Osterhaus Pharmacy, Inc. v. Cvs Health Corporation

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 15, 2026
• Docket: 25-1843
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS MAY 15 2026 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

OSTERHAUS PHARMACY, INC.; No. 25-1467 CAMMACK'S PHARMACIES, INC., D.C. No. doing business as Jims Pharmacy and Home 2:24-cv-01539-JJT Health; JCH PHARMACY HOLDINGS, INC.; CALLS COMMUNITY MEMORANDUM* PHARMACY, LLC, on behalf of themselves and all others similarly situated,

Plaintiffs - Appellants,

v.

CVS HEALTH CORPORATION; CVS PHARMACY, INC.; CAREMARK RX, LLC, formerly known as Caremark RX, Inc.; CAREMARK, LLC; CAREMARKPCS, LLC; CAREMARKPCS HEALTH, LLC; CAREMARK IPA, LLC; CAREMARK PART D SERVICES, LLC; AETNA INC.; AETNA HEALTH HOLDINGS, LLC; AETNA HEALTH MANAGEMENT, LLC,

Defendants - Appellees.

OSTERHAUS PHARMACY, INC.; No. 25-1843 CAMMACK'S PHARMACIES, INC.; JCH PHARMACY HOLDINGS, INC.; CALLS

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. COMMUNITY PHARMACY, LLC, D.C. No. 2:24-cv-01539-JJT Plaintiffs - Appellees,

CVS HEALTH CORPORATION; CVS PHARMACY, INC.; CAREMARK RX, LLC; CAREMARK, LLC; CAREMARKPCS, LLC; CAREMARKPCS HEALTH, LLC; CAREMARK IPA, LLC; CAREMARK PART D SERVICES, LLC; AETNA INC.; AETNA HEALTH HOLDINGS, LLC; AETNA HEALTH MANAGEMENT, LLC,

Defendants - Appellants.

Appeal from the United States District Court for the District of Arizona John Joseph Tuchi, District Judge, Presiding

Argued and Submitted March 3, 2026 Phoenix, Arizona

Before: CLIFTON, BYBEE, and MILLER, Circuit Judges.

Appellants Osterhaus Pharmacy, Inc., Cammack’s Pharmacies, Inc., JCH

Pharmacy Holdings, Inc., and Calls Community Pharmacy, LLC (collectively,

“Plaintiffs”) appeal the district court’s order compelling arbitration of Plaintiffs’

claims against Caremark and its affiliates (collectively, “Caremark”) and

dismissing the action without prejudice (Case No. 25-1467). Plaintiffs allege

anticompetitive conduct by pharmacy benefit managers regarding prescriptions

filled by pharmacies under Medicare health plans. Caremark cross-appeals the

2 25-1467 district court’s order declining to enforce the delegation clause of the arbitration

agreement (Case No. 25-1843).

Caremark filed a motion to compel arbitration of Plaintiffs’ claims based on

an arbitration agreement within Caremark’s standard provider agreement. Plaintiffs

opposed the motion on the grounds that certain provisions rendered the arbitration

agreement substantively unconscionable and thereby unenforceable: (1) the fee-

shifting provision, (2) the unilateral modification provision, (3) the uneven

remedies provision, (4) the escrow provision, (5) the confidentiality provision, and

(6) the limitations provision. Having concluded that the court, instead of an

arbitrator, should decide the threshold issue of arbitrability (the subject of the

cross-appeal), the district court then considered whether the arbitration agreement

was unenforceable as applied to Plaintiffs’ claims. The district court held the

uneven remedies provision, escrow provision, and confidentiality provision to be

substantively unconscionable. The court concluded that the three unconscionable

provisions were severable, and that the other challenged provisions and the

agreement as a whole, absent those three severed provisions, were not

unconscionable. The district court granted Caremark’s motion and dismissed the

case without prejudice1.

1 We note the Supreme Court’s recent decision holding that “[w]hen a federal court finds that a dispute is subject to arbitration, and a party has requested a stay of the court proceeding pending arbitration, the court does not have discretion to dismiss

3 25-1467 We have jurisdiction under 28 U.S.C. § 1291. We review de novo a district

court’s decision to grant or deny a motion to compel arbitration. Holley-Gallegly v.

TA Operating, LLC, 74 F.4th 997, 1000 (9th Cir. 2023). We review a district

court’s decision to sever unconscionable provisions for abuse of discretion.

Ronderos v. USF Reddaway, Inc., 114 F.4th 1080, 1088 (9th Cir. 2024). We

affirm.

1. Under Arizona law, the “primary” determinant of whether provisions of a

contract are severable is “the contractual language.” Kahl v. Winfrey, 303 P.2d 526,

529 (Ariz. 1956). “If it is clear from its terms that a contract was intended to be

severable, the court can enforce the lawful part and ignore the unlawful part.”

