Stafford v. Rite Aid Corporation

Opinion

1 2 3 4 5 6 7 10 11 BRYON STAFFORD, Individually Lead Case No.: 3:17-cv-01340-AJB-JLB and on Behalf of All Others (Consolidated with Case No. 3:18-cv- 12 Similarly Situated, 00152-AJB-JLB) 13 Plaintiff, ORDER: 14 v.

15 RITE AID CORPORATION, (1) GRANTING PLAINTIFFS’ Defendant. MOTION TO APPOINT INTERIM 16 CO-LEAD CLASS COUNSEL, (Doc. 17 No. 105);

18 (2) GRANTING EX PARTE MOTION 19 TO STAY PENDING APPEAL, (Doc. No. 183); AND 20

21 (3) STAYING PLAINTIFFS STAFFORD AND JOSTEN’S 22 MATTERS 23 24 Presently pending before the Court are: (1) Bryon Stafford (“Stafford”) and Robert 25 Josten’s (“Josten”) (collectively, “Plaintiffs”) unopposed motion to appoint interim co-lead 26 class counsel. (Doc. No. 105), and (2) Defendant Rite Aid Corporation’s (“Rite Aid”) ex 27 parte motion to stay pending appeal. (Doc. No. 183.) Plaintiff Stafford filed an opposition 28 1 1 to Rite Aid’s ex parte motion. (Doc. No. 185.) For the reasons set forth in detail below, the 2 Court GRANTS (1) Plaintiffs’ unopposed motion to appoint, (2) GRANTS Rite Aid’s ex 3 parte motion, and (3) STAYS Plaintiffs’ matters pending Rite Aid’s appeal. 5 This is a putative class action filed against Rite Aid Corporation and Rite Aid Hdqtrs. 6 Corporation (“Rite Aid HQ”) for an alleged deceptive and unfair pricing scheme involving 7 Rite Aid’s Rx Savings Program. (Third Amended Complaint (“TAC”), Doc. No. 145.) 8 As general background, the overwhelming majority of Rite Aid’s clients are enrolled 9 in either a private or public health care plan that covers some or all medical and 10 pharmaceutical expenses. (Id. ¶ 28.) In almost every one of these plans, the cost of 11 prescription drugs is shared between the third-party payor (“TPPs”) (i.e., the health 12 insurance plan) and the actual user of the drug (i.e., the plan participant). (Id.) When a plan 13 participant fills a prescription at a pharmacy under a third-party health care plan, the plan 14 pays a portion of the cost, and the plan participant pays the remaining portion of the cost 15 directly to the pharmacy as a copayment. (Id.) Because of the cost savings associated with 16 generic drugs as opposed to brand name drugs, TPPs incentivize plan participants to 17 purchase generic drugs by offering a lower price, which in turn, results in a lower 18 copayment. (Id. ¶ 6.) By law, Rite Aid cannot charge a copayment that exceeds its “usual 19 and customary” price, which is generally defined within the pharmaceuticals industry. (Id. 20 ¶ 7.) The process by which financial responsibility between TPPs and plan participants is 21 determined is called “adjudication.” Rite Aid contracts with pharmacy benefit managers 22 (“PBMs”) and TPPs to “adjudicate” the claims of customers for prescription drug coverage. 23 (Doc. No. 78-1 at 7.) The contracts specify Rite Aid’s obligations to the TPP or PBM when 24 submitting claims for prescription coverage at the point of sale, as well as the amount Rite 25 Aid will receive as payment when filling prescriptions. (Id. at 8.) Generally, the TPP or 26 PBM determines the amount of reimbursement according to those contracts as well as the 27 copayment or deductible amount. (Id.) The TPP or PBM then transmits the information 28 2 1 back to Rite Aid, instructing Rite Aid on the amount to collect from the customer. (Id.) 2 Plaintiffs allege Rite Aid overcharges customers for generic prescription drugs by 3 submitting to TPP/PBMs claims for payment at prices that Rite Aid has inflated above its 4 “usual and customary” prices. (TAC ¶ 8.) As a result, customers who purchase generic 5 prescription drugs through third-party plans pay copayments that are significantly higher 6 than Rite Aid’s “usual and customary” prices for those same drugs. (Id.) Central to this 7 scheme, according to Plaintiffs, is the Rx Savings Program. (Id. ¶ 9.) 