MALACHY E. MANNION, District Judge.
Pending before the court is defendant Catamaran Corporation's ("Catamaran") motion to quash subpoenas served by plaintiff Lakeview Pharmacy of Racine, Inc. ("Lakeview") on Catamaran clients Exelon Corporation ("Exelon"), Target Corporation ("Target"), CIGNA and South Carolina PEBA ("PEBA") (collectively, "Customers"). (Doc. 38). The defendant, acting on the third parties' behalf, contends the discovery requests are irrelevant and disproportionate in scope to the underlying claims. Based upon the court's review of the motion and related materials, the motion to quash will be
The defendant is a large pharmaceutical benefits manager, ("PBM"), (Doc.
The relationship between the defendant and the plaintiff is contractual in nature. Id. at ¶¶53-54. However, the contract governing the plaintiff and defendant's relationship was not negotiated by the parties themselves. Rather, the defendant negotiated the contract through a pharmacy services administration organization ("PSAO"). Id. at ¶¶53-54, 109. In general, the defendant negotiates contracts with independent pharmacies through PSAOs in bulk. Id.
The defendant has confidentiality agreements with PSAOs to ensure that "critical aspects of the contracts" remain hidden from the plaintiff and other independent pharmacies in its network. Id. at ¶¶58-59. In fact, pharmacies, including the plaintiff, do not receive the contract itself ("Provider Agreement"), and instead only receive summary documents, which provide select principal terms of the contract, as well as the Provider Manual. Id. at ¶¶110-113. The Provider Manual, which was developed and can be amended by the defendant at any time, is binding upon the parties. Should a contradiction arise between the Provider Agreement and the Provider Manual, the Manual controls. Id. at ¶¶113, 116.
When a plan member purchases prescription medication at a retail pharmacy within the defendant's PBM network, the pharmacy inputs the plan member's information into the PBM's electronic system, which then determines the payment amounts owed by both the plan sponsor and the plan member (co-pay). Id. at ¶47. The pharmacy bills the co-pay to the plan member, and subsequently learns for the first time the amount of money that it will be reimbursed by the PBM. Id. at ¶63. This process is called "claim adjudication." Id. at ¶64. Should the reimbursement rates for particular prescription medications change, the plaintiff does not learn of these changes until claim adjudication as the defendant provides no advance notice. Id. at ¶65.
Reimbursement occurs twice a month, and it includes charges for claim processing. Id. at ¶¶67-68. The defendant also charges fees for claim denials, claim reversals (even if due to the defendant's own errors), and transaction fees for adjudication reversal and payment claw-back. Id. at ¶68. The amount that the defendant reimburses independent pharmacies such as the plaintiff depends upon its own determination of reimbursement rates. For multi-source generic drugs (non-brand name), the defendant reimburses pharmacies based upon the maximum allowable cost ("MAC"), partially derived from the annual wholesale price ("AWP").
The MAC calculations and reimbursement rates are also modified to comply with the defendant's obligation to plan sponsors to provide a particular Generic Effective Rate ("GER"), discounted off of the AWP. Id. at ¶76. The defendant allegedly "minimizes and eliminates margins that pharmacies can make on generics through manipulation of its MAC prices," which impacts the financial health of pharmacies in the PBM's network. Id. at ¶¶80-81. The defendant allegedly determines MAC prices that create low reimbursements for pharmacies, and then charges the plan sponsors high amounts, so that it creates a greater margin by which the defendant can generate profit (i.e., price spreading). Id. at ¶¶84-85. Furthermore, the defendant allegedly sets reimbursement amounts that are less than the cost of the drug itself, thus the reimbursements fail to produce margins that would allow pharmacies to remain economically viable. Id. at ¶¶87-90.
Should a pharmacy wish to challenge the defendant's MAC rate, it must pursue a "MAC pricing appeal." Id. at ¶119; (Doc.
The plaintiff originally brought this action along with twenty-eight (28) other independently-owned community pharmacies against Catamaran for: (Count I) breach of contract under the Uniform Commercial Code ("UCC"); (Count II) breach of common law contract for acting in bad faith in setting prices for prescription drugs; (Count III) breach of common law contract for bad faith responses to successful MAC (maximum allowable cost) pricing appeals; (Count IV) and bad faith in failing to update MAC prices. (Doc.
