Caremark LLC v. Choctaw Nation

Opinion

1 WO 2 3 4 5

9 Caremark LLC, et al., No. CV-21-01554-PHX-SMB

10 Petitioners, ORDER

11 v.

12 Choctaw Nation, et al.,

13 Respondents. 14 15 Pending before the Court is Petitioners’1 Petition for Order to Compel Arbitration 16 (the “Petition”). (Doc. 1.) The Petition is supported by Petitioners’ Memorandum of Law. 17 (Doc. 21.) Respondents2 filed a Response, (Doc. 28), and Petitioners replied, (Doc. 33). 18 The parties did not request oral argument, and the Court declines to hold oral argument, 19 finding that it is unnecessary. See LRCiv 7.2(f). The Court has considered the briefing 20 and relevant law and will grant Caremark’s Petition. 22 23 1 Petitioners include Caremark, LLC; Caremark PHC, LLC; CaremarkPCS Health, LLC; Caremark Rx, LLC; Aetna, Inc.; and Aetna Health, Inc. Collectively, the Court will refer 24 to Petitioners as “Caremark.” 2 Respondents include the Choctaw Nation; the Choctaw Nation Health Services Authority; 25 the Choctaw Health Care, Talihina, OK; the Choctaw Nation Health Clinic-Rubin White, 26 Poteau; the Choctaw Nation Health Clinic-McAlester; the Choctaw Nation Health Clinic- Idabel; the Choctaw Nation Health Clinic-Stigler; the Choctaw Nation Health Clinic-Hugo; 27 the Choctaw Nation Health Clinic-Atoka; the Choctaw Nation Health Care Center Durant 28 Pharmacy; and the Choctaw Nation Online Pharmacy Refill Center. Collectively, the Court will refer to Respondents as the “Choctaw Nation” or the “Nation.” 1 A. Oklahoma Litigation 2 On April 26, 2021, the Choctaw Nation filed a complaint in the Eastern District of 3 Oklahoma (the “Oklahoma Action”) against eleven defendants, including all the named 4 petitioners in this action. See Choctaw Nation v. Caremark, LLC, No. 6:21-CV-128-PRW 5 (E.D. Okla. 2021). The Choctaw Nation’s complaint in that case seeks redress under the 6 Recovery Act, 25 U.S.C. § 1621e, which provides tribes with the statutory right to recoup 7 costs of covered medical services provided to tribal members from applicable insurance 8 coverage. (Doc. 16 at 3.) The complaint alleges that “[D]efendants violated its rights under 9 the Recovery Act by improperly denying claims for reimbursement and by wrongfully 10 applying insurance discounts that force tribal pharmacies to operate at a loss.” (Id.) 11 B. Petition for Order to Compel Arbitration 12 Caremark filed their Petition with this Court on September 10, 2021. (Doc. 1.) In 13 the Petition, Caremark moved the Court to compel the Choctaw Nation and related parties 14 to submit their dispute to an arbitrator under the Federal Arbitration Act, 9 U.S.C. § 1, et 15 seq. (the “FAA”), and pursuant to alleged governing agreements. (Doc. 1 at 2.) The 16 Petition alleges that Choctaw Nation pharmacies participate in multiple pharmacy 17 networks operated by Caremark and entered into contracts with Caremark referred to as a 18 “Provider Agreements.” (Id. ¶ 2.) Caremark alleges that, pursuant to the Provider 19 Agreements, the Choctaw Nation and related entities agreed that all disputes “in connection 20 with, arising out of or relating in any way to” the Provider Agreements “[would] be 21 exclusively settled by arbitration before an arbitrator in accordance with the rules of the 22 American Arbitration Association.” (Id. ¶ 3.) The petition alleges that the Choctaw Nation 23 agreed to an arbitration location of Scottsdale, Arizona. (Id.) 24 C. Chickasaw Nation Litigation 25 On December 29, 2020, the Chickasaw Nation filed a complaint in the U.S. District 26 Court for the District of Oklahoma, which Caremark argues was “nearly identical to the 27 Choctaw Nation’s Complaint.” (Doc. 22 at 7.) After the Chickasaw Nation filed its 28 complaint, Caremark moved to stay the Oklahoma proceedings and filed a petition to 1 compel arbitration in the District of Arizona pursuant to § 4 of the FAA. (Id.) In an order 2 dated July 2, 2021, a court in this district granted Caremark’s Petition for an Order to 3 Compel Arbitration, finding that—under the arbitration provision—the arbitrator, not the 4 court, should decide the threshold issue of arbitrability. Caremark, LLC v. Chickasaw 5 Nation, No. CV-21-00574-PHX-SPL, 2021 WL 2780859, at *3 (D. Ariz. July 2, 2021). 