8 The Rx Savings Program allows cash-paying customers (customers who pay for 9 prescription drugs without using insurance) to buy the most commonly prescribed generic 10 drugs at significantly discounted prices. (Id.) The Rx Savings Program prices are often 11 significantly lower than the prices Rite Aid reports to health insurance companies as Rite 12 Aid’s “usual and customary” prices. (Id.) Plaintiffs claim Rite Aid was required by law to 13 report to the TPP/PBMs the Rx Savings Program prices as Rite Aid’s “usual and 14 customary” prices for the prescription generic drugs. (Id. ¶ 11.) The failure to do so 15 distorted the overall prescription calculations, resulting in higher copayments to customers. 16 (Id.) Based on this alleged scheme, Plaintiff Stafford brings claims against Rite Aid for: 17 (1) negligent misrepresentation, (2) unjust enrichment, (3) violation of the Consumer Legal 18 Remedies Act (“CLRA”), (4) and violation of the California Unfair Competition Law 19 (“UCL”). Plaintiff Josten brings similar claims, and asserts an additional claim for 20 declaratory and injunctive relief. (Doc. No. 146 at 42.) 22 Plaintiff Stafford’s Complaint was first filed in June 30, 2017. (Doc. No. 1.) A First 23 Amended Complaint was filed on July 28, 2017, (Doc. No. 18), and Rite Aid moved to 24 dismiss for failure to state a claim. (Doc. No. 19.) The Court granted Rite Aid’s motion to 25 dismiss with leave to amend. Plaintiff Stafford filed a Second Amended Complaint on 26 January 9, 2018. (Doc. No. 30.) On January 23, 2018, another plaintiff, Plaintiff Josten, 27 instituted a substantially similar action against Rite Aid. (See Case No. 18-cv-00152-AJB- 28 3 1 JLB, Doc. No. 1.) Plaintiff Stafford and Josten’s actions were consolidated by the Court on 2 October 24, 2019. (Doc. No. 101.) 3 On January 23, 2018, Rite Aid filed its second motion to dismiss Plaintiff Stafford’s 4 Second Amended Complaint for failure to state a claim. (Doc. No. 32-1.) On September 5 28, 2018, the Court denied Rite Aid’s motion to dismiss, holding that Plaintiff Stafford 6 plausibly stated a claim on all four causes of action. (Id.) On June 17, 2019, Ride Aid then 7 filed a motion to compel arbitration. (Doc. No. 78.) On February 25, 2020, the Court denied 8 the motion to compel arbitration, holding Rite Aid failed to show equitable estoppel should 9 apply, thus Rite Aid did not have a right to arbitrate. (Doc. No. 134.) The Court concluded 10 that in any event, Rite Aid waived any rights to compel arbitration by filing multiple 11 motions to dismiss on the merits. (Id.) On March 24, 2020, Rite Aid filed a notice of appeal 12 of the Court’s order denying the motion to compel Stafford to arbitration. (Doc. No. 148.) 13 Rite Aid similarly filed two motions to dismiss in Plaintiff Josten’s case before filing 14 a motion to compel arbitration, which is currently pending before the Court. (Case No. 18- 15 cv-00152-AJB-JLB, Doc. Nos. 15, 28.) 16 On March 3, 2020, before Rite Aid filed the notice of appeal, the parties filed a joint 17 motion for leave to amend both Stafford’s and Josten’s Complaints to add party defendant 18 Rite Aid HQ, which was granted by the Court. (Doc. No. 136.) Rite Aid HQ also filed 19 motions to compel Stafford and Josten to arbitration, which currently pending before the 20 Court, along with Rite Aid’s motion to compel Josten to arbitration. (Doc. Nos. 114, 163, 21 166.) 22 On June 10, 2020, Rite Aid filed an ex parte motion to stay pending resolution of its 23 appeal to the Ninth Circuit. (Doc. No. 183.) Stafford opposed. (Doc. No. 185.) This order 24 follows. 25 III. PLAINTIFFS’ MOTION TO APPOINT INTERIM CO-LEAD CLASS 27 First, Stafford and Josten seek an order appointing Robbins Geller Rudman & Dowd 28 4 1 LLP (“Robbins Geller”) and Scott+Scott Attorneys at Law LLP (“Scott+Scott”) as Interim 2 Co-Lead Class Counsel. (Doc. No. 105.) Rite Aid filed a non-opposition to the motion. 3 (Doc. No. 108.) 4 “The court may designate interim counsel to act on behalf of a putative class before 5 determining whether to certify the action as a class action.” Fed. R. Civ. P. 23(g)(3). Where 6 multiple firms seek appointment as class counsel, “the court must appoint the applicant 7 best able to represent the interests of the class.” Fed. R. Civ. P. 23(g)(2). The Court must 8 consider various factors in appointing class counsel, including: “(i) the work counsel has 9 done in identifying or investigating potential claims in the action; (ii) counsel’s experience 10 in handling class actions, other complex litigation, and the types of claims asserted in the 11 action; (iii) counsel’s knowledge of the applicable law; and (iv) the resources that counsel 12 will commit to representing the class.” Fed. R. Civ. P. 23(g)(1)(A). In addition the Court 13 “may consider any other matter pertinent to counsel’s ability to fairly and adequately 14 represent the interests of the class.” Fed. R. Civ. P. 23(g)(1)(B). 