Rite Aid Loses Bid to Force Arbitration of Generic Drug Price Fraud Claims in Ninth Circuit Victory Robbins Geller Obtained for Consumers

On May 21, 2021, the United States Court of Appeals for the Ninth Circuit affirmed a district court’s denial of a motion to compel arbitration in a consumer fraud case against Rite Aid Corporation pending in the United States District Court for the Southern District of California.

In affirming the district court’s denial, the Ninth Circuit panel held that under California law, the plaintiff’s claims “did not depend on Rite Aid’s contractual obligations to the pharmacy benefits managers,” and that “equitable estoppel did not apply to bind [plaintiff] to the arbitration agreements in those contracts.”

         It is irrelevant whether the contracts between Rite Aid and the pharmacy benefits managers required Rite Aid to report the usual and customary price of a prescription drug. Even if the contracts contained no provision requiring Rite Aid to report the usual and customary price, the fact remains that Rite Aid did report that information and allegedly purposely inflated it. Rite Aid’s duty not to commit fraud is independent from any contractual requirements with the pharmacy benefit managers. As noted, statutes and common law—not provisions in the contracts—entitle [plaintiff] to relief. The principles of equitable estoppel therefore do not require [plaintiff] to submit to the arbitration clauses of contracts between Rite Aid and the pharmacy benefits managers.

The putative class action alleges that Rite Aid engaged in a deceptive and unfair pricing scheme through its Rx Savings Program (“RSP”) which allowed cash-paying customers—those who pay for drugs without using insurance—to purchase certain generic prescription drugs at significantly lower prices than the prices Rite Aid reports to health insurance companies.  Rite Aid is alleged to have knowingly and intentionally disregarded RSP prices in setting its “usual and customary” prices for the drugs sold to customers who used insurance, and instead falsely inflated “usual and customary” prices for the drugs to third-party payors (“TPPs”) and pharmacy benefits managers.  In the process, plaintiffs contend that Rite Aid overcharged customers by collecting falsely inflated copayments calculated based on Rite Aid’s reporting to TPPs.  This scheme distorted the overall prescription calculations, resulting in higher copays to customers. 

This victory before the Ninth Circuit comes on the heels of the Firm’s appellate victory last month before the Supreme Court of New York Appellate Division and other recent precedent-setting decisions. Robbins Geller attorneys Andrew S. Love, David W. Mitchell, Robert R. Henssler, Jr., Arthur L. Shingler III, Stuart A. Davidson, and Mark J. Dearman, along with co-counsel, obtained this result on behalf of the class.

Stafford v. Rite Aid Corp., No. 20-55333, Opinion (9th Cir. May 21, 2021).