Grasso Enterprises, LLC, d/b/a Annie's Apothecary v. CVS Health Corporation, f/k/a CVS/Caremark et al

Filing 46

ORDER DISMISSING AS MOOT 26 Motion for Preliminary Injunction; GRANTING IN PART AND DENYING IN PART, all claims are hereby ORDERED TO ARBITRATION, CVS/caremark are Ordered to file quaterly status reports on the progress of the arbitration begingin g Feb. 1, 2016 44 Motion to Dismiss for Lack of Jurisdiction; The Clerk's Office is directed to ADMINISTRATIVELY CLOSE this case pending further Order of the Court. Signed by Judge Xavier Rodriguez. (wg) (Main Document 46 replaced on 10/28/2015) Corr./date (wg)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
GRASSO ENTERPRISES, LLC d/b/a
ANNIE'S APOTHECARY,

§
§
§

Plaintiff

§
§

V.

CIVIL NO. SA-15-CV-427-XR

§
§

CVS HEALTH CORPORATION f/k/a CVS
CAREMARK, CAREMARK, LLC, and
CAREMARKPCS HEALTH, LLC,

§
§
§

Defendants.

ORDER
On this date, the Court considered Defendants CVS Health Corporation, Caremark, LLC,
and CaremarkPCS Health, LLC's Motion to Dismiss and Compel Arbitration (docket no. 44) and

each party's subsequent responses (docket nos. 23, 24, 42, and 43). The Court also considered

Plaintiff Grasso Enterprises, LLC's Motion for Preliminary Injunction (docket no. 26) and the
subsequent responses (docket nos. 33, 42, and 43). After careful consideration, the Court will

GRANT IN PART and DENY IN PART Defendant's Motion to Dismiss and Compel
Arbitration and DISMISS AS MOOT Plaintiffs Motion for Preliminary Injunction.

FACTUAL BACKGROUND
I.

The relationship between the parties
Plaintiff Grasso Enterprises ("Grasso") owns two compounding pharmaciesone in

Boerne, Texas and one in Kerrville, Texas. Docket no.

1

at 2.

Both pharmacies are "in-

network" pharmacies with Defendants CVS Health Corporation, Caremark, LLC, and
CaremarkPCS Health, LLC ("CVS/Caremark"). Id. at 3.

1

The relationship between the two parties is governed by two agreements.

Tn

2008,

Grasso entered into a Provider Agreement with CVS/Caremark with respect to the pharmacy

located in Boerne.

Docket no. 44-2.

Then, in 2014 Grasso entered into another Provider

Agreement with respect to the pharmacy located in Kerrville. Docket no. 44-3. Both agreements
are signed by Dr. Leigh Ann Grasso, an agent of Grasso, and an agent of CVS/Caremark.

Docket nos. 44-2, 44-3.

Both agreements incorporated by reference the terms of another

documentthe Provider Manual.

Id.

The Provider Manual contains a provision that allows CVS/Caremark to amend the

manual by giving the pharmacies notice of the terms of the amendment and specifying the date
the amendment becomes effective. Docket no. 23 at 2. The provision also states that submitting
claims to CVS/Caremark after the effective date of the amendment constitutes acceptance of the
changes on the part of the pharmacy. Id. The Provider Manual has been revised in this manner a
handful of times since 2008. Smith Dec. ¶ 11. Each time this occurs, a copy of the new Provider
Manual is sent to all pharmacies. Id.
Each version of the Provider Manual provided to the Court contained an arbitration
clause.

See

Pre. Inj. Hearing Plaintiff's Ex. A at 44; docket no. 44-4 at 37; docket no. 44-5 at 43;

docket no. 44-6 at 50; docket no. 44-7 at 45. The most recent version of the Provider Manual

governs this dispute. Grasso acknowledges that it received this version of the Manual when the
Kerrville location joined the CVS/Caremark network in 2014. Pre. Inj. Hearing Trans. at 111.
This version of the Provider Manual's arbitration provision states in relevant part:

Any and all disputes between Provider and Caremark (including
Caremark' s 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

2

networks or exclusion from any Caremark networks, will be
exclusively settled by arbitration. Unless otherwise agreed to in
writing by the parties, the arbitration shall be administered by the
American Arbitration Association ("AAA") pursuant to the then
applicable AAA Commercial Arbitration Rules and Mediation
Procedures (available from the AAA).

Arbitration with respect to a dispute is binding and neither
Provider nor Caremark will have the right to litigate that
dispute through a court. In arbitration, Provider and
Caremark will not have the rights that are provided in court,
including the right to a trial by judge or jury. In addition, the
right to discovery and the right to appeal are limited or
eliminated by arbitration. All of these rights are waived and
disputes must be resolved through arbitration.

The above notwithstanding, nothing in this provision shall prevent
either party from seeking preliminary injunction relief to halt or
prevent a breach of this Provider Agreement in any state or federal
court of law.

