Background
Independent pharmacies sued pharmacy benefit managers alleging anticompetitive conduct regarding Medicare prescriptions. The district court compelled arbitration, severing three unconscionable provisions, and dismissed the case without prejudice. The pharmacies appealed the compulsion order, while the benefit managers cross-appealed the court’s refusal to enforce the delegation clause.
The court’s reasoning
The court reviewed the severability of the unconscionable provisions under Arizona law, finding the contract language supported enforcement of the remainder. Regarding costs, the court held that plaintiffs failed to show with reasonable certainty that arbitration fees would be prohibitive, noting the loser-pays provision mitigated the risk. The court also upheld the shortened limitations period and the amendment clause, finding they did not prevent effective vindication of rights. On the cross-appeal, the court agreed that the delegation clause was unenforceable when read with the escrow provision, as the upfront costs would prevent plaintiffs from challenging the clause in arbitration.
What it means going forward
The ruling reinforces the enforceability of arbitration agreements in commercial disputes even when some provisions are found unconscionable, provided the remaining terms are severable. It clarifies that speculative arguments about potential arbitration costs are insufficient to invalidate an agreement.
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