Park Irmat Drug Corp. v. Express Scripts Holding Co.
Opinion
Park Irmat Drug Corporation (Irmat) brought suit against Express Scripts Holding Company and Express Scripts, Inc. (Express Scripts), alleging various contract claims, a promissory estoppel claim, and violations of federal antitrust laws and state Any Willing Provider laws. The district court 1 dismissed Irmat's complaint for failure to state a claim. We affirm.
I.
Express Scripts is the largest pharmacy benefits manager (PBM) in the United States. A PBM is a third-party administrator of prescription drug programs. PBMs process and pay prescription drug claims made by pharmacies and patients. PBMs also negotiate drug discounts with pharmaceutical manufacturers, handle pharmacy benefits for health plans and self-insured entities, and develop lists of drugs that are approved for reimbursement. A patient's health insurance plan chooses which PBM covers their drug-related expenses. Express Scripts and another PBM, CVS Health (CVS), account for 65% of the PBM market.
PBMs create networks of pharmacies in which PBM members can receive their prescription pharmaceuticals at covered, discounted rates. To be successful, independent pharmacies must participate in the largest PBM networks. These independent pharmacies contract with PBMs either directly or through an agent such as a Pharmacy Services Administrative Organization (PSAO). Ninety-seven percent of retail pharmacies in the United States participate in Express Scripts's pharmacy network.
Express Scripts also operates a mail-order pharmacy that fills prescriptions by mail nationwide. It is the only mail-order pharmacy allowed in Express Scripts's PBM network. According to Irmat, PBMs that own mail-order pharmacies dominate the mail-order pharmacy service industry. Nevertheless, independent pharmacies, like Irmat, have been able to successfully provide mail-order pharmacy services to customers in the United States.
Irmat is a New York-based, independent pharmacy located in midtown Manhattan. It opened in 1978. For many years, Irmat was a successful retail pharmacy that filled and sold prescriptions via its storefront location. In 2013, Irmat began focusing on dermatological pharmaceuticals. It entered into a patient assistance program with dermatological drug manufacturers for pharmaceuticals that often had no generic equivalent. Under the programs, the manufacturers would pay a portion of a patient's insurance co-payment to Irmat. Because of its participation in these programs, Irmat expanded its business into a nationwide mail-order pharmacy and increased its staff from twenty employees to 208 employees.
Irmat joined Express Scripts's PBM network in 2012 through AccessHealth, a PSAO, and gained access to more than 100 other PBMs. In October 2014, Express Scripts sent Irmat a Network Provider Agreement (the agreement) requiring that Irmat sign or risk termination from its network. The agreement required Irmat to meet the definition of a "retail provider," which was defined as a pharmacy "that primarily fills and sells prescriptions via a retail, storefront location" and that "shall not include mail order" pharmacies. The agreement also included recredentialing requirements whereby a retail provider must disclose updated information to Express Scripts. Failure to comply with the recredentialing requirements constituted a breach of the agreement and was cause for termination from Express Scripts's network. Finally, the agreement allowed Express Scripts to unilaterally terminate the contract without cause upon thirty days written notice. Irmat signed the agreement.
Express Scripts required Irmat to submit a recredentialing application in July 2015. Irmat disclosed that 35% of its business came from its retail pharmacy and that 65% of its business came from its mail-order pharmacy. On August 7, 2015, Express Scripts sent Irmat an e-mail, the subject line of which read "Express Scripts credentials approved," and the text of which stated:
We are pleased to inform you that your recently submitted credentials have been reviewed and you are approved to continue in the Express Scripts Holding Company pharmacy networks.
Irmat then hired more employees, constructed a multi-million dollar facility in New York, and spent time and money acquiring mail-order accreditations. In May 2016, Express Scripts sent Irmat a letter demanding Irmat cease and desist its mail-order operations because they were in violation of the agreement. Irmat responded with a letter referring to the August 2015 e-mail. On July 15, 2016, Express Scripts replied that Irmat would be terminated from the network in sixty-one days, primarily because of Irmat's mail-order business. Irmat appealed the termination through Express Scripts's internal appeal process. Express Scripts affirmed its decision in a letter dated August 22, 2016, which added that it was also terminating Irmat without cause. Express Scripts terminated Irmat from its network on or about September 30, 2016.
II.
We review
de novo
the grant of a motion to dismiss.
Christiansen v. W. Branch Cmty. Sch. Dist.
,
"To survive a 12(b)(6) motion to dismiss, 'a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.' "
McShane Constr. Co. v. Gotham Ins. Co.
,
A.
1.