The terms of this arbitration section apply notwithstanding any
other or contrary provision of the Provider Agreement, including,
but not limited to, any contrary language in any Third Party
Beneficiary provision. This Arbitration section survives the
termination of this Provider Agreement and the completion of the
business relationship between Provider and Caremark. This
arbitration is made pursuant to a transaction involving interstate
commerce, and shall be governed by the Federal Arbitration Act, 9
U.S.C. § 1-16.
Docket no. 44-7 at 45-46 (emphasis in original).

II.

The dispute that led to this suit
Grasso filed suit in this Court on May 22, 2015. Docket no.

damages and a variety of declaratory and injunctive relief.

See

1.

Grasso seeks monetary

docket no. 25. Grasso claims that

CYS/Caremark's procedures for processing claims violate the Employee Retirement Income

3

Security Act (ERISA), the Patient Protection and Affordable Care Act (PPACA), and a U.S.
Department of Labor regulation, 29 C.F.R.

§

2560-503-1 ("Claims Regulation") that applies to

both ERISA and PPACA. Docket no. 25 at 3. The Claims Regulation gives CVS/Caremark 30
days to pay, deny, or make inquiries on a group health benefits plan. 29 C.F.R.

§

2560.503-1.

Grasso contends in its amended complaint (docket no. 25) that it is the practice of

CVS/Caremark to not review claims, but to instead use a computerized automated system to
process all claims, which creates an appearance of compliance with the Claims Regulation's 30day time frame. Docket no. 25 at 4. But Grasso alleges that CVS/Caremark's practice is to

choose to review claims that the automated system has previously approved

after

the 30-day

period is over. Id. They supposedly do this by contacting pharmacies about previously approved
claims and demanding reimbursements for amounts they previously paid to the pharmacy. Id.
Grasso also contends that CVS/Caremark forcibly take back the money by withholding current
and future claim payments that they owe the pharmacy under other, unrelated health plans. Id. at
9.

Essentially, Grasso complains that CVS/Caremark unlawfully reserve unto themselves the

ability to "untimely review and reverse claim decisions long after the statutorily mandated 30day time window has closed" and then withholds other, unrelated money they owe Grasso to

enforce this. Id. at 4, 9. Grasso also alleges in its amended complaint that CVS/Caremark have

unilaterally purported to amend the in-network provider contract they entered into with Grasso
and other pharmacies in a manner that affects the pharmacies' right to reimbursement. Id. at 6.
However, in their motion to dismiss and compel arbitration, CVS/Caremark tell a

different story. Docket no. 44 at 5-9. They allege that they undertook a lawful audit of Grasso's
two

pharmaciesone that they were entitled to conduct based on the parties contracts with one

another. Id. When that audit revealed that Grasso had overbilled CVS/Caremark by over $1

million, Grasso allegedly refused to pay and filed this lawsuit instead. Id. at 8.

III.

Procedural background
CVS/Caremark filed their Motion to Dismiss and Compel Arbitration on July 20, 2015

Docket no. 16. Grasso filed its response on August 31, 2015. Docket no. 23. CVS/Caremark
filed their reply on September 8, 2015. Docket no. 24. Then, as the Court was considering the

Motion to Dismiss and Compel Arbitration, Grasso filed an amended complaint that alleged

CVS/Caremark had unlawfully retaliated against Grasso as a result of this lawsuit (docket no.
25) and filed a Motion for Preliminary Injunction (docket no. 26).

Grasso contends that

CVS/Caremark unlawfully retaliated against Grasso by attempting to eject Grasso's pharmacies
from the CVS/Caremark provider network. Docket no. 26 at 4. This is scheduled to occur on

October 29. Id. Grasso asks the Court to halt this action by issuing a preliminary injunction. Id.
at 21. This Court held a hearing on both the Motion to Dismiss and Compel Arbitration and the

Motion for Preliminary Injunction on October 5, 2015. Docket no. 29.

MOTION TO DISMISS AND COMPEL ARBITRATION ANALYSIS
CVS/Caremark move to compel arbitration pursuant to the Federal Arbitration Act.
Docket no, 44 at 7.

Grasso argues that the agreement to arbitrate is invalid and that the

arbitration clause is unconscionable. Docket no. 23 at 6, 9.
I.

Choice of Law
As a preliminary matter, the Court must decide what law will apply to the dispute

between Grasso and CVS!Caremark over arbitrability. See Crawford Prof'l Drugs, Inc.

Caremark Corp., 748 F.3d 249, 257 (5th Cir. 2014).

v.

CVS

The Federal Arbitration Act ("FAA")

applies in this case because the agreements containing arbitration clauses are each "contracts]

5

evidencing a transaction involving commerce." 9 U.S.C.

§

2; Glazer's, Inc.

v.

Mark Anthony

Brands Inc., No, SA-1l-CV-977-XR, 2012 WL 2376899, at *5 (W.D. Tex. June 22, 2012)
(Rodriguez, J.).