15 Having reviewed, Plaintiffs’ briefing and authority, and in light of the non- 16 opposition, the Court concludes that Robbins Geller and Scott + Scott are adequate and 17 able to represent the interest of the proposed class. As such, Plaintiffs’ motion to appoint 18 is GRANTED. 20 Next, the Court will turn to Rite Aid’s request that the Court stay Stafford’s and 21 Josten’s proceedings pending its appeal to the Ninth Circuit. (Doc. No. 183.) 22 A. Legal Standard 23 The Federal Arbitration Act (FAA) reflects a strong federal policy favoring 24 arbitration. See 9 U.S.C. § 16(a); A.G. Edwards & Sons, Inc. v. McCollough, 967 F.2d 25 1401, 1404 n.2 (9th Cir. 1992). To further this federal policy, section 16 of the FAA 26 “endeavors to promote appeals from orders barring arbitration and limit appeals from 27 orders directing arbitration.” Sanford v. Memberworks, Inc., 483 F.3d 956, 961 (9th Cir. 28 5 1 2007) (quoting Bushley v. Credit Suisse First Boston., 360 F.3d 1149, 1153 (2d. Cir. 2 2004)). Accordingly, under the FAA, a party may immediately appeal a court order 3 denying a motion to compel arbitration. See 9 U.S.C. § 16(a). This ensures that the issue 4 of whether a dispute is to be resolved through arbitration is decided before excess time, 5 money, and judicial resources are spent in litigation. See C.B.S. Employee Federal Credit 6 Union v. Donaldson, 716 F. Supp. 307, 310 (W.D. Tenn. 1989). 7 The system created by the FAA allows the district court to stay the proceedings 8 pending an appeal from its refusal to compel arbitration if the court finds that the motion 9 presents a substantial question for the court of appeal to consider. See Britton v. Co-op 10 Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990). Courts generally consider four 11 factors when determining whether to grant a stay pending the appeal of a civil order: first, 12 whether the applicant has made a strong showing that he is likely to succeed on the merits; 13 second, whether the moving party will be irreparably injured absent a stay; third, whether 14 a stay will substantially injure the opposing party; and fourth, whether the public interest 15 favors a stay. See id. (approving C.B.S., 716 F. Supp. at 309 (quoting Hilton v. Braunskill, 16 481 U.S. 770, 776 (1986)). 17 B. Analysis 18 1. Whether Rite Aid Has Made A Strong Showing That It Is Likely 19 To Succeed On The Merits 20 To satisfy the first prong, the applicant must make “a strong showing that he is likely 21 to succeed on the merits.” Leiva-Perez v. Holder, 640 F.3d 962, 966 (9th Cir. 2011). That 22 showing must establish “more than a mere possibility of relief.” Id. at 967 (quoting Nken 23 v. Holder, 556 U.S. 418, 434 (2009)). However, the standard does not require much more 24 than that; the applicant must only show a “fair prospect” of success or be “reasonably 25 likely” to succeed. Id. (quoting O’Brien v. O’Laughlin, 557 U.S. 1301, 1302 (2009)). 26 Certainly, the applicant “need not demonstrate that it is more likely than not that he will 27 28 6 1 win.” Id. at 967. 2 Alternatively, if an applicant cannot reach this threshold, they may still comply with 3 the first prong by establishing a “substantial case” for relief. Id. at 970. A “substantial case” 4 exists where the applicant’s claims raise “serious legal questions,” i.e., “issue[s] of first 5 impression” or issues causing a split in legal authority. Wilson v. Huuuge, Inc., No. 3:18- 6 CV-05276-RBL, 2019 WL 998319, at *2 (W.D. Wash. Mar. 1, 2019). An applicant may 7 only rely on the “substantial case” threshold where “the balance of hardships tips sharply 8 in the [applicant’s] favor.” Leiva-Perez, 640 F.3d at 970. 