Opinion ID: 4563142
Heading Depth: 3
Heading Rank: 2

Heading: Breach of the Implied Covenant

Text: In addition to their breach-of-contract claim, the Pharmacies also sued for breach of the implied covenant of good faith and fair dealing. The Pharmacies contend that the district court erred in concluding that the parties’ agreements allow ESI to refill their customers’ prescriptions. They assert that their PPAs contain no express provision permitting ESI to transfer the prescriptions of the Pharmacies’ customers to its own mail-order pharmacy. They further argue that the first “Recital” is the only portion of their PPAs that references mail order and that this “Recital does not say that ESI or its affiliates own or operate their own mail order pharmacies.” 6 Aside from complaining about the lack of an opportunity to amend their complaint if they failed to plead sufficient factual allegations supporting a breach-of-contract claim, the Pharmacies also contend that the district court’s order did not address the sufficiency of their factual allegations regarding their breach-of-contract claim. See Appellants’ Reply Br. at 2–3. Even accepting the Pharmacies’ argument as true, “we may affirm the district court on any basis that is supported by the record.” McCrary v. Stifel, Nicolaus & Co., 687 F.3d 1052, 1058 (8th Cir. 2012) (cleaned up). -10- Appellants’ Br. at 23. They insist that their implied-covenant claim should survive ESI’s dismissal motion because the contract does not expressly permit ESI’s conduct. The Pharmacies also claim that the district court erred by dismissing their claim based on a misconstruction of an ambiguous provision of the parties’ agreements—§ 2.4 of the provider manual. Specifically, the Pharmacies argue that the court erred when it found that ESI owns the Pharmacies’ customer information upon claim submissions. According to the Pharmacies, “[s]ection 2.4 of the [Network Provider Manual] distinguishes between (1) the ‘claims submitted by’ [the Pharmacies] and (2) the information ESI obtains through the administration and processing of those claims.” Id. at 26 (quoting J.A., Vol. II, at A-92). The Pharmacies state that the plain meaning of § 2.4 provides ESI with “ownership of information it obtains when administering and processing [the Pharmacies’] claims.” Id. This only includes information such as a customer’s “eligibility for coverage, the co-pay owed by the [customer] and restrictions on the [customer’s] prescriptions.” Id. at 27. The Pharmacies allege that the information extends no further. ESI disputes the Pharmacies’ interpretation of their agreements. ESI asserts that it cannot breach the implied covenant of good faith and fair dealing when the parties’ agreements expressly permit the conduct that is being challenged by the Pharmacies. It requests that we affirm the district court’s dismissal because the Pharmacies have failed to plead or argue that its actions have exceeded the terms of their agreements. As determined by the district court and not disputed on appeal, the parties full agreements consist of their PPAs and ESI’s provider manual. See J.A., Vol. II, at A-58 (“1.13 ‘Provider Manual’ shall mean the written handbook describing the practices, rules, operational requirements and policies and procedures established by ESI for Provider (and its Pharmacies) regarding their provision of Covered Medications to Members.” (bold omitted)); id. at A-69 (“7.3 Entire Agreement. This -11- [PPA], including . . . [the] Provider Manual, . . . constitutes the entire agreement of the parties with respect to the subject matter herein . . . .” (bold and underline omitted)). “Missouri law implies a covenant of good faith and fair dealing in every contract.” Kmak v. Am. Century Cos., Inc., 754 F.3d 513, 516 (8th Cir. 2014) (quoting Farmers’ Elec. Coop., Inc. v. Mo. Dep’t of Corr., 977 S.W.2d 266, 271 (Mo. 1998) (en banc)). To establish a breach of the covenant of good faith and fair dealing, “the plaintiff has the burden to establish that the defendant ‘exercised a judgment conferred by the express terms of the agreement in such a manner as to evade the spirit of the transaction or so as to deny [the plaintiff] the expected benefit of the contract.’” Id. (alteration in original) (quoting Lucero, 400 S.W.3d at 9–10). However, “when there has been ‘no subterfuge,’ and the contract’s ‘express terms’ allowed for the challenged action, there is no bad faith and thus no breach of the implied covenant.” CitiMortgage, Inc. v. Chi. Bancorp, Inc., 808 F.3d 747, 752 (8th Cir. 2015) (quoting The Arbors at Sugar Creek Homeowners Ass’n v. Jefferson Bank & Tr. Co., 464 S.W.3d 177, 185 (Mo. 2015) (en banc)). Here, the district court properly determined the intent of the parties by interpreting their unambiguous agreements. See id. at 751 (“Missouri courts interpret a contract to give effect to the parties’ intent and, when