6 The Chickasaw Nation appealed the decision, see Caremark, LLC v. The Chickasaw 7 Nation, Case No. 21-16209, which is currently pending with the Ninth Circuit. The Ninth 8 Circuit granted the Chickasaw Nation’s request to expedite the appeal and placed it on the 9 January 2022 calendar. (Doc. 16-2 at 2–3.) 10 D. Order Denying Stay 11 On February 16, 2022, this Court issued an order denying the Choctaw Nation’s 12 motion to stay these proceedings until the Ninth Circuit had decided the Chickasaw 13 Nation’s appeal on a similar issue. (Doc. 34.) 15 In deciding whether to compel arbitration, a court determines two “gateway” issues: 16 “(1) whether there is an agreement to arbitrate between the parties; and (2) whether the 17 agreement covers the dispute.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 18 2015). Where the dispute concerns who is empowered to decide arbitrability—court or 19 arbitrator—there is a presumption in favor of judicial resolution rather than arbitral 20 resolution. Loc. Joint Exec. Bd. v. Mirage Casino-Hotel, Inc., 911 F.3d 588, 596 (9th Cir. 21 2018). However, the Supreme Court has consistently held that “parties may delegate 22 threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so 23 by clear and unmistakable evidence.” Henry Schein, Inc. v. Archer and White Sales, Inc., 24 139 S.Ct. 524, 530 (2019) (internal quotation marks omitted). Of course, a court must first 25 determine whether a valid arbitration agreement exists. Id. “But if a valid agreement 26 exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may 27 not decide the arbitrability issue.” Id. “Clear and unmistakable ‘evidence’ of agreement 28 to arbitrate arbitrability might include …. an express agreement to do so.” Rent-A-Center, 1 W., Inc., v. Jackson, 561 U.S. 63, 79–80 (2010) (Stevens, J., dissenting) (citing First 2 Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 946 (1995)). 4 Caremark argues that it has a contract with the Choctaw Nation that includes a valid, 5 enforceable arbitration provision with a delegation clause that mandates that the issue of 6 the arbitrability of the dispute be submitted to an arbitrator. (Doc. 21 at 17.) It further 7 contends that the claims, facts, and agreement are nearly identical to those in the Chickasaw 8 Nation litigation where the court granted Caremark’s petition to compel arbitration. See 9 Chickasaw Nation, 2021 WL 2780859, at *3. Caremark further argues that even if this 10 Court were to decide arbitrability, the dispute in the Choctaw Nation’s Oklahoma 11 complaint is still subject to arbitration. (Id.) Lastly, Caremark insists that the Choctaw 12 Nation cannot invoke sovereign immunity as a defense to Caremark’s arbitration demands. 13 (Id. at 18.) 14 The Choctaw Nation argues that the parties did not clearly and unequivocally agree 15 to arbitrate the Nation’s claims because none of the Nation’s pharmacies ever signed a 16 contract containing an arbitration clause with Caremark. (Doc. 28 at 12.) The Nation also 17 contends that it did not clearly and unequivocally waive its sovereign immunity. (Id. at 18 12.) Furthermore, they argue that even if they had, the Recovery Act displaces such an 19 arbitration agreement. (Id.) 20 A. The Choctaw Nation Agreed to the Updated Provider 21 Agreement/Manuel 22 The Choctaw Nation argues that the Provider Agreements which the pharmacies 23 signed in 2005, 2008, and 2009 do not contain an arbitration provision, and that the 24 arbitration provision was actually contained in the Provider Manuals. (Doc. 28 at 29–30.) 