Olliver/Pilcher Ins., Inc. v. Daniels, 715 P.2d 1218, 1221 (Ariz. 1986). The

arbitration agreement here expressly stated that any unenforceable provisions shall

be deemed severable. Therefore, the district court did not abuse its discretion in

looking to the contractual language to sever the unconscionable provisions and

enforce the remainder of the arbitration agreement.

the suit on the basis that all the claims are subject to arbitration.” Smith v. Spizzirri, 601 U.S. 472, 475–76 (2024). However, where defendants have not requested a stay and instead have affirmatively requested a dismissal, as is the case here, dismissal is appropriate. Further, while Plaintiffs requested a stay before the district court, they abandoned that request on appeal. Therefore, this court affirms the dismissal of Plaintiffs’ claims without prejudice.

4 25-1467 2. Plaintiffs contend the district court erred on multiple grounds in enforcing

the arbitration agreement, including because the arbitration fees would exceed the

“normal costs of litigation” and be prohibitively costly.

Caremark contends that we should decline to consider this challenge on

appeal because Plaintiffs failed to raise this argument to the district court. The

argument made by Plaintiffs before the district court appears to have been

presented in the context of their challenge to the escrow provision, which required

a party initiating an arbitration to place in escrow at the outset a sum sufficient to

cover the estimated attorney’s fees and other arbitration expenses, in no event

totaling less than $50,000. We observe that there is some ambiguity as to whether

this argument was limited to Plaintiffs’ challenge to the escrow provision, or

established a challenge to the total cost of arbitration. Assuming that Plaintiffs

have done enough to preserve their argument, we nevertheless conclude that

Plaintiffs have not shown that the overall cost of arbitration is itself

unconscionable.

Under Arizona law, a plaintiff bears the burden of establishing that the fees

and costs to arbitrate are so excessive as to “deny a potential litigant the

opportunity to vindicate his or her rights.” Harrington v. Pulte Home Corp., 119

P.3d 1044, 1055 (Ariz. Ct. App. 2005). When a party seeks to invalidate an

agreement on this ground, Arizona courts will consider several factors:

5 25-1467 [A] party seeking to invalidate an arbitration agreement must establish arbitration costs with reasonable certainty; costs cannot be speculative. Next, the party must make a specific, individualized showing that she would be financially unable to bear the costs of arbitration. Lastly, the court considers whether the agreement permits a party to waive or reduce arbitration costs because of financial hardship.

Rizzio v. Surpass Senior Living LLC, 492 P.3d 1031, 1035 (Ariz. 2021) (internal

citations omitted).

Plaintiffs have not met their burden. The mere fact that fees must be paid

“above and beyond the normal costs of litigation” does not render the arbitration

agreement per se unconscionable. If that were the case, courts would be hard-

pressed ever to compel arbitration. Arbitration is a process with expenses that have

to be borne, including compensation to the arbitrators and administrative costs,

while court litigation does not require payments to the court beyond filing fees.

Parties necessarily accept this reality when they enter into an arbitration

agreement. Asserting that the additional cost of arbitration renders an arbitration

agreement unconscionable would undermine the agreement of the parties and the

federal presumption in favor of arbitration. See Moses H. Cone Mem’l Hosp. v.

Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983) (“The Arbitration Act

establishes that, as a matter of federal law, any doubts concerning the scope of

arbitrable issues should be resolved in favor of arbitration . . .”).

Arizona’s Rizzio factors also militate against a holding of unconscionability

where Plaintiffs are unable to establish arbitration costs with reasonable certainty.

6 25-1467 Rizzio, 492 P.3d at 1035. Here, the arbitration agreement includes a “loser pays”

provision requiring that the expenses of arbitration be paid by the party that loses

in arbitration. As Caremark has argued, Plaintiffs “will not be required to pay any

arbitration fees if they prevail.” “[I]t may well be that the existence of large

arbitration costs could preclude a litigant such from effectively vindicating her

federal statutory rights in the arbitral forum,” but the “risk that [a litigant] will be

saddled with prohibitive costs is too speculative to justify the invalidation of an

arbitration agreement.” Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79, 90–

91 (2000). Plaintiffs’ assertion that they risk being subject to costs and fees, if they

lose their dispute, is exactly the type of “risk” that the Randolph Court deemed

speculative and conclusory at best. See id.

3. Plaintiffs contend that the district court erred in holding that the loser

pays provision was not unconscionable. This argument fails. Though not universal,

requirements that unsuccessful parties in litigation are required to bear the costs of

litigation, including the attorney’s fees of successful litigants, are far from atypical

in American law, by contract or statute. Under Arizona law, for example, “[i]n any

contested action arising out of a contract, express or implied, the court may award

the successful party reasonable attorney fees.” Ariz. Rev. Stat. § 12-341.01(A).

Five of Plaintiffs’ seven claims appear to fall within Arizona’s fee-shifting statute.