a contract is unambiguous, intent ‘is discerned solely from the contract’s language.’” (quoting The Arbors, 464 S.W.3d at 183)). We agree that the parties’ agreements permit ESI, through its own mail-order service, to dispense the pre-authorized refills of their plan sponsors’ members, i.e, the Pharmacies’ customers. Therefore, we reject the Pharmacies’ arguments otherwise. -12- The operative provisions of the parties’ agreements include the first recital and § 2.8 of the PPAs and § 2.4 of the provider manual. The first recital states, “WHEREAS, ESI administers and manages Prescription Drug Programs for its Sponsors . . . , which programs include claims administration, mail service dispensing and other pharmacy benefit management services . . . .” J.A., Vol. II, at A-57 (emphasis added). Next, § 2.8 of the PPAs requires the Pharmacies “to, cooperate with ESI, including providing to ESI any and all information requested by ESI necessary for coordinating any benefits provided to any Member.” Id. at A-61. By the plain language of the agreements, the Pharmacies agreed to cooperate with ESI for the coordination of their customers’ benefits. Likewise, the district court properly concluded that “[m]ail service dispensing falls within the category of ‘any benefit[s] provided to any Member.’” Trone Health, 2019 WL 1207866, at  (quoting J.A., Vol. II, at A-61). The agreements authorize ESI to administer or manage prescription drug benefits, including mail-order service dispensing—which can be interpreted to “include[] the filling of [customers’] prescriptions through [ESI’s] own mail order pharmacy.” Id. And the Pharmacies’ contention that the court applied “the wrong definition of the word ‘administer’” is unavailing. Appellants’ Br. at 24. The provider manual, under § 2.4, sheds light on ESI’s right to use the Pharmacies’ customer information. It provides, “ESI is the owner of all information it obtains through the administration and processing of any and all pharmacy claims submitted by Network Provider.” J.A., Vol. II, at A-92. The Pharmacies argue that ESI does not own or control the sensitive customer information submitted to ESI but, instead, only owns the information that ESI obtains after processing claims. The district court determined that “ESI obtains the information from [the Pharmacies] to administer and process pharmacy claims and that information, per the -13- Provider Manual, is under ESI’s control. Moreover, the Provider Manual includes no language precluding ESI from using the customer information independent of ESI’s relationship with [the Pharmacies].” Trone Health, 2019 WL 1207866, at . We agree with the court’s construction of the contract. We have previously noted that “the implied duty of good faith and fair dealing does not extend so far as to undermine a party’s general right to act on its own interests in a way that may incidentally lessen the other party’s anticipated fruits from the contract.” BJC Health Sys. v. Columbia Cas. Co., 478 F.3d 908, 915 (8th Cir. 2007) (internal quotation omitted) (applying Missouri law). The Pharmacies have not shown that ESI’s actions have “evade[d] the spirit” of their agreements. Kmak, 754 F.3d at 516. The parties’ agreements give ESI access to the Pharmacies’ customer information and do not prevent its use for mail-order service dispensing. Thus, the district court did not err in dismissing the Pharmacies’ claim for breach of the implied covenant of good faith and fair dealing. C. Unfair Competition and Trade Secret Misappropriation The Pharmacies combine their state-law claims for unfair competition and trade secret misappropriation and, in essence, assert that their unfair competition claim is founded on ESI’s alleged misuse of the Pharmacies’ trade secrets. They maintain that ESI shared the Pharmacies’ trade secrets with its affiliates in order to steal the Pharmacies’ customers and that the district court’s dismissal of their claims was based “on its erroneous construction of the parties’ contracts.” Appellants’ Br. at 33. The Pharmacies state that ESI does not own the sensitive customer information that they submit to ESI and that such “data and information [are] painstakingly developed and compiled by [them] at considerable effort and expense”—which qualifies the information as the Pharmacies’ trade secrets that should be afforded legal protection. Id. Conversely, ESI asserts that the Pharmacies’ theory—“ESI’s use of information provided under the Agreements amounts to a misappropriation of the Pharmacies’ -14- trade secrets”—fails because its conduct is consistent with the terms of their agreements. Appellees’ Br. at 30. To demonstrate unfair competition and misappropriation of trade secrets, the Pharmacies’ factual allegations must show “1) the existence of . . . trade secret[s], 2) the communication of the trade secret[s] to another, . . . and 3) the use of the trade