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Hm Compounding Services, Inc. v. Express Scripts, Inc.

United States District Court, E.D. Missouri, Eastern Division

July 9, 2015

HM COMPOUNDING SERVICES, INC., and HMX SERVICES, LLC, Plaintiffs,
v.
EXPRESS SCRIPTS, INC., Defendant.

MEMORANDUM AND ORDER

JOHN A. ROSS, District Judge.

This matter is before the Court on the following motions: Defendant Express Scripts' Motion to Dismiss Plaintiffs' First Amended Complaint ("FAC") (Doc. No. 129); Defendant Express Scripts' Motion to Dissolve the Temporary Restraining Order (Doc. No. 153); Defendant Express Scripts' Motion for Temporary Stay of Discovery and Protective Order (Doc. No. 157); and Plaintiffs' Motion for Civil Contempt. (Doc. No. 169) The motions are fully briefed and ready for disposition. The Court held a hearing on the motions on April 22, 2015.

I. Background

Plaintiff HM Compounding Services, LLC, is an independent compounding pharmacy that provides customized medications to patients. Plaintiff HMX Services, LLC, is HM Compounding Services, LLC's New Jersey affiliated pharmacy. (Plaintiffs are collectively referred to herein as "HMC"). Defendant Express Scripts, Inc. ("ESI") is a prescription benefit manager ("PBM"). PBMs administer the prescription pharmaceutical portion of health care benefit programs, which are typically purchased by a plan sponsor. The parties' relationship is governed by a Pharmacy Provider Agreement entered into by and between ESI and Wholesale Alliance, LLC d/b/a Third Party Station on behalf of HMC (the "Provider Agreement"), pursuant to which HMC agreed to provide certain pharmacy services to ESI members in exchange for ESI's agreement to compensate HMC for those pharmacy services.

By letter dated July 22, 2014, HMC informed ESI it had become aware that ESI was directly notifying providers that they were not to continue prescribing compounded medications even if it was in the patient's best interest to receive them. Seven days later, on July 31, 2014, ESI sent HMC a "notice of immediate termination" of the Provider Agreement, effective September 1, 2014, based on alleged misrepresentations made by HMC to ESI regarding "waiver/reduction" of patients' copayments. By letter dated August 1, 2014, ESI responded to HMC's July 22, 2014 letter. In that letter, ESI did not deny making such statements to prescribing physicians; rather, it took the position that ESI "has a legal right to communicate with providers regarding benefit coverage issues." (FAC, Doc. No. 126 at ¶ 110)

HMC brought this action on September 10, 2014 in the Supreme Court of the State of New York, County of Nassau.[1] On September 11, 2014, the New York State Court entered a temporary restraining order (the "State Court TRO") ordering ESI to "reinstate in full force and effect nunc pro tunc" "the Network Pharmacy Agreement dated September 5, 2012, entered into by and between HMC and Wholesale Alliance TPS, LLC d/b/a/ Third Party Station on behalf of Third Party Payer ESI" (see Doc. No. 23-2 at 4 ¶ (e)), and enjoining ESI from, among other things, "refusing to process and pay claims for payment submitted by HMC for compounded medications prescribed by physicians for their patients who have prescription drug benefits administered by [ESI]." (Id. at 3 ¶ (b))

The next day ESI removed the case to the United States District Court for the Eastern District of New York. The parties consented to extend the State Court TRO until a determination of pending motions to transfer venue. On October 3, 2014, the New York District Court vacated the State Court TRO and entered a second temporary restraining order (the "Federal Court TRO") enjoining Express Scripts from "refusing to process and/or pay claims submitted by [HMC] for the payment of prescriptions dated on or after September 11, 2014, or for the refill of an existing refillable prescription after September 11, 2014, for compounded medications prescribed by licensed physicians for their patients, which had heretofore been covered by their insurance." (Doc. No. 70 at 3 ¶ (b)) The District Court further ordered upon agreement of the parties that the TRO remain in full force and effect until a hearing on the preliminary injunction. (Id. at 4)

On October 27, 2014, the New York District Court severed HMC's claims against ESI and transferred them to this Court. (Doc. No. 108 at 54) The New York Court ruled that that part of the Federal TRO applicable to HMC is extended until such time as the respective arbitrator hears and determines any application for injunctive relief and that any requests to revisit the terms should be directed to the appropriate arbitrator, or, with respect to ESI, the federal district court in Missouri. (Id. at 59)