Irmat argues that the agreement is unconscionable because it allowed Express Scripts, but not Irmat, to terminate the agreement without cause. We have held that "[a] bilateral contract is not rendered invalid and unenforceable merely because one party has the right to cancellation while the other does not. There is no necessity 'that for each stipulation in a contract binding the one party there must be a corresponding stipulation binding the other.' "
Laclede Gas Co. v. Amoco Oil Co.
,
Irmat further contends, however, that the agreement is also unconscionable because it was a non-negotiable form contract,
i.e.
, a contract of adhesion. "In Missouri, an adhesion contract, as opposed to a negotiated contract, has been described as a form contract created and imposed by a stronger party upon a weaker party on a 'take this or nothing basis,' the terms of which unexpectedly or unconscionably limit the obligations of the drafting party."
2
Fuller v. TLC Prop. Mgmt., LLC
,
Irmat argues that the contract of adhesion is unconscionable because Express Scripts exerted significant pressure on Irmat to enter into the agreement and had greater bargaining power than Irmat. Specifically, Express Scripts threatened that if Irmat did not complete and return the agreement, Irmat would be in breach of their original network contract and suffer patient disruption. Irmat also cites its allegation that more than 97% of all U.S. retail pharmacies participate in Express Scripts's network and that participating in Express Scripts's network was a matter of business necessity for Irmat.
Irmat argues that this case is analogous to
Brewer
, in which the Missouri Supreme Court found the contract at issue was unconscionable. In
Brewer
, the plaintiff, an average consumer, contracted for a secured loan bearing an annual interest rate of 300%.
2.
Irmat next argues that Express Scripts violated its duty of good faith and fair dealing when it terminated Irmat from its network. "Missouri law implies a covenant of good faith and fair dealing in every contract."
Farmers' Elec. Coop., Inc. v. Mo. Dep't of Corr.
,
Arbors at Sugar Creek Homeowners Ass'n v. Jefferson Bank & Tr. Co.
,
Irmat does not deny that it violated the contract and that Express Scripts was thus entitled to terminate Irmat from its network for cause. Irmat argues instead that Express Scripts acted in bad faith by terminating Irmat on the basis of its anticompetitive motives when exercising its right to terminate Irmat without cause. Irmat cites
BJC Health System v. Columbia Casualty Co.
,
3.
Irmat next argues that Express Scripts's August 2015 e-mail constituted a novation of the agreement. It contends that the e-mail excised the prohibition against operating a mail-order pharmacy from the agreement and abrogated Express Scripts's contractual rights to terminate Irmat for and without cause. Irmat argues that Express Scripts thus breached this new contract when it terminated Irmat from the network. Express Scripts responds that because the e-mail was not a novation but merely a contractually obligated step in the recredentialing process, there was no new contract and thus no breach.
See
D.R. Sherry Constr., Ltd. v. Am. Family Mut. Ins. Co.
,
Under Missouri law, "[a] novation is a substitution of a new contract obligation for an old one."
Health Related Servs., Inc. v. Golden Plains Convalescent Ctr., Inc.
,
(2) agreement of all parties to a new contract; (3) extinguishment of an old contract; and (4) validity of a new contract."
State ex rel. Premier Mktg., Inc. v. Kramer
,
Irmat argues that the e-mail's language constitutes evidence of Express Scripts's intent to abrogate the agreement and form a new contract. We conclude that the e-mail was instead part of the recredentialing process required by the agreement. At most, the e-mail and the later cease-and-desist request suggest that Express Scripts delayed its recredentialing process. But any delay did not preclude Express Scripts from denying credentials to Irmat under the agreement's no-waiver provision, which provides:
No waiver of a breach of any covenant or condition shall be construed to be a waiver of any subsequent breach. No act, delay, or omission done, suffered, or permitted by the parties shall be deemed to exhaust or impair any right, remedy, or power of the parties hereunder.
Moreover, the e-mail lacks the essential elements of a contract and thus cannot be construed as a lawful novation.
See
Premier Mktg.
,
B.
Alternatively, Irmat alleges that Express Scripts's e-mail promised that Irmat could continue in the network as a mail-order pharmacy. Irmat then relied on that promise by building a multi-million dollar complex, hiring additional employees, and spending resources to obtain accreditations. Under Missouri law, promissory estoppel requires: "(1) a promise, (2) on which the party seeking to recover relied to his or her detriment, (3) in a way the person making the promise expected or should have expected, and (4) the reliance results in an injustice which can be cured only by enforcement of the promise."
Hamra v. Magna Grp., Inc.
,
Irmat fails to plausibly plead promissory estoppel. First, Express Scripts's e-mail does not explicitly state that Irmat could operate a mail-order pharmacy and remain in Express Scripts's network, thereby extinguishing the agreement's restriction on mail-order pharmacies.
See
Prenger v. Baumhoer
,
C.
