Waiver of Arbitration: A Complex Case

Lackie Drug Store (Lackie) brought a putative class action against several pharmacy benefit managers (PBMs), including OptumRx (Optum). Two years into the litigation, Lackie amended its complaint and Optum moved to compel arbitration. The parties are not in contract with one another; rather the Elevate Provider Network (Elevate) is a collective bargaining group that serves as a contracting agent acting on behalf of the pharmacies.

Two agreements between Elevate and Optum were implicated in the litigation, the Provider Network Agreement and the Provider Manual, and the latter is incorporated by reference into the former. The complaint alleges that the PBMs changed the amount it reimburses pharmacies without notice to the pharmacies in violation of Arkansas statutes. Lackie filed its original claim in state court in 2020. After removal to federal court, Lackie amended its claim into a putative class action and alleged five claims.

Optum and the other defendants moved to dismiss, and Optum also filed its own motion to dismiss. After the trial court resolved those motions, Optum remained as the only defendant on three of Lackie’s original five claims. Optum filed it Answer, and after some delays to which the parties stipulated, the parties proceeded to discovery.

In May, 2023, Lackie moved to amend its complaint. Optum did not object but purported to preserve its right to compel arbitration. The new complaint preserved the three surviving claims but added new claims for unjust enrichment and equitable estoppel. The putative class was redefined to include only pharmacies that were subjected to Optum’s prices in the past five years. Lackie also updated its factual allegations. Optum responded with a motion to compel arbitration. After supplemental briefing, the District Court denied the motion, and Optum took an interlocutory appeal.

In Lackie Drug Store, Inc. v. OptumRx, Inc., the Eighth Circuit affirmed in part and reversed in part. The Eighth Circuit affirmed on grounds rejected by the District Court. The arbitration clause at issue is contained in the Provider Manual. OptumRx knew of this clause from the beginning of the litigation, but it only moved to compel after Lackie filed its latest amended complaint.

The standard for waiver is that a party may not “substantially invoke[] the litigation machinery before asserting its arbitration right.” Optum attached the Provider Manual to its motion to dismiss and its Answer. It repeatedly asserted its right to arbitrate, but it did not seek to compel arbitration, asserting arbitration as an affirmative defense but moving to dismiss on other grounds.

Optum argued that it could nonetheless avoid a finding of waiver because Lackie amended its complaint. That argument helps Optum with respect to the two new claims raised for the first time in the latest complaint, but the first three claims still are not subject to arbitration. A party does not waive its right to arbitrate when an amended complaint changes the scope or theory of plaintiff’s claims. But here, the amended complaint limited the scope of the claims, which is not a change that would enable the defendant to escape a finding that it had waived its right to compel arbitration. Notwithstanding Optum’s protestations, the Eighth Circuit found that nothing else in the amended complaint had changed its scope or theory as to the first three causes of action.

The trial court had also rejected Optum’s motion to compel with respect to the two new causes of action that were added in the most recent version of the complaint. That, the Court held, was error. The trial court had found that the two agreements at issue were in conflict on dispute resolution and that the Provider Network Agreement, which did not have an arbitration provision, controlled. The Eighth Circuit disagreed.

The Provider Manual is incorporated by reference into the Provider Network Agreement, and the Provider Manual provides both for arbitration and for disputes as to the scope of arbitration to be determined by the arbiter. As a result, the aribter must determine whether the two agreements conflict . In so finding, the Eighth Circuit distinguished Coinbase, Inc. v. Suski, 602 U.S. 143 (2024), about which Tal Kastner (below) wrote for us here.

In that case, there were two agreements, one with an arbitration clause and one without. The parties disputed which agreement governed. Here, Lackie conceded that the Provider Manual applies, and thus it is bound by the agreement that the arbiter decides the scope of arbitration. And so, the Eighth Circuit remanded the case to the District Court with instructions to grant Optum’s motion to compel arbitration with respect to counts 4 & 5.

I had to consult my go-to person on arbitration law, Tamar Meshel (below), for clarification of why dual proceedings are the right move here. Tamar explained that the claims that the parties agreed to arbitrate must go to arbitration under the Federal Arbitration Act. Under that same Act, the claims with respect to which arbitration has been waived could not go to arbitration. It seems inefficient to bifurcate, but if we did not do it this way, parties could evade arbitration by adding non-arbitrable claims to he complaint (harder to do these days) or add defendants to whom the arbitration clause does not apply (also getting harder, but much easier).