secret[s] that damaged [the Pharmacies].” Conseco Fin. Servicing Corp. v. N. Am. Mortg. Co., 381 F.3d 811, 818 (8th Cir. 2004) (applying Missouri law). “Missouri courts have described the tort [of unfair competition] as a ‘reaffirmation of the rule of fair play’ and a protection against companies deceiving the public.” Tension Envelope Corp. v. JBM Envelope Co., 876 F.3d 1112, 1121 (8th Cir. 2017) (citing Cushman v. Mutton Hollow Land Dev., Inc., 782 S.W.2d 150, 157–59 (Mo. Ct. App. 1990)). “A trade secret can be any . . . compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” Brown v. Rollet Bros. Trucking Co., 291 S.W.3d 766, 776 (Mo. Ct. App. 2009) (internal quotations omitted). To determine whether information is actually a trade secret, courts consider factors such as “the extent to which the information is known outside of [plaintiff’s] business; . . . the amount of effort or money expended by [plaintiff] in developing the information; [and] . . . the ease or difficulty with which the information could be properly acquired or duplicated by others.” Id. (internal quotation omitted). Missouri courts recognize customer lists as “protectable . . . trade secrets only when they represent a selective accumulation of information based on past selling experience, or when considerable time and effort have gone into compiling it.” Id. at 777 (internal quotation omitted). The Pharmacies state that they compile the following: customer identity; mailing address; insurer; prescribing doctor; and -15- prescribed medication, dosage, quantity, and number of refills. They contend that this compilation of customer information is developed at great expense, time, and effort. The Pharmacies’ arguments for trade secret protection are unpersuasive. The district court concluded that the parties’ agreements provided ESI access to the alleged trade secret information and did not forbid ESI from using it for mail-order service dispensing. Hence, the court did not err in dismissing the Pharmacies’ unfair competition and trade-secret claims. D. Tortious Interference Next, the Pharmacies argue that the parties’ agreements do not authorize or permit ESI to refill the Pharmacies’ customers’ prescriptions through its own mail-order service. Therefore, the Pharmacies claim that ESI tortiously interfered with their business expectancy that customers will allow them, rather than ESI, to dispense their pre-authorized refills. In support of a claim for tortious interference with a business expectancy, the Pharmacies are required to show “(1) a valid business expectancy; (2) defendant’s knowledge of the relationship; (3) a breach induced or caused by defendant’s intentional interference; (4) absence of justification; and (5) damages.”7 Rail Switching Servs., Inc. v. Marquis-Mo. Terminal, LLC, 533 S.W.3d 245, 259 (Mo. Ct. App. 2017) (quoting Stehno v. Sprint Spectrum, L.P., 186 S.W.3d 247, 250 (Mo. 2006) (en banc)). “[I]n all cases where the defendant has a legitimate interest, economic or otherwise, in the . . . expectancy sought to be protected, then the [Pharmacies] must show that . . . [ESI] used improper means to interfere.” Id. at 258. 7 The Pharmacies state the claim as tortious interference with a prospective economic advantage. Missouri courts phrase the claim as tortious interference with a business expectancy. -16- After examining the allegations and considering the parties’ agreements in their entirety, we reiterate that the parties’ agreements contemplate ESI providing mail-order servicing to its plan sponsors’ members, i.e., the Pharmacies’ customers. Given the language of the agreements permitting ESI to provide mail-order servicing, the Pharmacies’ business expectancy of exclusivity in mail-order servicing is invalid, and the district court did not err in dismissing the Pharmacies’ tortious-interference claim. E. Attempted Monopolization Additionally, the Pharmacies claim that the district court’s reasons and ESI’s arguments for dismissing their attempted-monopolization claim are not justified. The Pharmacies posit that they alleged in their complaint “a relevant market consisting of maintenance medications paid for by ESI’s insurance company customers.” Appellants’ Br. at 29. They assert that the relevant market “must be measured by the alternatives available to buyers, (i.e., patients)” and that it should not be defined to include prescription payments from uninsured customers or other plan sponsors that do not contract with ESI. Id. (bold omitted). According to the Pharmacies, their customers—whose health plans contract with ESI—do not have any other options but to accept ESI’s refill orders against their will. The district court properly dismissed the Pharmacies’ attempted-monopolization claim. See 15 U.S.C. § 2 (stating that it is illegal to “monopolize, or attempt to monopolize . . . any part of the trade or commerce among the several