On April 20, 2015, the defendant filed a motion to dismiss non-arbitrable claims and to compel arbitration. (Doc.
On December 23, 2015, the plaintiff filed a motion to amend the complaint, (Doc.
On January 11, 2016, the defendant filed a brief in opposition, arguing proposed Count I fails to cure the defects of the original UCC claims, and Counts II and IV are futile as they fail to state a claim upon which relief can be granted. (Doc.
The plaintiff amended its complaint on June 16, 2016, (Doc. 47), and again on June 30, 2016,
On March 28, 2016, the plaintiff sent subpoenas duces tecum to Exelon, Target, Cigna and PEBA — all non-party customers of Catamaran. (Doc. 39, pp. 3-4). The subpoenas request:
Lakeview subsequently withdrew part iv of the subpoenas. (Doc. 56, p. 4).
On May 24, 2016, the defendant filed a motion to quash these subpoenas, (Doc. 38), along with a supporting memorandum, (Doc. 39), arguing: (1) the "request[ed] documents and information are irrelevant to the . . . remaining count[s] in the complaint;" (2) "they seek disclosure of protected commercial information;" and (3) "they serve no purpose other than to harass the non-party customers." (Doc. 39).
On June 24, 2016, the plaintiff filed an opposition to the motion to quash arguing: (1) the motion to quash should fail because there are new claims in the amended complaint; (2) the documents sought are relevant to the claims in the amended complaint; (3) the requested documents can be kept confidential through the existing protective order; (4) the subpoenas are not harassing or burdensome. (Doc. 50). The plaintiff then filed a second amended complaint on June 30, 2016. (Doc. 53).
On July 1, 2016, the defendant filed a reply, arguing: (1) the requested "commercially sensitive material" is still irrelevant despite the new claims from the amended complaint; (2) according to the Provider Agreement, contractually-imposed limitations period precludes action based on claims paid before February 9, 2014; and (3) the plaintiff fails to offer a "principled reason" for production of the requested documents, and therefore the requests are harassing and burdensome. (Doc. 54). Also pending before the court is a motion to strike filed by Lakeview on July 26, 2016. (Doc. 58).
On January 26, 2017, this court held a telephonic status conference with both parties. The court issued a subsequent order directing counsel to "submit to the court briefs regarding the proportionality of discovery as discussed in
Federal Rule 26(b)(1) states: "Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit." "A party seeking discovery bears the initial burden of demonstrating the requested discovery is relevant to its claim or defense."
As to relevancy, "[a]lthough irrelevance is not among the litany of enumerated reasons for quashing a subpoena found in Rule 45, courts have incorporated relevance as a factor when determining motions to quash a subpoena."
"This concept of relevance is tempered, however, by principles of proportionality."
As an initial matter, Catamaran contends it has standing to challenge the nonparty subpoenas at issue here. (Doc. 39, p.6). Lakeview does not oppose Catamaran's contention. Generally, "`a party does not have standing to quash a subpoena served on a third party.'"
In determining whether to restrict the scope of discovery, a court must first determine whether the requested discovery is relevant. Lakeview, as the party requesting discovery, bears the initial burden of proving relevancy. Lakeview advances two substantive arguments regarding the relevancy of the requested documents to the claims in the second amended complaint.
Lakeview also argues it has confirmed the relevancy of the documents being sought through the discovery process.
Regarding the instant contract provision, providing "Catamaran shall utilize client or plan parameters, MediSpan or other national source, and internal processes as a reference but not as the sole determinant of price," (Doc. 31, Ex. 1, ¶118) (quoting Doc. 1, Ex. 1, p. 6), this court has already found:
Catamaran does not dispute this finding, and even acknowledges that the requested contracts may contain "client and plan parameters." (Doc. 54, p.8). Rather, Catamaran focuses on limiting the scope of discovery, which the court will address in the next section. The court agrees that in light of the fact the court has already found that the contract requires Catamaran to consider the "plan parameters," it is essential to determine what said parameters are.
