Caremark LLC v. Allied Health Services Incorporated

• Court: District Court, D. Arizona
• Decided: September 19, 2024
• Docket: 2:23-cv-01994
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Caremark LLC, et al., No. CV-23-01994-PHX-JJT

10 Plaintiffs, ORDER

11 v.

12 Allied Health Services Incorporated, et al.,

13 Defendants. 14 15 At issue is Defendants the University of Kentucky, the University of Kentucky 16 Board of Trustees, and Members of the University of Kentucky Board of Trustees’ 17 (collectively, “Kentucky”) Motion to Dismiss pursuant to Federal Rules of Civil Procedure 18 12(b)(1) and 12(b)(6) (Doc. 72, MTD), to which Plaintiffs Caremark, L.L.C., 19 CaremarkPCS, L.L.C.; and Caremark IPA, L.L.C. (collectively, “Caremark”) filed a 20 Response (Doc. 77, Resp.) and Kentucky filed a Reply (Doc. 78, Reply). The Court finds 21 this matter appropriate for resolution without oral argument. See LRCiv 7.2(f). 22 I. BACKGROUND 23 Caremark is a third-party pharmacy-benefit manager that contracts with various 24 individual pharmacies and chains, including Kentucky. (Resp. at 5.) The contractual 25 relationship between the parties is governed by a series of documents, including a Provider 26 Agreement executed by Kentucky and Caremark. (MTD at 3.) The Provider Agreement 27 incorporates by reference the 2022 Caremark Provider Manual, which contains a dispute 28 1 resolution clause specifying procedures for parties to settle disputes and includes an 2 arbitration agreement. (MTD at 3.) 3 The Provider Manual’s arbitration provision states that “any and all disputes 4 between Provider and Caremark . . . including, but not limited to, disputes in connection 5 with, arising out of, or relating in any way to, the Provider Agreement or to Provider’s 6 participation in one of more Caremark networks . . . will be exclusively settled by 7 arbitration.” (Doc. 54, Compl. Ex. 2, Provider Manual ¶ 15.09.) Further, the Provider 8 Manual states the conditions an aggrieved party must satisfy before filing arbitration, 9 including issuing a dispute notice and engaging in a dispute conference with the other party. 10 (Provider Manual ¶ 15.09.07.) The Provider Manual also states, “This arbitration 11 agreement is made pursuant to a transaction involving interstate commerce, and shall be 12 governed by the Federal Arbitration Act, 9 U.S.C. §§ 1–16 [‘FAA’].” (Provider Manual 13 ¶ 15.09.07.) Finally, the Provider Manual states that arbitrations “must be conducted in 14 Scottsdale, Arizona” and that contracted providers “agree[] to such jurisdiction, unless 15 otherwise agreed to by the parties in writing.” (Provider Manual ¶ 15.09.) 16 Caremark periodically amends the Provider Manual “by giving notice of the terms 17 of the amendment and specifying the date the amendment becomes effective.” (Compl. 18 ¶ 93.) On August 2, 2023, Caremark informed its providers, including Kentucky, that an 19 amended Provider Manual would go into effect on August 10, 2023, superseding the prior 20 version. (Compl. ¶ 102.) The amended Provider Manual changed the arbitration venue from 21 AAA to JAMS (“JAMS Amendment”), but it did not otherwise alter the dispute resolution 22 process. (Compl. ¶ 104.) On August 9, 2023, Kentucky allegedly initiated arbitration 23 proceedings before the AAA without first engaging in the dispute resolution process 24 prescribed in the Provider Manual. (Compl. ¶¶ 109, 208–13.) 25 While the ultimate question before the Court is where the parties must arbitrate, the 26 issue now before the Court is whether sovereign immunity bars Caremark’s claims 27 demanding arbitration against Kentucky. 28 1 II. LEGAL STANDARDS1 2 A. Rule 12(b)(1) – Dismissal for Lack of Subject Matter Jurisdiction 3 “A motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1) may 4 attack either the allegations of the complaint as insufficient to confer upon the court subject 5 matter jurisdiction, or the existence of subject matter jurisdiction in fact.” Renteria v. 6 United States, 452 F. Supp. 2d 910, 919 (D. Ariz. 2006) (citing Thornhill Publ’g Co. v. 7 Gen. Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1979)). “Where the jurisdictional 8 issue is separable from the merits of the case, the [court] may consider the evidence 9 presented with respect to the jurisdictional issue and rule on that issue, resolving factual 10 disputes if necessary.” Thornhill, 594 F.2d at 733; see also Autery v. United States, 424 11 F.3d 944, 956 (9th Cir. 2005) (“With a 12(b)(1) motion, a court may weigh the evidence 12 to determine whether it has jurisdiction.”). The burden of proof is on the party asserting 13 jurisdiction to show that the court has subject matter jurisdiction. See Indus. Tectonics, Inc. 14 v. Aero Alloy, 912 F.2d 1090, 1092 (9th Cir. 1990). 15 B. Eleventh Amendment Sovereign Immunity 16 The Eleventh Amendment provides that states enjoy sovereign immunity from suit 17 in federal court. Seven Up Pete Venture v. Schweitzer, 523 F.3d 948, 952 (9th Cir. 2008). 18 Under the Eleventh Amendment, a state or arm of the state may not be sued in federal court 19 without its consent. Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 98 (1984). 20 “While the [Eleventh] Amendment by its terms does not bar suits against a state by its own 21 citizens . . . an unconsenting state is [nonetheless] immune from suits brought in federal 22 courts by her own citizens as well as by citizens of another state.” Edelman v. Jordan, 415 23 U.S. 651, 662–63 (1974). Thus, absent a state’s waiver of Eleventh Amendment immunity 24 through consent to suit or valid abrogation of that immunity, federal courts may not entertain 25 26 1 It its Motion to Dismiss, Kentucky moved for dismissal under both Federal Rules 27 of Civil Procedure 12(b)(1) and 12(b)(6). However, neither Kentucky’s Motion to Dismiss nor its briefing adequately raised the Rule 12(b)(6) motion. In any event, the Court finds it 28 appropriate to resolve the issue of dismissal solely under Federal Rule of Civil Procedure 12(b)(1). 1 a private person’s suit against the state. Virginia Off. for Prot. & Advoc. v. Stewart, 563 U.S. 2 247, 254 (2011). 3 III. ANALYSIS 4 Kentucky argues that it is “immune from suit absent waiver of that immunity by the 5 state legislature” because of its status as an arm of the state. (MTD at 3, 7 (“The University 6 of Kentucky has repeatedly been found to be the Commonwealth under the Eleventh 7 Amendment . . . .”).) However, the statutory abrogation to which Kentucky refers is not 8 the sole means of waiver. A state may waive its sovereign immunity by contract or through 9 “a ‘clear declaration’ by the state that it consents to federal jurisdiction.” (MTD at 7 10 (quoting Competitive Techs. v. Fujitsu Ltd., 286 F. Supp. 2d 1118, 1128 (2003)).) See 11 Caremark, LLC v. Chickasaw Nation, 43 F.4th 1021, 1032 (2022) (“[A]ny waiver of . . . 12 sovereign immunity must be expressed in clear and unequivocal terms.” (citations 13 omitted)). Although the parties dispute which version of their arbitration agreement is 14 valid, Kentucky does not dispute the validity of the entire contract—only the validity of 15 the JAMS Amendment. (Reply at 9 (“[T]he Court need not address the merits of whether 16 the JAMS Amendment was an effective or valid contract that was validly formed between 17 the parties.”).) Accordingly, for the purpose of the present Motion, the Court need only 18 determine whether the terms of the Provider Agreement and Provider Manual clearly and 19 unequivocally waive Kentucky’s sovereign immunity as to a claim demanding arbitration. 20 See Chickasaw, 43 F.4th at 1030. 21 Kentucky further argues that “the Caremark Agreement, by itself, does not result in 22 an automatic waiver of Eleventh Amendment immunity by the University of Kentucky as 23 to any and all disputes arising out of the Caremark Provider Agreement.” (Reply at 5.) 