On December 1, 2014, HMC filed its FAC asserting eleven causes of action against ESI:

i) a violation of the Sherman Act, 15 U.S.C. § 1;
ii) a violation of New York Antitrust Law, New York General Business Law § 340.1 (Donnelly Act);
iii) a claim for benefits under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B);
iv) a claim for injunctive relief under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3);
v) a claim for deceptive trade practices, in violation of New York General Business Law § 349;
vi) a claim for violation of New Jersey's "Any Willing Provider" Laws, N.J.S.A. §§ 17B:26-2.1i, 17B:27-46.1i;
vii) a claim for breach of contract;
viii) a claim for breach of the implied covenant of good faith and fair dealing;
ix) a claim for tortious interference with a business expectancy;
x) a claim for declaratory relief; and
xi) a claim for preliminary and permanent injunction.

II. Discussion

A. Motion to dismiss

ESI moves to dismiss the FAC for failure to state a claim under Fed.R.Civ.P. 12(b)(6). In considering a motion to dismiss under Rule 12(b)(6), the Court must assume all the facts alleged in the complaint are true, and liberally construe the complaint in the light most favorable to the plaintiff. Foster v. Deutsche Bank Nat'l Trust Co., 2012 WL 5285887, at *2 (E.D. Mo. Oct. 25, 2012) (citing Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir. 2008)). The allegations must be sufficient "to raise a right to relief above the speculative level, " however, and the motion to dismiss must be granted if the complaint does not contain "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). Thus, a dismissal under Rule 12(b)(6) should be granted "only in the unusual case in which a plaintiff includes allegations that show, on the face of the complaint, that there is some insuperable bar to relief." Strand v. Diversified Collection Serv., Inc., 380 F.3d 316, 317 (8th Cir. 2004) (quoting Frey v. Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995) (internal quotation marks omitted)).

1. Antitrust claims[2] (Counts I-II)

Section 1 of the Sherman Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade." 15 U.S.C. § 1.[3] Not every agreement that restrains competition violates the Sherman Act. See Craftsmen Limousine, Inc. v. Ford Motor Co., 491 F.3d 380, 386 (8th Cir. 2007). Rather, the Sherman Act prohibits "only those practices that impose an unreasonable restraint on competition." Id. (quoting Arizona v. Maricopa Cnty. Med. Soc'y, 457 U.S. 332, 342-43 (1982) (internal quotation marks omitted).

To establish a claim under Section 1 of the Sherman Act, a plaintiff must demonstrate "(1) that there was a contract, combination, or conspiracy; (2) that the agreement unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; and (3) that the restraint affected interstate commerce." Reg'l Multiple Listing Serv. of Minnesota, Inc. v. Am. Home Realty Network, Inc., 9 F.Supp. 3d 1032, 1039 (D. Minn. 2014) (quoting Insignia Sys., Inc. v. News Am. Mktg. In-Store, Inc., 661 F.Supp.2d 1039, 1062 (D. Minn. 2009) (internal quotation marks omitted)). Courts are generally hesitant to dismiss antitrust actions before the parties have had an opportunity for discovery, "because the proof of illegal conduct lies largely in the hands of the alleged antitrust conspirators." Double D Spotting Serv., Inc. v. Supervalu, Inc., 136 F.3d 554, 560 (8th Cir. 1998) (citing Huelsman v. Civic Ctr. Corp., 873 F.2d 1171, 1174 (8th Cir.1989)). Nevertheless, "[t]he essential elements of a private antitrust claim must be alleged in more than vague and conclusory terms to prevent dismissal of the complaint on a defendant's Rule 12(b)(6) motion." Id. at 558 (quoting Crane & Shovel Sales Corp. v. Bucyrus-Erie Co., 854 F.2d 802, 805 (6th Cir. 1988) (internal quotation marks omitted).

Here, HMC alleges ESI conspired "to end all coverage for compound prescription medications, and eliminate HMC and other independent compounding pharmacies as competitors in the Relevant Market" (FAC at ¶¶ 48, 124), and that this conduct constitutes both a per se and rule of reason claim under the Sherman Act. (Id. at ¶¶ 126-27)