However, nothing in the FAA changes the background principles of state

contract law regarding the scope of agreements and who is bound by them. Arthur Andersen
LLP v. Carlisle, 556 U.S. 624, 624 (2009). Thus, state law is applicable in determining whether

arbitration must be compelled.

Crawford, 748 F.3d at 255, 257 (explaining that the Fifth

Circuit's "prior decisions applying federal common law, rather than state contract law, to decide
such questions.

.

.

have been modified to conform with Arthur Andersen.")

A federal court sitting in diversity follows the choice of law rules of the state in which the
court sits. Crawford, 748 F.3d at 258. This Court, then, follows the choice of law rules of the
State of Texas. "Under Texas choice of law principles, contractual choice of law provisions are

generally upheld." Stinger

v.

Chase Bank, USA, NA, 265 F. App'x 224, 228 (5th Cir. 2008). To

determine the validity of contractual choice of law clauses, Texas courts use the standard set
forth in the Second Restatement of Conflict of Laws ("Restatement"). In re J. D. Edwards World
Solutions Co., 87 S.W.3d 546, 549 (Tex. 2002). In relevant part, the Restatement provides:

The law of the state chosen by the parties to govern their
contractual rights and duties will be applied, even if the particular
issue is one which the parties could not have resolved by an
explicit provision in their agreement directed to that issue, unless
either:
(a) the chosen state has no substantial relationship to the parties or
the transaction and there is rio 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 and which, under the rule of § 188, would be the state of the
applicable law in the absence of an effective choice of law by the
parties.
RESTATEMENT (SECOND) OF CONFLICT OF LAWS

§

187(2) (1971).

The first exception (

187(2)(a)) is a weak and relaxed one. Crawjbrd, 748 F.3d at 258.

While a choice of law clause made "in the spirit of adventure or to provide mental exercise for

the judge" will be rejected, the choice of law will be upheld if "the state of the chosen law has
some substantial relationship to the parties or the contract." RESTATEMENT (SECOND) OF

CONFLICT OF LAWS

§

The substantial relationship may be created in

187 cmt. f. (1971).

many ways, including when "one of the parties is domiciled or has his principal place of

business" in the chosen state. Id. The scope of the second exception ( 187(2)(b)) is, according
to the Restatement itself, difficult to define. Id. at cmt. g. Any fundamental policy that would be

violated by applying the law of the chosen state must be substantial. Id. A state will apply its
own legal principles in determining whether the violated policy is fundamental or substantial. Id.
A fundamental policy is not violated simply because the outcome of the lawsuit in the two states

would be different. Id. When the outcome of the lawsuit would be the same under the laws of
either state, however, a fundamental policy is not violated. Crawjbrd, 748 F.3d at 259.
Federal courts applying the Restatement standards have used choice of law clauses to
determine the law under which to evaluate a motion to compel arbitration. Crawford, 748 F.3d
at 259. In Crawford, CVS/Caremark sought to compel arbitration of the claims against them in a

lawsuit brought by a group of Mississippi pharmacies.
examined the Provider Agreements and Provider

arbitration clause at issue in this

casesigned

Id.

In that case, the Fifth Circuit

Manualthe very

same documents and

by CVS/Caremark and the Crawford plaintiffs.

See Id. CVS/Caremark argued that Arizona law should apply because the documents contained a

choice of law clause requiring the use of Arizona law. Id. at 257. The plaintiffs contended,

without addressing the choice of law clauses or otherwise explaining why, that Mississippi law
should apply. Id. at 257-5 8. The Fifth Circuit Court of Appeals held that there was a substantial

7

relationship between the parties or contract and the forum because CVS/Caremark's business
operations were located in Arizona. Id. at 258. It also held that no fundamental policy of
Mississippi was violated by using Arizona law because the lawsuit's outcome would be the same

under either state's law. Id. at 259.
Here, the very same documents that were at issue in the Crawford case are before this
Court.

Both Provider Agreements clearly state that "the Agreement[s] will be construed,

governed, and enforced in accordance with the laws of the State of Arizona." Docket no. 44-2;
docket no. 44-3. Additionally, both parties agree that Arizona law applies. Docket no. 23 at

5

("Plaintiff's PAs with Defendants have a reasonable relationship to Arizona. See Crawford, 748
F.3d at 258 (ruling under Mississippi choice-of-law rules that Arizona had a substantial

relationship to Defendants' PAs with pharmacies in Mississippi and therefore upholding those

PAs' choice of Arizona law). Accordingly, Arizona law applies to the threshold issue whether
Caremark, L.L.C. and CaremarkPCS, L.L.C. have an arbitration agreement with Plaintiff.");
docket no. 44 at 16 ("Here, the parties agreed that the Provider Agreement will be governed by
the law of Arizonaa choice of law that the Fifth Circuit upheld in Crawford,"). For these

reasons, the Court will apply Arizona law in analyzing the arbitration clause.

II.

Arbitration analysis
Both Arizona and federal policy strongly favor arbitration. Grigson

Agency LLC, 210 F.3d 524, 526 (5th Cir. 2000); Rancho Pescado, Inc.

v.

v.