The court finds that any payments made by the third parties to Catamaran are relevant to Lakeview's claims because both Cigna's payments to Catamaran and Catamaran's payments to Lakeview should have been calculated using the same "plan parameters." With respect to Cigna specifically, the court agrees with Lakeview that ". . . to the extent that Catamaran paid Lakeview a MAC price below its acquisition cost, but Cigna paid Catamaran a far greater MAC price for the same prescription, it would also be relevant to show that Catamaran acted in bad faith when it refused to adjust the MAC price in response to Lakeview's MAC appeal." (Doc. 56, p. 6). Thus, the court finds Lakeview has met its initial burden to show that the subpoenas are relevant to its claim.
As Lakeview has satisfied its burden to show initial relevancy of the requested discovery, the burden then shifts to Catamaran to show the requested discovery is either overly broad or is of such marginal relevance that the potential harm caused by disclosure would outweigh the presumption of broad disclosure.
Catamaran claims the requested disclosure of the terms of the Customer contracts and the amount received in payment from the Customers, are disproportional to the instant claims. (Doc. 39, p. 9). That is, MAC appeal procedures, resulting price increases, and effective dates are not affected by unrelated customer contracts because they have no bearing on Catamaran's handling of Lakeview's claims. Id. at 8. Specifically, request numbers ii and iii are overly broad in they seek amounts paid for all generic prescriptions over a period of four (4) years, as well as amounts paid for prescriptions that are not the subject of appeal by Lakeview. Id. at 9.
As stated above, the 26(b)(1) factors regarding proportionality are: (1) the importance of the issues at stake; (2) the amount in controversy; (3) the parties' relative access to relevant information; (4) the parties' resources; (5) the importance of discovery in resolving the issues; and (6) whether the burden or expense of the proposed discovery outweighs its likely benefit.
As to the first and fifth factors, the court cannot find that the information is important to the issues at stake. It is not disputed that both Catamaran and the third parties possess the information requested. Indeed, Catamaran even states the requested information is "integral to Catamaran's business and can be easily located and produced if the court so orders." (Doc. 54, p. 11). Lakeview has failed to provide a reason this information must be obtained through third parties, as opposed to Catamaran directly. Similarly, the sixth factor, dealing specifically with the proportionality of discovery requests, is of particular concern to the court. Lakeview has already subpoenaed multiple third parties, and received extensive pricing data. More importantly, the subpoenaed Customer Contracts contain confidential information wholly unrelated to the underlying claims. Therefore, these three factors militate against Lakeview and in favor of granting the motion to quash.
Factors two, three, and four are unhelpful in the instant case. First, as pointed out by Catamaran, Lakeview's CEO and President testified that he "does not even know whether Lakeview has sustained a dollar of loss as a result of Catamaran's setting prices below Lakeview's acquisition costs." (Doc. 80, Ex. C, 129:3-131:18). Thus, the court is unable to place any weight on this factor. Second, the court cannot place weight on the parties' relative access to the relevant information because this motion specifically addresses documents in the third parties' possession. Although Catamaran may have the same information, the court must confine its analysis to the third party information addressed in the motion to quash. Third, although Lakeview is an independently-owned pharmacy and Catamaran is a large PBM, neither party has specifically addressed the issue of the parties' relative resources.
Given the extensive discovery already conducted by Lakeview and availability of the requested information from Catamaran, the court finds the requested discovery to be disproportional to the needs of this case.
Catamaran first contends the subpoenas should be quashed because the Customer Contracts contain protected data that would be disclosed to a competitor beyond merely the "client or plan parameters" used as a reference to establish MAC prices. (Doc. 54, p. 5). As the party resisting discovery, Catamaran bears the burden of demonstrating that disclosure would be harmful. Specifically, Catamaran claims the Customer Contracts contain "extensive financial data, business processes and methods, as well as Catamaran's marketing and other business strategies, as well as performance goals." (Id. (citing Decl. Of Matthew Vesledahl, Dkt. No. 39, ¶4, attached to Catamaran Memorandum in support of its Motion to Quash as Exhibit D)). Disclosure of such "commercially sensitive and confidential information" could damage Catamaran's business. (Doc. 54, p. 5). That is, this information would allow Lakeview "to determine Catamaran's marketing goals and business strategies, including pricing formulas and profit margins, for example, would obviously benefit Lakeview in future negotiations with Catamaran and other PBMs. Id.