9 Here, Rite Aid argues the issues presented to the Ninth Circuit involves matters of 10 first impression including the questions of (1) whether a plaintiff can plead around 11 California’s equitable estoppel doctrine while pursuing claims that “depend on the 12 contract’s terms,” (2) whether sophistication or lack thereof of a plaintiff “affects the 13 enforceability of a delegation clause,” and (3) to “what extent litigation conduct constitutes 14 waiver when a motion to compel arbitration is based on equitable estoppel.” (Doc. No. 15 183-1 at 10–13.) Furthermore, Rite Aid states that while the Ninth Circuit has not addressed 16 some of these issues, some of these questions have been resolved differently by other 17 Circuits. (Id. at 11.) While Plaintiff does not believe these issues constitute substantial 18 questions that raise genuine matters of first impression, (Doc. No. 185 at 7), the Court holds 19 that the issues at the very minimum, present serious legal questions, not frivolous in nature. 20 Thus, this factor weighs in favor of a stay. 21 C. Whether Rite Aid Will Be Irreparably Injured Absent A Stay 22 Next, the second factor is whether the moving party, Rite Aid, will be irreparably 23 injured absent a stay. Leiva-Perez, 640 F.3d at 964. Here, Rite Aid’s main purpose in 24 appealing this Court’s order is to avoid litigation by obtaining a ruling from the Ninth 25 Circuit that the Rite Aid may compel Plaintiff to arbitration. Therefore, arbitration may be 26 rendered meaningless if Rite Aid is required to litigate this case pending the appeal. As the 27 Ninth Circuit has stated, if the “party must undergo the expense and delay of a trial before 28 7 1 being able to appeal, the advantages of arbitration–speed and economy–are lost forever.” 2 See Alascom, Inc. v. ITT North Electric Co., 727 F.2d 1419, 1422 (9th Cir. 1984) (finding 3 the consequence serious, perhaps, irreparable, and effectually challenged only by 4 immediate appeal). Because Rite Aid will lose the advantages of arbitration if the Ninth 5 Circuit ultimately reverses the order, the harm to Rite Aid would be irreparable. Thus, the 6 Court finds that the second factor weighs in favor of granting the motion to stay. 7 D. Whether A Stay Will Substantially Injure The Opposing Party 8 As to the third factor, Plaintiff Stafford clearly will suffer some prejudice if his action 9 is delayed during the pendency of the appeal in the Ninth Circuit. However, “[w]hen a 10 defendant appeals an order refusing to compel arbitration, the general disadvantage to 11 plaintiff caused by delay of proceedings is usually outweighed by the potential injury to 12 defendant from proceeding in district court during pendency of appeal.” Eberle v. Smith, 13 No. 07-CV-0120 W(WMC), 2008 WL 238450, at *3 (S.D. Cal. Jan. 29, 2008). However, 14 “a plaintiff may be able to show prejudice by citing particular witnesses or documents that 15 may be adversely affected by a stay.” Id. Plaintiff has not identified any specific evidence, 16 arguing only generally that his ability to access evidence will be prejudice as the case 17 becomes more stale. Thus “any risk of lost evidence is entirely speculative at this point.” 18 Murphy v. DirecTV, Inc., No. 2:07-CV-06465-FMC, 2008 WL 8608808, at *3 (C.D. Cal. 19 July 1, 2008). Accordingly, the Court concludes that this factor too supports stay. 20 E. Whether The Public Interest Favors A Stay 21 The fourth factor is whether the issuance of a stay is in the public interest. In a case 22 such as this, where a party is seeking a stay to appeal the denial of a motion to compel 23 arbitration, the Court concludes that the public interest ultimately tips the balance in favor 24 of the appealing party, Rite Aid. Congress, through the FAA, has expressed that arbitration 25 is in the public interest. See A.G. Edwards & Sons, Inc., v. McColloueh, 967 F.2d 1401, 26 1404 n.2 (9th Cir. 1992). By specifically allowing for an immediate appeal from a decision 27 28 8 1 denying arbitration, Congress has further indicated that all questions of whether a dispute 2 should be arbitrated should be resolved before time and money is spent in litigation. 