Creative Artists

Nw. Mut. Life Ins. Co.,

140 Ariz. 174, 181 (Ct. App. 1984). In considering a motion to compel arbitration under the

FAA, courts engage in a two-step analysis. Sherer

v.

Green Tree Servicing LLC, 548 F.3d 379,

381 (5th Cir. 2008). The first step is to determine whether the parties have agreed to arbitrate the

dispute. Id. If the parties are found to have agreed to arbitrate the dispute, the court continues to

step two of the analysis. Id. The second step is to determine whether any federal statute or

policy renders the claims nonarbitrable.

Id.

In the absence of a contrary federal statute,

arbitration should be compelled in accordance with the FAA. 9 U.S.C.

§

3.

A. Have the parties agreed to arbitrate the dispute?

First, a court must determine if the parties have agreed to arbitrate the dispute. Sherer,
548 F.3d at 381. This involves two factors: 1) is there a valid agreement between the parties to

arbitrate and 2) does the dispute in question fall within the scope of that arbitration agreement?
Id.
1.

Is there a valid agreement between CVS/Caremark and Grasso to arbitrate?

This court finds that there is a valid agreement between CVS/Caremark and Grasso to

arbitrate disputes. Grasso maintains that there is no valid agreement to arbitrate because the

arbitration agreement is both illusory and unconscionable. Docket no. 23 at 6, 9. This

Court

relying on the Fifth Circuit's decision in Crawford, which found the exact agreement at issue to
be enforceable and not unconscionabledisagrees. See Crawford, 748 F.3d at 263.

To begin, deciding this first

between the

stepwhether or not there

partiesis a question for the

is a valid agreement to arbitrate

Court to decide. Will-Drill Res., Inc.

v.

Samson Res.

Co., 253 F.3d 211, 212 (5th Cir. 2003) ("[W]here the very existence of any agreement to

arbitrate is at issue, it is for the courts to decide based on state-law contract formation

principles."). While Arizona law governs, "[un applying state law, however, due regard must be
given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration
clause itself must be resolved in favor of arbitration." Webb
Cir. 1996) (internal citations omitted).

v.

Investacorp, 89 F.3d 252, 258 (5th

It is uncontested that the Provider Manual contains an arbitration clause and that both

Grasso and CVS/Caremark are signatories to the two Provider Agreements that incorporate the

terms of the Provider Manual by reference.

See

docket nos. 42 and 43 (both referring to the

documents and neither advancing any sort of argument that Grasso never signed);
docket nos. 44-2, 44-3.

see also

The FAA mandates that a court "shall" enter an order directing

arbitration where the parties have entered into an arbitration agreement. 9 U.S.C.

§

4. However,

given that Grasso alleges the arbitration agreement is illusory and unconscionable, the Court's
inquiry must not stop there.
Grasso first argues that the arbitration clause is unenforceable because it is illusory.
Docket no. 42 at 11.

It correctly points out that "[u]nder Arizona law, the validity of an

arbitration clause is considered separately from the underlying contract."
Insulation, Inc.

v.

Id. (citing US.

Hilro Constr. Co., 705 P.2d 490, 493-94 (Ariz. App. 1985)). It contends that

the arbitration clause is not supported by

considerationor

is an illusory

promisebecause

there is no mutuality of obligation. Id. at 8-9. Grasso's theory is that since CVS/Caremark can

"unilaterally" amend the Provider Manual, they can revoke the promise to arbitrate, which means
there is no mutuality of obligation. The Court disagrees.

CVS/Caremark do not have the ability to unilaterally amend the Provider Manual and
bind pharmacies to those amendments. The Provider Manual requires that CVS/Caremark give

notice of the terms of any amendment and the effective date. Docket no. 23 at 2. Then, if a
pharmacy does not agree to the new terms, it may simply reject the amendment by ceasing to
submit claims to CVS/Caremark. Id. There is mutuality of obligation here. Under the current

terms of the arbitration clause, both CVS/Caremark and their network pharmacies may compel
arbitration. Docket no. 44-7 at 45 ("Arbitration with respect to a dispute is binding and neither

10

Provider nor Caremark will have the right to litigate that dispute through a court.") (emphasis
added). Even if CVS/Caremark were to amend the agreement and delete the arbitration clause, if
a pharmacy was unhappy with the change, it could stop submitting claims. Presumably still, for

any dispute arising out of previous claims, both the pharmacy and CVS/Caremark could still

compel arbitration. And if the pharmacy did accept the amendment, neither the pharmacy or

CVS/Caremark could compel arbitration.
obligation.

The arbitration clause does create mutuality of

This is a fundamentally distinct scenario from the authority Grasso cites in its

briefing; for example, in Joudi, the arbitration clause gave one side specific rights that the other
did not have. Joudi v. Doerkin Properties, Inc., 46 F.3d 66 (5th Cir. 1995) ("Only PPI has these

"optional rights" in

§

16.").