While Plaintiffs’ two claims for Medicare and antitrust violations may not fall

7 25-1467 within the scope of § 12-341.01, Plaintiffs have not met their burden of

establishing that the loser pays provision prevents them from effectively

vindicating their rights in the arbitral forum. If costs of arbitration are imposed

upon Plaintiffs because they did not prevail in the arbitration, that suggests that

they did not have rights that needed vindication.

4. Plaintiffs argue that the district court erred in upholding a provision

shortening the limitations period for antitrust claims from four years to two years.

Because Arizona courts have recognized similar agreements with shortened

limitations periods and Plaintiffs have again failed to explain how this provision

prevents them from effectively vindicating their rights in the arbitral forum, we

affirm the district court’s order. See e.g., Angus Med. Co. v. Digital Equip. Corp.,

840 P.2d 1024, 1032 (Ariz. Ct. App. 1992) (upholding a provision shortening the

limitations period from six years to eighteen months).

5. Plaintiffs contend that the district court erred in upholding an amendment

provision that they argue allows Caremark to unilaterally amend its contracts at

any time. We disagree. We have recognized unconscionability in provisions that

allow providers to change their terms without notice and to apply those changes

retroactively. Cf. Heckman v. Live Nation Ent., Inc., 120 F.4th 670, 682 (9th Cir.

2024) (applying California law). This is not the case here. Caremark agreed to

provide advance notice of forthcoming amendments, specify the date that these

8 25-1467 amendments would become effective, and give other parties, including Plaintiffs,

the opportunity to discontinue the agreement. Because of these distinctions, we

affirm the district court’s holding that Caremark’s amendment provision is not per

se unconscionable.

6. Plaintiffs contend that the district court erred in concluding that a

showing of “gross disparity in economic leverage” had no bearing on the

enforceability of the arbitration agreement so long as Plaintiffs were not prevented

from understanding the terms of the arbitration agreement. We disagree. Plaintiffs’

challenge is relevant to the question of procedural unconscionability. “Procedural

unconscionability addresses the fairness of the bargaining process, which is

concerned with unfair surprise, fine print clauses, mistakes or ignorance of

important facts or other things that mean bargaining did not proceed as it should.”

Clark v. Renaissance West, L.L.C., 307 P.3d 77, 79 (Ariz. Ct. App. 2013)

(quotation marks and citation omitted). Plaintiffs do not dispute that they had an

opportunity to review the arbitration agreement and entered into the agreement

with Caremark with an understanding of the terms. The disparity in bargaining

power alone does not justify rendering the arbitration clause unenforceable, absent

any showing of unfair surprise, mistake, ignorance, or other indicators of

procedural unconscionability in the bargaining process.

9 25-1467 7. On cross-appeal, Caremark contends that the district court erred in

declining to enforce the delegation clause, which required an arbitrator to

determine the gateway issue of arbitrability.

First, Caremark contends that the district court erred in considering this issue

on the merits because Plaintiffs failed to mount a specific challenge to the

delegation clause. See Bielski v. Coinbase, Inc., 87 F.4th 1003, 1009 (9th Cir.

2023) (“[A] party resisting arbitration must mention that it is challenging the

delegation provision and make specific arguments attacking the provision in its

opposition to a motion to compel arbitration.”). Contrary to Caremark’s assertion,

we agree with the district court that Plaintiffs specifically attacked the validity of

the delegation clause throughout their briefing to the district court. Plaintiffs

argued that the delegation clause was unconscionable for the same reasons that the

arbitration agreement was, and our court permits “a party [to] challenge the

delegation provision and the arbitration agreement for the same reasons, so long as

the party specifies why each reason renders the specific provision unenforceable,”

which Plaintiffs did here. Id. at 1009–10.

Turning to the merits, the district court did not err in declining to enforce the

delegation clause, where the clause was substantively unconscionable when read in

conjunction with the escrow provision discussed above. See Holley-Gallegly, 74

F.4th at 1002 (permitting a party “to challenge the enforceability of a delegation

10 25-1467 clause by explaining how ‘unrelated’ provisions make the delegation

unconscionable”). The escrow provision would require Plaintiffs to set aside an

enormous upfront sum, potentially in the millions, to initiate a claim or even to

determine if the delegation clause required the initial challenge to be considered by

an arbitral tribunal instead of by the court. Caremark responded to that argument

before the district court by citing the minimum $50,000 amount, without quarreling

with Plaintiffs’ much larger calculation. The district court reasonably concluded

that the delegation clause, read alongside the escrow provision, would prevent

Plaintiffs from “effectively vindicat[ing] [their] rights in the arbitral forum due to

the prohibitive costs of arbitration.” Rizzio, 492 P.3d at 1035. We see no reason to

disagree with or disturb the district court’s order.

Each party to bear its own costs.

AFFIRMED.

11 25-1467