24 Relying on Caremark v. Chickasaw, Kentucky concedes it waived its sovereign immunity 25 to a limited extent when it initiated arbitration before AAA, but the scope of its waiver did 26 not extend to the JAMS Amendment absent either state law waiver (Reply at 4) or clear 27 and unequivocal waiver (Reply at 6). 28 1 The Chickasaw court noted that an arbitration clause—the same arbitration clause 2 included in the 2022 Provider Manual that Kentucky signed—“is an agreement to bring 3 any disputes to a particular forum” but “does not necessarily waive sovereign immunity.” 4 Chickasaw, 43 F.4th at 1032. “An arbitration agreement may or may not have implications 5 for a tribe’s sovereign immunity,” and a court may not need to resolve sovereign immunity 6 issues at all to determine whether the parties agreed to arbitrate. The court rejected the 7 tribe’s argument “that an arbitration agreement always and necessarily waives tribal 8 sovereign immunity.” Id. Kentucky urges this Court to arrive at the same conclusion with 9 respect to it. 10 Importantly, the Chickasaw court did not clarify whether a governmental entity 11 waives sovereign immunity by entering into a valid arbitration agreement in the first place. 12 (Reply at 4.) Kentucky recognizes this issue was unresolved by Chickasaw. (Reply at 5–6, 13 n.3.) However, the Ninth Circuit’s recent decision in Caremark, LLC v. Choctaw wholly 14 answers this question. Caremark, LLC v. Choctaw Nation, 104 F.4th 81, 88, 95 (9th Cir. 15 2024). Although neither party included Choctaw in its briefs or filed a related notice of 16 supplemental authority with the Court, the Ninth Circuit’s decision binds this Court and 17 squarely forecloses Kentucky’s position.2 18 Related to the same arbitration clause at issue here, the Choctaw court addressed 19 whether the defendant tribe’s execution of the Provider Agreement “clearly and 20 unequivocally waived its tribal sovereign immunity such that [the court] had jurisdiction 21 over Caremark’s petition to compel arbitration.” Id. at 88. The Choctaw court engaged in 22 a two-part analysis, asking (1) whether the contracts containing the arbitration agreement 23 were validly formed, and (2) whether, under the terms of the valid contract, the tribe 24 “clearly and unequivocally waived its sovereign immunity for arbitration proceedings such 25 that the District of Arizona had jurisdiction over the petition to compel arbitration.” Id. at 26 92. 27 2 While both parties included arguments related to Ex Parte Young, the Ninth 28 Circuit’s holding in Choctaw answers the question of waiver of sovereign immunity and Ex Parte Young does not apply to this case. 1 As to the first part, the court in Choctaw found that the tribe “appear[ed] to recognize 2 that it formed valid contracts” when it continued to engage in the reimbursement process 3 for pharmacy claims with Caremark. Despite the tribe’s argument that the “arbitration 4 provisions in those contracts are unenforceable,” the court held the contracts were validly 5 formed. Id. at 89. The same applies to the Provider Agreement between Caremark and 6 Kentucky. 7 Here, Kentucky attempts to distinguish between claims for which it agreed to waive 8 its Eleventh Amendment immunity—that is, those claims filed with the AAA—and “every 9 possible dispute that might arise out of the Agreement.” (Reply at 4.) Accepting that the 10 Provider Agreement waived Kentucky’s sovereign immunity to proceedings brought to 11 arbitration before the AAA, Kentucky asserts that no ‘clear and unequivocal’ waiver of 12 sovereign immunity existed as to the JAMS Amendment because Kentucky could not avoid 13 being bound by the amendment except by terminating the agreement. (MTD at 12; Reply 14 at 3, 6.) But Kentucky does not contest the validity of the contract itself—it challenges only 15 the JAMS Amendment. (Reply at 6–8.) Under the holdings of both Chickasaw and 16 Choctaw, a valid contract exists between Kentucky and Caremark. Choctaw, 104 F.4th at 17 89 (holding contracts with a disputed arbitration provision valid when the parties did “not 18 disavow the contracts entirely”). 