Of course, it could be argued that the amendment process creates a contract-of-adhesion
scenario, in which pharmacies are forced to accept an amendment or be kicked out of the

network. The Fifth Circuit already examined this very argument in Crawford. Crawford, 748
F.3d at 264-66. The Fifth Circuit contemplated both the amendments and the "take it or leave

it" nature of the Provider Agreement and Provider Manual, and found that neither argument

rendered the arbitration clause invalid or unenforceable. Id. This Court must follow the Fifth

Circuit's analysis and thus concludes that the arbitration clause is not illusory.
Additionally, it seems that the crux of Grasso' s argument

herethat

the amendment

process is unilateralattacks the validity of the Provider Agreement and Provider Manual as a
whole, not just the arbitration clause. Allegations of the invalidity of a contract as a whole "must
be submitted to the arbitrator to decide" because "the issue of the contract's validity is

considered by the arbitrator in the first instance." Buckeye Check Cashing, Inc.

v.

Cardegna, 546

U.s. 440, 446 (2006). Grasso's allegations apply to the validity of the Provider Manual and

11

Provider Agreements in their entireties. It does not allege, for instance, that the arbitration clause
alone could be unilaterally amended but that the agreements at large could not. For this reason,
the standard set forth by the Supreme Court applies and Grasso's concerns regarding the validity

of the Provider Manual's amendment process must be submitted to arbitration if they are to be
decided.
Second,

Grasso argues that the arbitration provision is invalid because it is

unconscionable. Docket no. 23 at 14. In its original response to the Motion to Dismiss and
Compel Arbitration, it argued that it was unconscionable because it was a contract of adhesion
and cited Arizona case law to support its contention.

Id. at 14-15.

However, as explained

above, the Fifth Circuit examined this very argument with respect to these very same documents

applying the very same state's law (Arizona), and found that the arbitration clause was not
unconscionable. Crawford, 748 F.3d at 264-66. This Court thus reaches the same conclusion
here.

Grasso also argues that the arbitration clause is unconscionable "on the ground that its

confidentiality requirement gives CVS an unfair advantage because only CVS knows the history

of its prior disputes with pharmacies, while pharmacies and their attorneys cannot share their
information about their disputes with CVS." Docket no. 42 at 14. Grasso maintains that since
CVS is a repeat player in arbitration, it acquires institutional knowledge that the arbitration

clause's confidentiality requirement prevents other parties from obtaining, and that such
unfairness is unconscionable.

Docket no. 23 at 15.

argument. See id. (citing Longnecker

v.

Grasso cites two cases to support this

Am. Express Co., 23 F. Supp. 3d 1099, 1110 (D. Ariz.

2014); DeGraffv. Perkins Coie LLP, No. C 12-02256 JSW, 2012 WL 3074982, *4 (N.D. Cal.
2012)).

12

This Court finds these two cases unpersuasive. First, Longnecker does not stand for the

proposition that all confidentiality clauses in arbitration agreements are unconscionable. Rather,
in Longnecker, the court found that a particular confidentiality provision was substantively

unconscionable, Longnecker

v.

Am. Exp. Co., 23 F. Supp. 3d 1099, 1110 (D. Ariz. 2014). The

court based its holding on California law, and specifically focused on the fact that the dispute
was one between an employer and an employee. Id. (citing DeGraff 2012 WL 3074982 at *4).

Second, other Arizona cases have routinely found that confidentiality provisions contained in

arbitration clauses are not unconscionable. See, e.g., Monsanto

v.

DWW Partners, LLLP, CV-

09-01788-PHX-FJM, 2010 WL 234952, at *3 (D. Ariz. Jan. 15, 2010).

Furthermore, as

CVS/Caremark point out in their reply, the Fifth Circuit has reached the same conclusion. Iberia

Credit Bureau, Inc.

v.

Cingular Wireless, LLC, 379 F.3d 159, 175-76 (5th Cir. 2004)

(maintaining that the "plaintiffs' attack on the confidentiality provision is, in part, an attack on
the character of arbitration itself.")
Here, Grasso is a sophisticated plaintiff, far removed from that of an individual employee

suing his or her employer. This fact, combined with the Arizona and Fifth Circuit cases that find
no fault with confidentiality provisions, leads this Court to conclude that the confidentiality

provision does not render the arbitration clause unconscionable.
For all of the above reasons, the Court finds that there is a valid agreement to arbitrate

claims between Grasso and CVS/Caremark.
2.

Does this dispute fall within the scope ofthose arbitration agreements?

Even if the Court finds that the parties have a valid agreement to arbitrate, in order to

successfully move for arbitration, the dispute must fall within the scope of that agreement.

Sherer, 548 F.3d at 381. But because the parties have agreed to arbitrate arbitrability, the Court

13

cannot determine which of Grasso's claims fall within the scope of the Provider Manual's

arbitration clause. Instead, this determination must be made by the arbitrator.
Ordinarily, the determination of whether a specific claim is subject to arbitration is a

question for a court. Crawford, 748 F.3d at 262. "However, if the parties have clearly and
unmistakably agreed to arbitrate arbitrability, certain threshold

questionssuch

as whether a

particular claim is subject to arbitrationare for the arbitrator, and not a court, to decide."

