Bellevue Drug Co. v. Caremark SPCS, 700 F.3d 109 (3d Cir. 2012). This was an antitrust class action. Plaintiffs, who are retail pharmacy businesses, and defendant, who is a prescription benefits manager for drug benefit plans, entered into written agreements under which plaintiffs would provide prescription drugs and pharmacy services to persons covered by plans administered by defendant. Those agreements contained an arbitration clause that purported to govern all disputes in connection with or relating to those agreements. Nonetheless, plaintiffs later filed suit, alleging that defendant had conspired with plan sponsors to restrain trade, in violation of the Sherman Antitrust Act, 15 U.S.C. §1 et seq.
Instead of invoking the arbitration clause, defendant “actively– and, indeed, aggressively– litigated the case without mentioning arbitration, much less filing a motion to compel arbitration.” Defendant first filed a motion to dismiss the Complaint for failure to state a claim, accompanied by a binder of allegedly judicially noticeable exhibits “as thick as the Yellow Pages.” Defendant filed a reply brief on that motion as well. After the district court denied that motion, defendant filed a motion for reconsideration or, in the alternative, for certification of the issues for interlocutory appeal, including moving papers and a reply submission. That motion too was denied. Defendant filed an Answer that asserted numerous affirmative defenses but did not assert any right to arbitration. Defendant had also filed some non-merits motions, including for such things as pro hac vice admission and leave to file a reply brief. The district judge directed the parties to submit a discovery plan and a proposed case management order, and the court set a date for an initial conference.
Five weeks later, and more than ten months after the case had begun, with defendant meanwhile having retained new counsel, defendant finally filed a motion to compel arbitration. The district court granted that motion. After a complex series of procedural steps, plaintiffs appealed. Applying “plenary review” of the decision as to whether defendant had waived the arbitration clause, The Third Circuit reversed and found that defendant had waived it. Judge Barry wrote the panel’s opinion.
Judge Barry relied on the six-part test of Gray Holdco, Inc. v. Cassady, 654 F.3d 444, 451 (3d Cir. 2011). Those six prongs are: (1) timeliness of the motion to arbitrate; (2) extent to which the party seeking arbitration has already contested the merits in court; (3) whether the party seeking arbitration notified the opposing party of its intent to seek arbitration prior to seeking it; (4) the extent to which the party seeking arbitration engaged in non-merits motion practice; (5) the party’s acquiescence to pretrial orders; and (6) the extent to which the parties engaged in discovery.
Judge Barry analyzed each facet exhaustively, cataloging prior cases in detail. The case is thus an excellent reference going forward for anyone dealing with issues of waiver of an arbitration clause. Ultimately, Judge Barry concluded that defendant had waived its arbitration clause.
The first five factors all favored waiver. Though there had been no discovery, that factor by itself did not outweigh the others. Judge Barry cited cases from other Circuits that had found waiver even where no discovery had been taken. Thus, even though doubts concerning the scope of arbitrable issues, including waiver, “should be resolved in favor of arbitration,” the panel had no doubt that waiver occurred here.
This wise ruling is a warning to parties who seek to enforce arbitration clauses. Do so at the outset, or risk waiver.