Fifth Circuit Holds Issue of Arbitrability Must be Decided by an Arbitrator in Pharmacy Dispute

The United States Court of Appeals for the Fifth Circuit has ordered that a dispute between numerous independent pharmacies and CVS Caremark Corporation and three of the company’s related business entities (“CVS”) be submitted to arbitration.  In Crawford Professional Drugs, et al. v. CVS Caremark Corp., et al., No. 12-60922 (5th Cir. April 4, 2014), 23 drugstores that  participated in a pharmacy benefit-management network offered by CVS claim the corporation inappropriately used patient information obtained through the program to entice pharmacy customers away from them.

Although the plaintiffs allege the agreement between the pharmacies and CVS does not require them to engage in arbitration, a Mississippi court held the arbitration clause included in the contract states otherwise.  According to the district court, the agreement clearly requires that an arbitrator determine whether the parties’ dispute should be heard in a courtroom or decided through arbitration.

On appeal, the plaintiffs argued that the arbitral provision is not binding because only three of the four defendants are a party to it.  Additionally, the pharmacies also stated their claims fall outside of the scope of the arbitration clause and that enforcing the provision against them would be unconscionable.

The Fifth Circuit held the arbitral provision applies to all of the defendants under an equitable estoppel theory.  Next, the appellate court found,

…there is clear and unmistakable evidence that the parties to the Provider Agreement agreed to arbitrate arbitrability, and so we conclude that whether the Plaintiffs’ claims are subject to arbitration must be decided in the first instance by the arbitrator, not a court.

The Appeals Court next addressed the plaintiffs’ claim that the parties’ agreement to arbitrate is unconscionable because it was presented to them in a “take it or leave it” fashion and the travel expenses related to participating in arbitration in another state are cost prohibitive.  According to the Fifth Circuit, the pharmacies failed to provide enough evidence to support their unconscionability claims.

Because the parties’ agreement clearly required that the issue of arbitrability be decided by an arbitrator and the plaintiffs failed to demonstrate the arbitration clause included in the agreement was unconscionable, the United States Court of Appeals for the Fifth Circuit affirmed the district court’s decision.