25 Therefore, it concludes that the contracts cited by Caremark do not reflect a clear and 26 unequivocal agreement to arbitrate the claims in the suit. (Id. at 29.) Furthermore, it argues 27 that the pharmacies signed the Provider Agreements in 2005, 2008, and 2009, but that the 28 arbitration clause requiring an arbitrator to decide arbitrability was not added to the 1 Provider Manuel until 2014. (Id. at 30–31.) The Nation’s arguments are misguided. 2 As Caremark has shown, in 2009 all Respondent pharmacies entered into a new 3 Provider Agreement with Caremark. (Doc. 33 at 16–17.) All Provider Agreements signed 4 by Choctaw Nation pharmacies state, “This Agreement, the Provider Manual, and all other 5 Caremark Documents constitute the entire agreement between Provider and Caremark, all 6 of which are incorporated by this reference as if fully set forth herein and referred to 7 collectively as the ‘Provider Agreement’ or ‘Agreement.’” (Doc. 5-1 ¶ 27, Ex. H.) The 8 2004, 2007, 2009, 2011, 2014, 2016, and 2018 Provider Manuals each contained a 9 provision which states, “From time to time, Caremark may amend the Provider Agreement, 10 including the Provider Manual or other Caremark Documents, by giving notice to Provider 11 of the terms of the amendment and specifying the date and amendment to become 12 effective.” (Id. ¶ 39.) Moreover, each Provider Manual states, “If Provider submits claims 13 to Caremark after the effective date of any notice or amendment, the terms of the notice or 14 amendment will be deemed accepted by Provider and will be considered part of the 15 Caremark Provider Agreement.” (Id.) Additionally, each Provider Manuel since 2004 has 16 contained an arbitration provision. (Doc. 5-1 ¶¶ 28–36.) Thus, by the incorporation into 17 the Provider Agreements of the Provider Manuals, the Provider Agreements have, in fact, 18 contained an arbitration provision since 2004. 19 In 2014, Caremark sent the 2014 Provider Manual to the Choctaw Nation 20 pharmacies. (Id. ¶ 32, Ex. N.) The Arbitration Provision covered any dispute “in 21 connection with, arising out of, or relating in any way to” the Provider Agreement. (Doc. 22 9-13 at 48.) Further, the arbitration provision granted the arbitrator(s) “exclusive authority 23 to resolve any dispute relating to the interpretation, applicability, enforceability or 24 formation of the agreement to arbitrate.”3 (Id.) Each subsequent Provider Manual 25 contained identical language. (Doc. 5-1, Exs. O, P, Q.) Further, Caremark provided a 26 declaration and a supporting business record that Caremark sent the tribal pharmacies via 27

28 3 Before this time, as far back as 2004, the arbitration provision in the Provider Manuals simply incorporated the AAA rules. (Doc. 9-8 at 50.) 1 UPS or FedEx. (Id. ¶¶ 29–38.) After receipt of the updated Provider Manuals, it is 2 undisputed that all the Choctaw Nation pharmacies continued to submit claims for 3 reimbursement to Caremark. (Id. ¶ 42.) 4 1. Incorporation by Reference of the Provider Manual 5 In Arizona, the basic rule of contract construction for incorporation by reference is 6 that: “The reference must be clear and unequivocal and must be called to the attention of 7 the other party, he must consent thereto, and the terms of the incorporated document must 8 be known or easily available to the contracting parties….” Weatherguard Roofing Co. v. 9 D.R. Ward Const. Co., 152 P.3d 1227, 1229 (Ariz. Ct. App. 2007) (quoting United 10 California Bank v. Prudential Ins. Co. of America, 681 P.2d 390, 420 (Ariz. Ct. App. 11 1983)) (cleaned up). Additionally, “[w]hile it is not necessary that a contract state 12 specifically that another writing is ‘incorporated by reference herein,’ the context in which 13 the reference is made must make clear that the writing is part of the contract.” Id. (quoting 14 United California Bank, 681 P.2d at 420). 