19 Next, the Choctaw court concluded that the Caremark “Provider Manuals . . . clearly 20 and unambiguously waived the Nation’s sovereign immunity from arbitration proceedings 21 in the District of Arizona.” Id. at 94. While the Choctaw court specifically examined 22 whether the District of Arizona properly had jurisdiction to compel arbitration proceedings, 23 the Ninth Circuit’s holding readily applies to this case. Id. (“[The Supreme] Court’s 24 reasoning applies with equal force to the issue presented here: whether under the express 25 terms of the Provider Manuals . . . the Nation waived its immunity as to a motion to compel 26 arbitration proceedings brought in the District of Arizona, the jurisdiction where any 27 arbitration is to take place under the arbitration agreement.”). Choctaw indicates that 28 Kentucky waived its sovereign immunity when it entered into the Provider Agreement and 1 may be compelled to arbitration, a result that “reflects the real world end of permitting suit 2 in a competent jurisdiction to initiate the arbitration proceedings that the parties’ agreement 3 otherwise plainly allows.” 104 F.4th at 94. 4 Kentucky maintains that it did not waive its immunity by entering into the Provider 5 Agreement, which “[does] not include any other language regarding the waiver of 6 sovereign immunity, whether in connection with the arbitrations or any suits filed in federal 7 court,” and that agreeing to the arbitration provision in the 2022 Provider Manual also does 8 not “necessarily result[] in a waiver of sovereign immunity.” (MTD at 4.) In light of 9 Choctaw, this argument fails. Kentucky willingly entered a contract containing an 10 arbitration provision governed by the FAA when it signed the 2022 Provider Agreement. 11 (Provider Agreement ¶ 15.09.07; Reply at 7.) Section 4 of the FAA provides in relevant 12 part: “A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate 13 under a written agreement for arbitration may petition any United States district court 14 which, save for such agreement, would have jurisdiction under title 28, . . . for an order 15 directing that such arbitration proceed in the manner provided for in such agreement.” 16 Thus, by agreeing to arbitration as governed by the FAA, Kentucky agreed that an 17 aggrieved party to the agreement may move a district court, such as the present one, for an 18 order compelling arbitration, as Caremark has done in this case. As in Choctaw, “the 19 ‘relevant documents in this case’ are not ‘silent with respect to [Kentucky’s] consent to 20 suit’” in federal court in Arizona. Choctaw, 104 F.4th at 93 (quoting McClendon v. United 21 States, 885 F.2d 627 (9th Cir. 1989)). 22 Courts recognize the FAA as a “liberal federal policy favoring arbitration.” Moses 23 H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). Thus, “courts must 24 place arbitration agreements on an equal footing with other contracts . . . and enforce them 25 according to their terms.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) 26 (internal citations omitted). For all of these reasons, the Court finds the acceptance and 27 execution of the Provider Agreement and the incorporated Provider Manual waive 28 Kentucky’s sovereign immunity as to Caremark’s claim demanding arbitration. 1 In Kentucky’s argument that the JAMS Amendment to the 2022 Provider Manual is invalid as a unilateral contract of adhesion, Kentucky raises the ultimate question before 3 || the Court in this case, which the Court will answer when it resolves the competing Motions to Compel Arbitration (Docs. 55, 94). 5 IT IS THEREFORE ORDERED denying Defendants the University of Kentucky, 6 || the University of Kentucky Board of Trustees, and Members of the University of Kentucky Board of Trustees’ Motion to Dismiss Complaint (Doc. 72). 8 Dated this 19th day of September, 2024. CN

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