Crawford 748 F.3d at 262 (citation omitted). "'Just as the arbitrability of the merits of a dispute
depends on whether the parties agreed to arbitrate that dispute, so the question "who has the

primary power to decide arbitrability" turns upon what the parties agreed about that matter."

Petrofac, Inc.

v.

DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012)

(citing First Options

of Chi.,

Inc.

v.

Kaplan, 514 U.S. 938, 943 (1995)) (emphasis in original).

The Fifth Circuit mandates that an arbitrator, not the court, must decide arbitrability if two
factors are met: (1) the parties "clearly and unmistakably" intended to delegate this power to the
arbitrator, and (2) the assertion of arbitrability is not wholly groundless. Douglas

v.

Regions

Bank, 757 F.3d 460, 462 (5th Cir. 2014).
a.

"Clearly and Unmistakably"

First, an arbitrator, and not a court, only has the power to decide the scope of an

arbitration agreement if the parties "clearly and unmistakably" intended to delegate this power to
the arbitrator.

Id.

An arbitration clause "need not recite verbatim that the parties agree to

arbitrate arbitrability in order to manifest clear and unmistakable agreement." Hous. Ref, L.P.

v.

United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int'l
Union, 765 F.3d 396, 410 n. 28 (5th Cir. 2014). Instead, express incorporation of the rules of the

14

arbitration service constitutes "clear and unmistakable evidence" that the parties have agreed to
arbitrate arbitrability. Crawford, 748 F.3d at 262-63 (citing Petrofac, 687 F.3d at 675).
The arbitration clause in the Provider Manual incorporates the rules of the American

Arbitration Association. Docket no. 44-7 at 45 ("Unless otherwise agreed to in writing by the
parties, the arbitration shall be administered by the American Arbitration Association ("AAA")

pursuant to the then applicable AAA Commercial Arbitration Rules and Mediation Procedures
(available from the AAA)."). As the Fifth Circuit explained in Crawford, incorporation of those
rules into the Provider Manual "constitutes clear and unmistakable evidence that the parties
agreed to arbitrate arbitrability." Crawford, 748 F.3d at 262. As such, the first factor is

met

Grasso and CVS/Caremark have clearly and unmistakably agreed to arbitrate arbitrability.
b.

"Wholly Groundless"

Even though there is clear and unmistakable evidence that the parties have agreed to
arbitrate arbitrability, an arbitrator should decide the issue only if the assertion of arbitrability is
not wholly groundless.

Douglas, 757 F.3d at 463-64.

Under federal law, assertion of

arbitrability is not wholly groundless if, on the one hand, there is a plausible and legitimate

argument that the arbitration agreement covers the present dispute, and, on the other hand, a
plausible and legitimate argument that it does not. Douglas, 757 F.3d at 463. Although such
inquiry necessarily requires the court to examine the arbitration agreement, this inquiry is
limited, and the resolution of the plausible and legitimate arguments regarding arbitrability must
be reserved for the

arbitratorthe Court's power is limited simply to determining whether or not

a plausible argument exists. Id.

There is at least a plausible argument that the arbitration agreement covers this dispute.
See Douglas, 757 F.3d at 463. The arbitration clause in the Provider Manual covers "[amy and

15

all disputes between [Grasso] and 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."

Docket no. 44-7 at 45.

pharmacies violated federal
CVS/Caremark network.

Grasso's

claimsthat CVS/Caremark's

laware directly related

audit of its

to the fact that Grasso is a member of the

Additionally, Grasso sets forth no argument on this prong of the

arbitration analysis (the scope of the agreement), and instead only focuses on whether or not the
agreement is valid and enforceable.

Because this Court determines that there is at least a

plausible argument that this dispute is covered by the arbitration agreement, the assertion of
arbitrability is not "wholly groundless." As such, the Court has no choice but to order that the
arbitrator decide any issues of arbitrability. The arbitrator must decide whether the arbitration
clause encompasses all, some, or none of Grasso's claims.
B. Does a federal statute or policy render the claims nonarbitrable?

Having determined that Grasso and CVS/Caremark did agree to arbitrate arbitrability, the
Court proceeds to the next step in the analysis. While the Court finds that the scope of the

arbitration agreement is a question for the arbitrator, the Court, for the sake of completeness.
must still determine whether there is any federal statute or policy that renders an otherwise

arbitrable dispute nonarbitrable.

See Sherer,

548 F.3d at 381. There is none. Neither party

advances any statute or policy that could render this dispute nonarbitrable.

See

docket nos. 23,

24, 42, 43, 44. Instead, the federal and Arizona policies favoring arbitration prevail.

III.

Dismissal or stay
In their motion, CVS/Caremark ask that the Court dismiss the case if it determines that all

claims should be sent to arbitration.

Docket no. 44 at 22.