15 Here, it is clear that the Provider Manuals were properly incorporated by reference 16 into the Provider Agreements under Arizona law. The incorporation by reference of the 17 Provider Manuals was clearly spelled out by the plain text of the Provider Agreements; the 18 Provider Agreements explicitly stated that the Provider Manuals were incorporated by 19 reference to the agreements. (See, e.g., Doc. 5-1 ¶ 27, Ex. H.) Further, the Choctaw Nation 20 is not arguing that they lacked access to the Provider Manuals or that they were unavailable 21 to them. A representative of Caremark stated in a declaration that Caremark regularly sent 22 the pharmacies updated provider manuals via FedEx or UPS. (Id. ¶ 30–32, 34–38.) Thus, 23 the Court finds that the Provider Manuals were properly incorporated by reference into the 24 Provider Agreements signed by the Nation’s pharmacies. 25 2. Modification of Agreement with Updated Provider Manuals 26 The Court will next turn to the question of whether Caremark successfully modified 27 the contract with updated terms through the updated Provider Manuals. Under Arizona 28 law, to effectively modify a contract, there must be: “(1) an offer to modify the contract, 1 (2) assent to or acceptance of that offer, and (3) consideration.” Demasse v. ITT Corp., 2 984 P.2d 1138, 1144 (Ariz. 1999). Conduct, such as continuing to do business with a party 3 despite receiving an offer to modify an agreement, “can be sufficient to manifest 4 acceptance of an offer or acquiescence to the modification.” Cap. One Bank (USA), N.A. 5 v. Davey, No. 1 CA-CV-13-0109, 2013 WL 6729261, at *5 (Ariz. Ct. App. Dec. 19, 2013); 6 see Ancell v. Union Station Assocs., Inc., 803 P.2d 450, 453 (Ariz. Ct. App. 1990) 7 (“Conduct can manifest acceptance of an offer or acquiescence in a modification.”). Other 8 courts analyzing the instant Caremark Provider Agreement under Arizona law have 9 determined that pharmacies which continue to submit claims to Caremark after receiving 10 an updated Provider Manual are bound by the updated terms. See, e.g., W. Va. CVS Pharm. 11 LLC v. McDowell Pharm., Inc., 238 W. Va. 465, 475–477 (2017) (finding modification of 12 the agreement, under Arizona law, when pharmacies received updated Provider Manuals 13 and continued to submit claims to Caremark); Grasso Enterprises, LLC v. CVS Health 14 Corp., 143 F. Supp. 3d 530, 538 (W.D. Tex. 2015) (“[I]f a pharmacy does not agree to the 15 new terms, it may simply reject the amendment by ceasing to submit claims to 16 CVS/Caremark.”). 17 Here, the conduct of the Nation’s pharmacies manifested assent to the updated terms 18 in the Provider Manuals. The Provider Manuals contained a provision stating that 19 Caremark could update the terms by giving the providers the terms of the amendment and 20 the date that the amendment would become effective. (Doc. 5-1 ¶ 39.) The Provider 21 Manuals were clear that if providers continued to submit claims to Caremark after the date 22 that the updated terms became effective, that would evidence the providers’ acceptance of 23 the updated terms. It is undisputed that all providers continued to submit claims to 24 Caremark after receiving each updated version of the Provider Manual. (Id. ¶ 42.) 