Most antitrust claims are evaluated under the rule of reason. Craftsmen Limousine, 491 F.3d at 387; Minnesota Ass'n of Nurse Anesthetists v. Unity Hosp., 208 F.3d 655, 659 (8th Cir. 2000). Under this approach, an antitrust plaintiff must show an anticompetitive effect on the relevant market. Flegel v. Christian Hosp., Northeast-Northwest, 4 F.3d 682, 688 (8th Cir. 1993). Under the per se rule, certain types of restraints are so inherently anticompetitive that they are illegal per se, without inquiry into the reasonableness of the restraint or the harm caused. Double D Spotting Serv., 136 F.3d at 558 (citing Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984)). Per se treatment is applied only when the adverse impact on competition is "obvious and substantial." Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of Rhode Island, 239 F.Supp.2d 180, 189 (D.R.I. 2003). ESI argues the per se rule should not be applied to HMC's antitrust claims because the conduct asserted, i.e., refusal to deal and/or boycott, is not the type with "immediately obvious" economic impacts. (Doc. No. 130 at 8-9)

A group boycott is "a narrow category of per se violation, limited to cases in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor." Minn. Nurse Anesthetists, 208 F.3d at 659 (quoting FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 458 (1986)). HMC alleges the agreement to boycott HMC is a horizontal agreement between ESI and its co-conspirators, CVS Caremark Corporation ("CVS"), Optum Rx ("ORx") and Prime Therapeutics, LLC ("Prime") (collectively referred to as the co-conspirators)[4], all of which are PBMs and operate at the same level of the market. (FAC at ¶¶ 16-22, 124) In addition, ESI, CVSC, and Prime own and operate specialty pharmacies that compete with HMC and ESI and each of the co-conspirators operate mail-order pharmacies that also compete with HMC. (Id. at ¶¶ 13-19) Because PBMs manage 95 percent of all prescription drugs covered by insurance, and because ESI and the co-conspirators exercise control over more than 80 percent of the PBM market, HMC argues these firms occupy a dominant position in the prescription drug benefit market. ESI and the co-conspirators have used that power to preclude HMC from obtaining access to reimbursements from health plans and insurance for prescription medications-a supply necessary for HMC to compete. (Id. at ¶¶ 22, 115, 126(b)) Without access to insurance plans for prescription medications, HMC alleges that it and other independent compounding pharmacies will be driven out of business. (Id. at ¶ 115) HMC further alleges on information and belief that ESI and its co-conspirators' boycott is intended to channel patients to their own competing pharmacies and has resulted in anticompetitive effects in the market, including decreased output of prescription drugs, reduced consumer choice, and a decline in the quality of prescription drugs available to patients. (Id. at ¶ 121)

Although the question whether HMC's allegations "comprise a per se claim is normally a question of legal characterization that can often be resolved... on a motion to dismiss or for summary judgment[, ]" see Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 61 (1st Cir. 2004), the Court will not dismiss HMC's pro se claim at this time. See Nat'l Collegiate Athletic Ass'n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 104 n. 26 (1984) ("Indeed, there is often no bright line separating per se from rule of reason analysis. Per se rules may require considerable inquiry into market conditions before the evidence justifies a presumption of anticompetitive conduct."). Even if HMC fails to establish a per se violation of the Sherman Act, the question remains whether the allegedly unreasonable restraint of trade comports with the rule of reason, discussed below.

ESI raises three specific challenges to HMC's antitrust claims: (1) HMC fails to allege an unlawful agreement or conspiracy between ESI and its co-conspirators; (2) HMC fails to adequately plead injury to competition in a relevant market; and (3) HMC has not alleged an antitrust injury sufficient for standing. The Court will address each of these in turn.

Contract, combination or conspiracy

In order to allege a conspiracy under § 1 of the Sherman Act, HMC must show there was concerted, as opposed to unilateral, action. Willman v. Heartland Hosp. E., 34 F.3d 605, 610 (8th Cir. 1994). "The antitrust plaintiff should present direct or circumstantial evidence that reasonably tends to prove that [the defendant] and others had a conscious commitment to a common scheme designed to achieve an unlawful objective." Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984) (internal citation and quotation marks omitted). Mere allegations of parallel conduct will not suffice. Twombly, 550 U.S. at 556-67 ("Without more, parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show illegality. Hence, when allegations of parallel conduct are set out in order to make a § 1 claim, they must be placed in a context that raises a suggestion of a preceding agreement[.]").

In support of its motion, ESI argues HMC has not alleged a plausible agreement or conspiracy among ESI and its purported co-conspirators. (Doc. No. 130 at 6-8) Citing Twombly, ESI contends HMC has alleged "merely parallel conduct" that could just as well be independent action. HMC responds that read as a whole, the FAC alleges more than enough factual matters to suggest an ...


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