16

Grasso requests that instead of

dismissing the case, the Court stay the action in order to enforce the outcome of arbitration.
Docket no. 42 at 19.
In Alford v. Dean Witter Reynolds, Inc., 975 F.2d 1161(5th Cir. 1992), the Fifth Circuit

acknowledged that the Federal Arbitration Act states that the "court shall stay the trial of the
action until the arbitration is complete," but held that this rule was not intended to limit dismissal

of a case in the proper circumstance. Id. at 1164. The Court held that "[t]he weight of authority
clearly supports dismissal of the case when all of the issues raised in the district court must be
submitted to arbitration." Id. (emphasis in original). In such circumstances, the Court reasoned,
"retaining jurisdiction and staying the action will serve no purpose." Id. (quoting Sea-Land Serv.
v,

Sea-Land of Puerto Rico, 636 F. Supp. 750, 757 (D.P.R. 1986)). Thus, the Court held that the

district court "acted within its discretion when it dismissed th[e] case with prejudice." Alford,
975 F.2d at 1164.

In later cases, the Court has noted, however, that dismissal is not required; rather, the

district courts have discretion to do so, and also have discretion to stay the case or dismiss
without prejudice. Apache Bohai Corp.

v.

Texaco China, 330 F.3d 307, 311 & n.9 (5th Cir.

2003) (finding that the decision of the district court to stay the case pending arbitration was not
an abuse of discretion); Fedmet Corp.

v.

M/V Buyalyk, 194 F.3d 674, 679 (5th Cir. 1999)

(holding that district court did not abuse its discretion by dismissing the case without prejudice in
favor of arbitration).
The Federal Arbitration Act provides that the Court shall stay the case pending resolution

of the arbitration upon application of a party. Federal Arbitration Act, 9 U.S.C.

§ 3

(2012).

Grasso has asked the Court for a stay rather than dismissal. Docket no. 42 at 19. The Court will

therefore exercise its discretion to stay this action pending resolution of the arbitration.

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IV.

Conclusion
For the reasons above, the Court orders all of Grasso's claims be sent to arbitration to be

decided by the arbitrator. That portion of CVS/Caremark's Motion to Dismiss and Compel

Arbitration is granted. The portion requesting the Court dismiss the case is denied and the Court
exercises its discretion to stay the action.

MOTION FOR PRELIMINARY INJUNCTION
Next, the Court considers Grasso's Motion for Preliminary Injunction. Docket no. 26.
Because this Court orders all claims be sent to arbitration, it declines to rule on the motion. Any
sort of injunctive relief should be contemplated by the arbitrator.

On one hand, Grasso argues that this Court has the discretion to issue a preliminary

injunction even if it orders all claims be sent to arbitration. Docket no. 42 at 14. It points to the
Fifth Circuit's decision in Janvey

v.

Alguire to support this argument. Id. (citing Janvey

v.

Alguire, 547 F.3d 585, 593-95 (5th Cir. 2011)). Additionally, Grasso notes that there is a split in

authority among the circuit courts on the issue, and cites to a recent decision from the Southern
District of Texas. Id. (citing Amegy Bank Nat '1 Ass 'n

v.

Monarch Flight II, LLC, 870 F. Supp.

2d 441, 451-452 (S.D. Tex. 2012)). Finally, Grasso maintains that a clause in the arbitration

agreement allows either party to seek injunctive relief outside of arbitration: "The above

notwithstanding, nothing in this provision shall prevent either party from seeking preliminary
injunctive relief to halt or prevent a breach of this Provider Agreement in any state or federal
court of law." Id.
On the other hand, CVS/Caremark contend that since all claims must proceed in
arbitration, the Court should decline to entertain the preliminary injunction motion. Docket no.
43 at 1-3. Additionally, they argue that since the parties have agreed to arbitrate arbitrability, an

18

arbitratornot the Courtmust decide if the exception in the arbitration clause that addresses
injunctive relief allows Grasso's request for a preliminary injunction to be heard here. Id. at 3.

CVS/Caremark also maintain that even if this Court were allowed to decide if the claim at issue
fell within the scope of the exception to the arbitration clause, the claim on which Grasso seeks a

preliminary injunction does not qualify, because it is not a claim about breach of the Provider
Agreement or Provider Manual. Id.