25 Caremark would send the Nation’s pharmacies the updated Provider Manual via FedEx or 26 UPS. (Id. ¶¶ 29–38.) Caremark maintained a business record to track proof or receipt of 27 the deliveries to the Choctaw Nation pharmacy headquarters from 2016 to 2020. (Doc. 9- 28 17, Ex. R.) Each time Caremark sent the pharmacies a new Provider Manual with updated 1 terms, Caremark was offering to modify the terms of the agreement, and the Nation’s 2 pharmacies’ conduct of continuing to submit claims to Caremark after the effective date of 3 the new terms evidence assent to be bound by the new terms. See Davey, 2013 WL 4 6729261, at *5. The Nation argues that the parties did not initial the changes to the 5 agreement as required in the Provider Agreements. (Doc. 28 at 20.) Nonetheless, the Court 6 finds that the conduct of the pharmacies—continuing to submit claims after receiving the 7 updated Provider Manuals—provides evidence of assent to the new terms independent of 8 whether the pharmacies initialed their intent to modify the agreement. If they did not agree 9 to the modification, the pharmacies simply could have stopped submitting claims or 10 contacted Caremark to negotiate new terms. Thus, the parties effectively modified the 11 terms of the agreements through this process. Consequently, the Nation’s pharmacies are 12 bound by the updated terms. 13 B. Delegation Clause 14 The Court finds that the delegation clause is clear and unmistakable; an arbitrator— 15 not this Court—should decide the threshold question of arbitrability. Since 2014, the 16 arbitration provision of the Provider Manual states: “The arbitrator(s) shall have exclusive 17 authority to resolve any dispute relating to the interpretation, applicability, enforceability 18 or formation of the agreement to arbitrate, including but not limited to any claim that all or 19 part of the agreement to arbitrate is void or voidable for any reason.” (Doc. 9-13 at 47.) 20 This language is clear and unmistakable and shows that the parties intended for an 21 arbitrator to decide arbitrability. See Chickisaw Nation, 2021 WL 2780859, at *3 (“The 22 parties clearly agreed that the arbitrator(s), not the court, would decide the threshold issue 23 of arbitrability.”). Thus, the Court must step aside and allow the arbitrator to decide 24 whether the claims in this case are subject to arbitration. 25 Caremark also points out, correctly, that the Provider Manuals stated—as far back 26 as 2004—that “[a]ny and all controversies in connection with or arising out of the Provider 27 Agreement, which cannot be settled by the parties, will be exclusively settled by arbitration 28 before a single arbitrator in accordance with the Rules of the American Arbitration 1 Association.” (Doc. 9-8 at 50.) In the Ninth Circuit, “incorporation of the AAA rules 2 constitutes clear and unmistakable evidence that the contracting parties agreed to arbitrate 3 arbitrability.” Brennan, 796 F.3d at 1125. Therefore, even if the agreement was not 4 properly modified to add the delegation clause, the parties agreed to arbitrate arbitrability 5 by the incorporation of the AAA rules as early as 2004. Accordingly, the Court must allow 6 the arbitrator to decide the threshold issue of arbitrability. 7 C. Sovereign Immunity 8 The Choctaw Nation also argues that the tribal sovereign immunity requires a clear 9 and unequivocal agreement to arbitrate and that none exists here. (Doc. 28 at 23.) 10 Caremark argues that the Court need not address the Nation’s sovereign immunity 11 argument because Caremark is not asserting any claims against the Nation. (Doc. 33 at 4.) 12 Caremark also argues that even if this were not so, the arbitration provision constitutes a 13 clear and unequivocal waiver of sovereign immunity. (Doc. 33 at 15.) 14 “Tribal sovereign immunity protects Indian tribes from suit absent express 15 authorization by Congress or clear waiver by the tribe.” Pistor v. Garcia, 791 F.3d 1104, 16 1110 (9th Cir. 2015) (quoting Cook v. AVI Casino Enterprises, Inc., 548 F.3d 718, 725 (9th 17 Cir. 2008)); see also C & L Enters., Inc. v. Citizen Band Potawatomi Indian Tribe, 532 18 U.S. 411, 418 (2001) (holding that the tribe agreed, by express contract, to resolve disputes 19 by arbitration and noting that the tribe itself tendered the contract calling for those 20 procedures). 