Catamaran claims Lakeview would obtain an unfair competitive advantage not only in the instant litigation, but also in "other litigation or contracting." (Doc. 54, p. 7). Catamaran claims Lakeview's counsel represents other former plaintiffs from this initial action and disclosure of the Customer Contracts would "inevitably inform Counsel's strategy, claims assessment and discovery requests" despite the fact that the Protective Order precludes Counsel's use of the confidential information outside this action. Id. That is, the mere presence of a Protective Order does not justify the disclosure of commercially-sensitive material to a competitor. (Doc. 54, p.6). Catamaran cites
Lakeview neither disputes the confidential nature of some of the requested information nor will object to the designation of such information as confidential. (Doc. 56, p. 7). However, Lakeview argues any such confidential information falls under the court's November 24, 2015 Stipulated Protective Order. (Doc. 27, ¶1). Specifically, Lakeview points out that the Stipulated Protective Order clearly applies to "responses to subpoenas," Id.,
Additionally, Lakeview distinguishes the type of business relationship it has with Catamaran from that of Catamaran and the four (4) subpoenaed non-parties:
Essentially, Lakeview argues that it is impossible to obtain a competitive advantage because the parties are not in competition with each other.
While Lakeview is correct to distinguish between the customers at issue here (PBM customers like the subpoenaed third parties) and Lakeview's retail customers, it is incorrect to then conclude that no competitive advantage could exist between the two parties. In fact, Lakeview explicitly acknowledges that "[s]ome PBMs, like Catamaran (e.g., through FutureScripts), also operated their own mail-order pharmacies that inevitably compete with retail pharmacies like [Lakeview]." (Doc. 1, ¶46; Doc. 47, ¶17). It is disingenuous then for Lakeview to subsequently argue they are not in competition with Catamaran, simply because the targets of the subpoena are PBM customers. Further, courts have routinely recognized that "disclosure to a competitor is more harmful that to a noncompetitor."
The mere presence of a protective order does not by itself require disclosure of any kind. Courts have routinely found that a protective order is insufficient protection against unnecessary disclosure of confidential information to the requesting party. ("[I]t would be divorced from reality to believe that either party here would serve as the champion of its competitor . . . to maintain the confidentiality designation or to limit public disclosure . . . during trial." (quoting
Catamaran argues Lakeview's subpoenas seek documents for the improper purpose of harassment of non-party customers. (Doc. 39, p. 13; Doc. 54, p. 10). Catamaran claims that Lakeview can obtain most, if not all, of the requested materials from Catamaran, thus making it unnecessary to contact the Catamaran's customers at all. Id. Catamaran also generally contends Lakeview is seeking to gather information for use in proceedings other than the instant matter. Id.
Lakeview contends Catamaran fails to meet its burden showing the subpoenas are harassing. (Doc. 56, p. 9). Specifically, Lakeview contends Catamaran fails to provide "`specific examples or articulated reasoning' demonstrating it needs to be protected from these subpoenas." (Doc. 56, p.9) (citing Cipollone v. Liggett Group, Inc., 785F.2d 1108, 1121 (3d. Cir. 1986)). Both parties agree that Rule 45 allows a party to subpoena a third party for relevant documents; they simply disagree about whether the subpoenas in the instant case are overly harassing or burdensome.
Unfortunately, Lakeview has failed to demonstrate why the documents must be obtained from third parties as opposed to Catamaran directly. Catamaran rightly points out that these documents are "entirely objective" and not "otherwise based on the credibility of the person or entity producing the materials." (Doc. 54, p. 10). Further, Catamaran explains that "[t]he Customer Contracts are integral to Catamaran's business and can be easily located and produced if the Court so orders." Id. at 11. The court agrees further with Cigna's objection: ". . . since Catamaran is a party to the lawsuit, you can obtain the requested information from Catamaran through the normal course of discovery." (Doc. 54, Ex. D).
Not only are the requests for production burdensome in themselves, but also they raise the issue of whether Lakeview's would be afforded an undue advantage in related litigation were the court to enforce the subpoena requests. As Catamaran points out, Lakeview's counsel represents pharmacies other than Lakeview in pending arbitration proceedings, several of which were parties to the original action. Despite the protective order precluding the use of confidential information outside of this litigation, overly broad discovery may unfairly influence Lakeview's litigation strategy in these outside proceedings.
For these reasons, the court finds the requested information to be both disproportionate and unduly burdensome.
In light of the foregoing, the court will
