• Chelsea Family Pharmacy, PLLC v. Medco Health Solutions, Inc. No. 08-5103 (10th Cir. June 2, 2009)
  • July 9, 2009 | Authors: Arthur N. Lerner; Bruce O. Tavel
  • Law Firm: Crowell & Moring LLP - Washington Office
  • The United States Court of Appeals for the Tenth Circuit, in a suit brought by a local pharmacy, on behalf of itself and all similarly situated pharmacies, against Medco Health Solutions, Inc. ("Medco"), ruled that claims related to Medco's reimbursement rates were subject to mandatory arbitration while separate claims related to anticompetitive conduct on Medco's part, were not subject to that provision. The plaintiff, Chelsea Family Pharmacy, PLLC ("Chelsea"), alleged violations of the Oklahoma Third Party Prescription Act, as well as claims for breach of contract and unfair business practices.

    Chelsea, when joining Medco's pharmacy network, entered into an agreement that contained provisions permitting Medco's mail order service to offer more favorable dispensing rates than Chelsea was permitted to offer. Chelsea, in addition to its claims for inadequate reimbursement, claimed that these provisions gave Medco undue bargaining power, which Chelsea claimed "undermined [its] ability to compete for the business of its own local customers."

    The Court considered Chelsea's claims for reimbursement and unfair business practices separately, determining in turn whether the claims were arbitrable under the terms of the parties' agreement. First, the Court found the parties' arbitration clause to govern any "controversy or claim arising out of or relating to payments to [Chelsea] by Medco," the Court found Chelsea's reimbursement claims clearly within the scope of the arbitration clause. The Court found the arbitration clause "broadly inclusive when it comes to payments." The Court refused to follow the lower court's logic that the arbitration clause governed only claims relating to specific payments.

    However, the Court concluded that Chelsea's claims pertaining to unfair business practices were not within the scope of the arbitration provision. Although Medco argued that the claims were interrelated and therefore must be arbitrated together, the Court disagreed and found the two claims to be distinct. In so finding, the Court relied upon the factual allegations in the complaint rather than the labels attached to each of the causes of action within the complaint.