21 Here, the Choctaw Nation pharmacies clearly and unequivocally waived sovereign 22 immunity when they signed contracts with an express arbitration provision. As explained 23 above, the Nation’s pharmacies clearly agreed to the Provider Agreements by signing the 24 agreements as early as 2004. Supra § III(a). The Provider Agreements incorporated by 25 reference the Provider Manual, which contained an arbitration clause. As early as 2004, 26 the Provider Manual incorporated the AAA rules, meaning that the parties had agreed that 27 an arbitrator would arbitrate arbitrability. See Brennan, 796 F.3d at 1125. The parties 28 modified the agreements when Caremark sent updated Provider Manuals, and the 1 pharmacies continued to submit claims to Caremark after the effective dates. Under these 2 facts, the Choctaw Nation pharmacies expressly agreed to the Provider Agreement and 3 clearly agreed to arbitrate disputes under the agreement. Thus, the Nation has waived its 4 sovereign immunity for claims brought related to the Provider Agreement. 5 D. The Recovery Act 6 Lastly, the Nation argues that the Recovery Act displaces the arbitration provision. 7 (Doc. 28 at 40.) Caremark argues that because there is a valid delegation clause, whether 8 the Recovery Act displaces any agreement to arbitrate must be decided by the arbitrator in 9 the first instance. (Doc. 33 at 25.) 10 The Recovery Act allows tribes to recover from insurance companies the reasonable 11 charges billed by a tribe in providing health services. See 25 U.S.C. § 1621e(a). The Act 12 states, “[N]o provision of any contract shall prevent or hinder the right of recovery of the 13 United States, an Indian tribe, or tribal organization under subsection (a).” 25 U.S.C. § 14 1621e(c). The statute is silent regarding arbitration. See id. 15 Because the Court has found that the parties agreed to a valid delegation clause, 16 whether the Recovery Act displaces the arbitration provision is a question for the arbitrator. 17 The Supreme Court and Ninth Circuit are clear that “[w]here a delegation provision exists, 18 court first must focus on the enforceability of that specific provision, not the enforceability 19 of the arbitration agreement as a whole.” Brice v. Haynes Invs., LLC, 13 F.4th 823, 827 20 (9th Cir. 2021) (citing Rent-A-Center, 561 U.S. at 71; Brennan, 796 F.3d at 1132 (9th Cir. 21 2015)). As stated by the court in Brice, whether an arbitration agreement is unenforceable 22 in light of a federal cause of action “is for the arbitrator to decide so long as the delegation 23 provision itself does not eliminate parties’ rights to pursue their federal remedies.” Id. at 24 837. So it is here. The delegation clause at issue does not limit the parties’ rights to pursue 25 federal causes of action. Thus, whether the Recovery Act displaces an agreement to 26 arbitrate is an arbitrability question that the Court “may not decide.” Id. (quoting Henry 27 Schein, Inc., 139 S. Ct. at 529–30.). Therefore, the Court will leave this question for the 28 arbitrator. IV. CONCLUSION 2 For the reasons discussed above, the Court will grant Caremark’s Motion and 3 || compel arbitration between the parties under § 4 of the FAA. Accordingly, 4 IT IS ORDERED granting Petitioners’ Petition to Compel Arbitration. (Doc. 1.) 5 IT IS FURTHER ORDERED directing the Clerk of Court to enter judgment in || favor of Petitioners and terminate this action accordingly. 7 Dated this 14th day of March, 2022. 8 9 Se . ~P 10 SO

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