Additionally, they state that three other federal district

courts have considered this very issue with these very same agreements in similar lawsuits
against CVS/Caremark, and each time the court has chosen to compel arbitration and issue no
ruling on a preliminary injunction motion. Id. at 4. Finally, CVS/Caremark argue that the cases
cited by Grasso in their briefing do not require this Court to rule on the preliminary injunction
motion. Id. We agree.
First, in Janvey, the Fifth Circuit merely held that a district court has the ability to rule on
a motion for preliminary injunction while a motion to compel arbitration is pending. Janvey, 647

F.3d at 595. It expressly declined to determine whether or not "a district court divests itself of
the discretion to maintain the status quo once it decides the case before it is arbitrable and, if not,

what the limits of that discretion may be." Id. at 595 n.7. Additionally, in Amegy, the Southern

District of Texas noted the circuit split on the issue, but merely held that a court may issue a
preliminary injunction to preserve the status quo, and simply ruled that an injunction that was
issued before the court considered a motion to compel arbitration would remain in effect while

arbitration was pending. Amegy, 870 F.Supp.2d at 453.
Simply put, there is no case that would require this Court to issue a ruling on the

preliminary injunction motion even though it has ordered the case proceed in arbitration. Rather,
the Fifth Circuit has specifically declined to make such a ruling. This Court finds the reasoning

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of the Eighth Circuit persuasive: "the judicial inquiry requisite to determine the propriety of
injunctive relief necessarily would inject the court into the merits of issues more appropriately
left to the arbitrator." Merrill Lynch, Pierce, Fenner & Smith, Inc.

v.

Hovey, 726 F.2d 1286,

1292 (8th Cir.1984).

It is important to note that each of the cases cited by Grasso in its argument that this

Court should rule on the preliminary injunction motion pre-date Crawford.

As such, even

Grasso's arguments about the exception for preliminary injunctions contained in the arbitration
clause must fail. Since the parties here have agreed to arbitrate arbitrability, both Petrofac and

Crawford require that an arbitrator, not this Court, decide whether the issue that underlies the
claim for preliminary injunctive relief is within the scope of the arbitration agreement or is
covered by the exception. Crawford, 748 F.3d at 262; Petrofac, 687 F.3d at 675.

Additionally, even if the parties had not agreed to arbitrate arbitrability, the Court finds
that the exception for preliminary injunctive relief does not cover this particular claim. The

exception clause only allows a party to seek a preliminary injunction outside of arbitration "to
halt or prevent a breach of the Provider Agreement in any state or federal court of law." Docket
no. 44-7 at 45-46. Here, Grasso merely alleges a violation of a federal

statuteERISA--in

support of their motion for preliminary injunction, not a breach of contract. Additionally, any
ambiguity about the scope of an arbitration clause must be resolved in favor of arbitration. Safer
v.

Nelson Fin. Group, Inc., 422 F.3d 289, 294 (5th Cir. 2005).

Furthermore, as CVS/Caremark note, in three other suits, plaintiffs suing CVS/Caremark
(or affiliated entities) attempted to use the preliminary injunction exception in the Provider

Manual in order to have the courts rule on preliminary injunctions in spite of a motion to compel

arbitration. In each case, the district court declined to do so. See, e.g., Burton's Pharmacy, Inc.,

20

et al.

v.

CVS Caremark Corp., et al., Civ. Ac. No. 1:11CV2, 2015 WL 5430354, at *11

(M.D.N.C. Sept. 15, 2015) (holding that the exception did not apply because the plaintiffs'

motion for preliminary injunction was not based on a breach of contract claim).
Finally, Grasso argues that this Court should rule on the preliminary injunction motion
because "the appointment of an arbitrator can take a month or two" and "CVS's termination of

Annie's Provider Agreements is scheduled to occur.

.

.

on October 29, 2015." Docket no. 42 at

30. However, as it admits, Grasso has known that CVS/Caremark were pushing it out of the

network since July. Docket no. 26 at 10. In spite of this, it waited for two months to file its

Motion for Preliminary Injunction. In any case, such concerns about timing cannot overcome the
reasons outlined above. For the foregoing reasons, as the Court has ordered all claims be sent to
arbitration, this Court declines to rule on Grasso's Motion for Preliminary Injunction. The

motion is dismissed as moot.

CONCLUSION AND ORDERS
CVS/Caremark's Motion to Dismiss and Compel Arbitration (docket no. 44) is
GRANTED IN PART and DENIED IN PART. All claims are hereby ordered to arbitration, and
the case is STAYED pending resolution of the arbitration. Because all proceedings in this case
are stayed pending resolution of the arbitration, this case is appropriate for administrative

closure. Mire

v.

Full Spectrum Lending, Inc., 389 F.3d 163, 167 (5th Cir. 2004) ("District courts

frequently make use of this device to remove from their pending cases suits which are

temporarily active elsewhere (such as before an arbitration panel) or stayed (such as where a
bankruptcy is pending). The effect of an administrative closure is no different from a simple stay
see also CitiFinancial Corp.

v.

Harrison, 453 F.3d 245, 250 (5th Cir. 2006).

21

The Clerk's office is DIRECTED to administratively close this case pending further order

of the Court. Though administratively closed, this case will still exist on the docket of this Court
and may be reopened upon request of any party or on the Court's own motion.

Mire,

167. CVS/Caremark are ordered to file quarterly status reports on the progress

of the arbitration,

389 F.3d at

beginning February 1, 2016.

Grasso's Motion for Preliminary Injunction (docket no. 26) is DISMISSED AS MOOT.
It is so ORDERED.

SIGNED this 28th day of October, 2015.

XERODRIGUE

UNITED STATES DISTRICT JUDGE

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