3 Additionally, the interest in judicial economy and efficiency urge a stay in 4 proceedings pending appeal. As the district court in C.B.S. observed, it “does not make 5 sense for this Court to expend its time and energy preparing this case for trial and possibly 6 trying it only to learn at a later date from the court of appeals that it was not the proper 7 forum to hear the case.” 716 F. Supp. at 310. A stay promotes the public interest in the 8 efficient allocation of judicial resources. Thus, the fourth factor weighs in favor of granting 9 a stay. 10 F. Plaintiff Josten’s Action Is Also Stayed 11 Rite Aid additionally seeks a stay in Plaintiff Josten’s action pending the resolution 12 of Rite’s motion to compel Josten to arbitration. But in the interest of judicial economy and 13 simplification of issues of law, the Court concludes that a stay in Josten’s case pending 14 resolution of Rite Aid’s appeal in Stafford’s action appropriate instead. 15 “[T]he power to stay proceedings is incidental to the power inherent in every court 16 to control disposition of the cases on its docket with economy of time and effort for itself, 17 for counsel, and for litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). “The 18 exertion of this power calls for the exercise of sound discretion.” CMAX, Inc. v. Hall, 300 19 F.2d 265, 268 (9th Cir. 1962); see Clinton v. Jones, 520 U.S. 681, 706 (1997) (“The District 20 Court has broad discretion to stay proceedings as an incident to its power to control its own 21 docket.”); Lockyer v. Mirant Corp., 398 F.3d 1098, 1109 (9th Cir. 2005) (citing Landis, 22 299 U.S. at 255, for the same). Courts have the power to consider stays sua sponte. See, 23 e.g., Fed. Home Loan Mortg. Corp. v. Kama, No. 14-00137 ACK-KSC, 2016 WL 922780, 24 at *8-9 (D. Haw. Mar. 9, 2016) (ordering a stay, sua sponte, of the proceedings pending 25 resolution of related cases before the Ninth Circuit because resolution of those cases 26 “w[ould] likely involve an analysis of” obscure issues, thereby “provid[ing] further 27 guidance” to the court with respect to the case in question); see also S.E.C. v. Chestman, 28 9 1 F.2d 49, 50 (2d Cir. 1988) (noting that the district court can enter an order staying 2 || discovery sua sponte). 3 The Court finds that staying proceedings pending the appeals of related cases will 4 ||serve the interests of judicial economy and will help to clarify the issues and questions of 5 || law going forward. See Landis, 299 U.S. at 256 (“True, a decision in the case then pending 6 New York may not settle every question of fact and law in suits by other companies, but 7 |{in all likelihood it will settle many and simplify them all.”). Currently pending before the 8 ||Court are Rite Aid’s motion to compel Josten to arbitration, in addition to newly added 9 || party, Rite Aid HQ’s two motions to compel both Stafford and Josten to arbitration. The 10 |/resolution by the Ninth Circuit of whether Stafford’s case should proceed in federal court 11 || will more than likely inform whether Josten will proceed to arbitration as well. Indeed, all 12 ||the pending motions involve the same issues and questions of law that will be settled by 13 Ninth Circuit on appeal. Therefore, the same reasons that support a stay in Stafford’s 14 || case also supports a stay in Josten’s case as well. 16 In light of the foregoing, the Court GRANTS Plaintiffs’ unopposed motion to 17 || appoint Robbins Geller and Scott+Scott. (Doc. No. 105.) Additionally, having weighed the 18 relevant factors and considered the arguments of the parties, the Court concludes that Rite 19 || Aid has demonstrated that a stay is appropriate. Thus, Rite Aid’s ex parte motion to stay is 20 || GRANTED, and the matter is STAYED pending resolution of Rite Aid’s appeal. The 21 |}Court also exercises its discretion, and additionally STAYS Josten’s matter pending 22 ||resolution of Rite Aid’s appeal as well. 23 25 ||Dated: July 30, 2020 © 26 Hon. Anthony J.Battaglia 27 United States District Judge 22 10 3:17-cv-01340-AJB-JLB (Consolidated with Case No. 3:18-cv-

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