1.
Irmat argues that Express Scripts violated Section 1 of the Sherman Act by conspiring with other PBM-owned, mail-order pharmacies to boycott independent mail-order pharmacies. "Liability under § 1 of the Sherman Act,
Irmat fails to plausibly plead parallel conduct. It claims that CVS and Express Scripts conspired to terminate Irmat from their PBM networks because it operated a mail-order pharmacy that competed with Express Scripts's and CVS's mail-order pharmacies. Irmat had been a member of CVS's pharmacy networks since 2012. In August 2016, CVS required Irmat to participate in its mail-order network, three months after Express Scripts sent Irmat a letter demanding that Irmat abandon its mail-order pharmacy operations. Although CVS later terminated Irmat from its pharmacy networks on February 3, 2017, the fact that CVS allowed Irmat to join in its mail-order network at all suggests that CVS and Express Scripts did not conspire to boycott Irmat. Irmat contends, however, that the August 2016 requirement to participate in CVS's mail-order pharmacy network was a veiled plan to reimburse Irmat at lower rates than it had paid in the past. Irmat also claims that CVS subjected Irmat to abusive audits throughout the years. Even assuming the truth of those allegations, there is no evidence that Express Scripts joined in CVS's conduct. Express Scripts never required Irmat to enter into a mail-order network so that it could reimburse prescriptions at lower rates, nor does Irmat contend that Express Scripts ever subjected Irmat to abusive audits.
The only allegation that hints at parallel conduct is that both CVS and Express Scripts terminated Irmat from their networks. But the terminations lack temporal proximity. Express Scripts notified Irmat of termination in July 2016, six months before CVS notified Irmat of termination. In determining whether six months was
too long of a time frame to suggest parallel activity, the district court looked to
In re Graphics Processing Units Antitrust Litigation
,
2.
Irmat alleges that Express Scripts violated Section 2 of the Sherman Act because it leveraged its power as a PBM to exclude mail-order pharmacies from its PBM network. This led to Express Scripts's having a monopoly power in the submarket for mail-order services to Express Scripts members. Section 2 makes it unlawful to "monopolize, or attempt to monopolize ... any part of the trade or commerce among the several States."
Irmat first fails to plead a relevant market. "It is the plaintiff's burden to define the relevant market."
Double D Spotting Serv., Inc. v. Supervalu, Inc.
,
Irmat claims that the relevant market is the market for mail-order pharmacy services to Express Scripts members-a submarket made up of only Express Scripts's services within the broader market of all mail-order pharmacy services.
See
BrownShoe Co. v. United States
,
Irmat also fails to allege that Express Scripts engaged in anticompetitive conduct. "[T]he possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive
conduct
."
Trinko
,
3.
Irmat alleges that Express Scripts violated Section 1 of the Sherman Act by engaging in a tying arrangement when it "exercised its market power to force its retail pharmacy network members to refrain from dispensing drugs via mail-order delivery." A tying arrangement is "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier."
Eastman Kodak
,
For a plausible tying claim in this situation, Irmat must have alleged that Express Scripts conditioned participation in its PBM network on either the purchase of a tied product or service, or on refraining from the purchase of a tied product or service. Irmat instead alleges that Express Scripts conditioned participation in its PBM network on the requirement that Irmat refrain from operating a competing business. This, in turn, is a repackaged attempt at Irmat's monopoly claim and fails for the reasons stated above. The district court thus did not err in dismissing Irmat's tying claim.
D.
Finally, Irmat alleges that Express Scripts violated the Any Willing Provider laws of Georgia, Mississippi, and North Carolina when it denied Irmat the opportunity to mail prescriptions to Express Scripts members in each of these
states.
4
Irmat has pointed to no case law that suggests that these laws apply to PBMs, and we decline to extend the reach of these laws to PBMs as a matter of first impression.
See
Ashley Cty., Ark. v. Pfizer, Inc.
,
III.
Irmat argues that the district court should have granted Irmat leave to amend its complaint to replead more specific facts. But Irmat never moved to amend its complaint, nor did it request such relief in its memorandum in opposition to Express Scripts's motion to dismiss.
See
United States v. Mask of Ka-Nefer-Nefer
,
The district court's order of dismissal is affirmed.
The Honorable Ronnie L. White, United States District Judge for the Eastern District of Missouri.
The parties agree that Missouri law applies to the state-law claims.
The parties agree that the relevant geographic market is the United States.
Reference
- Full Case Name
- PARK IRMAT DRUG CORP., Plaintiff - Appellant v. EXPRESS SCRIPTS HOLDING COMPANY; Express Scripts, Inc., Defendants - Appellees
- Cited By
- 190 cases
- Status
- Published