States”).8 “To establish an attempted monopolization claim under the Sherman Act, a plaintiff must prove: (1) a specific intent by the defendant to control 8 “The Missouri Antitrust Law, Sec. 416.031 RSMo 1986, is construed in harmony with ruling judicial interpretations of comparable federal statutes.” Stensto v. Sunset Mem’l Park, Inc., 759 S.W.2d 261, 266 (Mo. Ct. App. 1988) (citing Mo. Rev. Stat. § 416.031). -17- prices or destroy competition; (2) predatory or anticompetitive conduct undertaken by the defendant directed to accomplishing the unlawful purpose; and (3) a dangerous probability of success.” HDC Med., Inc. v. Minntech Corp., 474 F.3d 543, 549 (8th Cir. 2007) (internal quotation omitted). “Dangerous probability of success is examined by reference to the offender’s share of the relevant market.” Id. at 550 (internal quotation omitted). A relevant market breaks down into (1) “a product market and [(2)] a geographic market.” Id. at 547. And we have noted that a “relevant product market,” which is at dispute here, has to “include[] all reasonably interchangeable products.” Park Irmat, 911 F.3d at 517 (internal quotation omitted). In Park Irmat, ESI asked the district court to dismiss the appellant’s complaint, which included an attempted-monopolization claim. Park Irmat claimed that the relevant product market for its attempted-monopolization claim consisted of the “mail-order pharmacy services to Express Scripts members—a submarket made up of only Express Scripts’s services within the broader market of all mail-order pharmacy services.” Id. We affirmed the court’s dismissal of the attempted-monopolization claim while concluding that Park Irmat’s alleged product market was too narrowly defined. Id. Here, the Pharmacies allege a similar relevant product market as that found in Park Irmat—maintenance medications paid for by ESI’s plan sponsors. We, again, hold that this product market is too narrowly defined. That is to say, it does not include all interchangeable payment options to the Pharmacies.9 These options 9 Park Irmat’s § 2 or attempted-monopolization claim was that ESI “exclude[d] mail-order pharmacies from its PBM network.” Park Irmat, 911 F.3d at 517. Here, unlike in Park Irmat, the Pharmacies’ attempted-monopolization claim is that ESI excludes them from competing in the “aftermarket,” which is the refilling of prescriptions paid for by ESI members, i.e., the plan sponsors. Based on Eastman Kodak Co. v. Image Tech. Servs., Inc., we recognize that the “aftermarket” in this case -18- include medication payments from uninsured customers and PBMs other than ESI. See, e.g., id.; Little Rock Cardiology Clinic PA v. Baptist Health, 591 F.3d 591, 597–98 (8th Cir. 2009) (rejecting appellant’s argument “that the product market should be limited to patients using private insurance because private insurance and government insurance—the other primary method of payment—are not reasonably interchangeable”). In Little Rock Cardiology Clinic, we stated that “[t]he trouble with [appellant’s] theory is that it analyzes the issue from the wrong side of the transaction . . . . [It] is not about the options available to patients[;] it is about the options available to shut-out cardiologists.” 591 F.3d at 597. There, “[w]e conclude[d] that, as a matter of law, in an antitrust claim brought by a seller, a product market cannot be limited to a single method of payment when there are other methods of payment that are acceptable to the seller.” Id. at 598. The same holds true in this case. Accordingly, it is not necessary for us to analyze the Pharmacies’ remaining arguments in support of its attempted-monopolization claim. See id. at 596 (“Without a well-defined relevant market, a court cannot determine the effect that an allegedly illegal act has on competition.”). The Pharmacies did not plead sufficient facts to meet their “burden of alleging a relevant market in order to state a plausible antitrust claim.” Id. can serve as a separate market in which ESI could potentially hold sufficient monopoly power. 504 U.S. 451, 482 (1992) (“This Court’s prior cases support the proposition that in some instances one brand of a product can constitute a separate market.”). But as we highlighted in our analysis, we reject the Pharmacies’ alleged relevant market here, i.e., the “aftermarket,” on the basis of its inadequate product market description, which does not include all of the Pharmacies’ interchangeable payment options. -19- F. ESI’s Affiliates Lastly, the Pharmacies note that the district court did not separately dismiss their claims against ESI’s affiliates. Thus, they contend that if any claims against ESI are reversed, then those claims should be reinstated against ESI’s affiliates as well. Because we affirm the district court’s dismissal of the Pharmacies’ complaint in its entirety, all claims against ESI’s affiliates remain dismissed.