrial activity was related to all of the
parties’ claims, including those that were conceded to be
arbitrable, arbitration would result in prejudice. Second, the
time and expense incurred in defending against a motion for
summary judgment could prejudice the party opposing
arbitration. Third, a party’s failure to timely assert its right to
arbitrate a dispute is also relevant to the prejudice determination.
Republic Ins., 383 F.3d at 346 (citations omitted).
Nicholas makes clear that Medcore substantially invoked the judicial process when
it filed its complaint.3 Thus the question the court must decide is whether Medcore’s delay
in moving for arbitration prejudiced Prime.
Prime contends that Medcore waived its right to arbitration by initiating this lawsuit
and waiting more than five months to invoke the arbitration clause. Prime maintains that it
was prejudiced by the delay and the expense of defending itself in state and federal court.
After the lawsuit was filed, Prime (1) removed the case to federal court, (2) filed a motion
to dismiss for failure to state a claim, (3) opposed Medcore’s motion to remand, (4)
participated in Rule 26 discussions, and (5) submitted a joint scheduling proposal. Medcore
responds that Prime cannot meet its burden to show damage or prejudice because no
There may be exceptions to the presumption of Nicholas, such as when a plaintiff
files suit to obtain an injunction before seeking arbitration. See Nicholas, 565 F.3d at 90809. This is because such an action would evince a desire to obtain a remedy not available
in arbitration rather than to seek a ruling on the merits. Medcore, however, has not raised
this or any other possible exception.
significant litigation of claims has occurred.
The court now turns to the Republic Insurance factors. The first factor cuts against
Prime because discovery has not begun. No factor alone is dispositive, however, and courts
have found that a defendant was prejudiced for reasons other than discovery. See Leal v.
Luxottica Retail N.A., Inc., 2011 WL 873348, at *1 (N.D. Tex. Mar. 10, 2011) (Boyle, J.)
(finding prejudice based on expense of “time and resources defending this action in state and
federal court”); see also Ferrari v. D.R. Horton, Inc., 2015 WL 10913396, at *2 (N.D. Ala.
Feb. 20, 2015) (finding prejudice based on “litigation expenses involved in filing an answer
and compulsory counter-claims . . . , meeting with [plaintiff] and filing a report . . . pursuant
to Fed. R. Civ. P. 26(f), and filing and fully briefing a motion to dismiss.”), aff’d, 613 Fed.
Appx. 917 (11th Cir. 2015).
Prime has also incurred unnecessary expenses, including those involved in removing
this case to this court and opposing Medcore’s motion to remand. Prime has also incurred
expenses associated with its motion to dismiss, the joint scheduling proposal, and Rule 26
discussions. It is unclear, however, whether some of these activities (or their analogs) will
also be required as part of the arbitration process, so the court will not consider them for
purposes of deciding whether Prime will be prejudiced. See Joseph Chris Pers. Servs., Inc.,
v. Rossi, 249 Fed. Appx. 988, 992 (5th Cir. 2007) (per curiam) (holding that party was not
prejudice partly because “there was no showing that similar discovery could not have been
had in arbitration.”). The court will consider only the costs associated with removal and the
motion to remand.
As for whether a party has been prejudiced based on when an arbitration agreement
was invoked, it is clear that a minimal delay before any significant litigation occurs does not
prejudice a party. See Citibank, N.A. v. Stok & Assocs., P.A., 387 Fed. Appx. 921, 924-25
(11th Cir. 2010) (per curiam) (holding there was no prejudice after two months from initial
filing where there were no dispositive motions and minimal discovery). As the case
progresses, both in terms of time and of volume of filings, prejudice becomes more likely.
See Ferrari, 2015 WL 10913396, at *2 (finding prejudice after almost four months from
initial filing with a fully briefed motion to dismiss); Leal, 2011 WL 873348, at *1 (finding
prejudice after three months from initial filing with a filed motion to dismiss); Nicholas, 565
F.3d at 906, 911 (holding the district court did not clearly err in finding no prejudice after ten
months from initial filing during which “Nicholas forced KBR to conduct the bulk of activity
necessary to defend against her claims.”). Medcore’s five-month delay, when combined with
the filing of two substantive motions (to remand and dismiss), supports a finding of prejudice
under the holdings of these cases.
But whether a party is prejudiced is also informed by the circumstances surrounding
the filing of the motion to compel arbitration. See Leal, 2011 WL 873348, at *1. In Leal
Judge Boyle determined that “[w]hile [the defendant] expended time and resources defending
this action in state and federal court, [the plaintiff] simply waited to determine whether his
action would be best brought in arbitration.” Id. In a similar case, the Eighth Circuit upheld
a finding of prejudice when a plaintiff moved to compel arbitration only after the district
court denied its motion to transfer venue. See Messina v. N. Cent. Distrib., Inc., 821 F.3d
1047, 1051 (8th Cir. 2016).
The plaintiff’s timing of filing the motion to compel
“demonstrate[d] that it wanted to play heads I win, tails you lose, which is the worst possible
reason for failing to move for arbitration sooner than it did.” Id. (citations and internal
quotation marks omitted).
Medcore’s actions support a finding that Prime has been prejudiced by the timing of
Medcore’s motion. Medcore did not mention the arbitration clause in any filings before
filing its motion to compel, including in its first amended complaint filed in this court.
Medcore did not file the motion to compel until after Prime filed its Rule 12(b)(6) motion to
dismiss (to which Medcore has failed to respond), the court denied Medcore’s motion to
remand, and Prime incurred expenses related to both motions.
Considering all of the pertinent facts and the relevant factors, the court concludes that
Medcore waived its arbitration rights. The court therefore denies Medcore’s motion to stay
this lawsuit and compel arbitration.
As noted above, Prime has filed a motion to dismiss for failure to state a claim on
which relief can be granted, and Medcore has not responded to the motion.
The court denies Prime’s motion without prejudice. It is likely that the court would
allow Medcore to replead even if it had granted Prime’s motion. See, e.g., In re Am. Airlines,
Inc., Privacy Litig., 370 F.Supp.2d 552, 567-68 (N.D. Tex. 2005) (Fitzwater, J.) (“[D]istrict
courts often afford plaintiffs at least one opportunity to cure pleading deficiencies before
dismissing a case, unless it is clear that the defects are incurable or the plaintiffs advise the
court that they are unwilling or unable to amend in a manner that will avoid dismissal.”
(citation omitted)). Accordingly, for purposes of efficiency, the court will grant Medcore
leave to amend, after which Prime may move anew to dismiss if it is has grounds to do so
after Medcore amends its complaint.
For the reasons explained, the court denies Medcore’s motion to stay this lawsuit and
compel arbitration. The court also denies without prejudice Prime’s motion to dismiss, and
it grants Medcore 28 days from the date this memorandum opinion and order is filed to file
a second amended complaint.
October 17, 2016.
SIDNEY A. FITZWATER
UNITED STATES DISTRICT JUDGE
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?