Court Opinion

ID: 3030207
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:43:59.749622+00
Date Added: 2024-06-11T11:48:06.337381
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 02-1790
                                   ___________

United Healthcare Insurance Co.;        *
AARP,                                   *
                                        *
             Appellees,                 *
                                        * Appeal from the United States
      v.                                * District Court for the District
                                        * of Minnesota.
                                        *
AdvancePCS,                             *
                                        *
             Appellant.                 *
                                   ___________

                             Submitted: October 7, 2002

                                   Filed: November 1, 2002
                                    ___________

Before HANSEN, Chief Judge, HEANEY and MORRIS SHEPPARD ARNOLD,
      Circuit Judges.
                             ___________

MORRIS SHEPPARD ARNOLD, Circuit Judge.

       This case involves the propriety of a preliminary injunction granted without an
evidentiary hearing. United Healthcare Insurance Co. (United) and the American
Association of Retired Persons (AARP) filed an action against AdvancePCS, alleging
violations of the Minnesota Deceptive Trade Practices Act (MDTPA) and other
common law claims. Based on affidavits alone, the district court1 preliminarily
enjoined AdvancePCS from processing certain drug discount claims under its
competing program. Because undisputed evidence existed in the affidavits to support
the preliminary injunction, we affirm.

                                          I.
       "Whether a preliminary injunction should issue involves consideration of ... the
threat of irreparable harm to the movant[,] the state of the balance between this harm
and the injury that granting the injunction will inflict on other parties litigant[,] the
probability that movant will succeed on the merits[,] and ... the public interest."
Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981). We will
affirm a grant of injunctive relief unless the district court " 'clearly erred in its
characterization of the facts, made a mistake of law, or abused its discretion in
considering the equities.' " See Shen v. Leo A. Daly Co., 222 F.3d 472, 477 (8th Cir.
2000) (quoting Bhd. of Maint. of Way Employees, Lodge 16 v. Burlington N. R.R. Co.,
802 F.2d 1016, 1020 (8th Cir. 1986)).

       AdvancePCS challenges only the district court’s finding of a threat of
irreparable harm and the district court’s conclusion that AARP and United were likely
to succeed on their MDTPA claims. We first consider the threat of irreparable harm,
which must exist for a preliminary injunction to issue. Dataphase, 640 F.2d at 114
n.9. The district court found a threat of irreparable harm in AARP and United’s
potential loss of reputation and goodwill. We review this determination for clear
error. See Sanborn Mfg. Co. v. Campbell Hausfeld/Scott Fetzer Co., 997 F.2d 484,
489 (8th Cir. 1993).

      1
      The Honorable Richard H. Kyle, United States District Judge for the District
of Minnesota.

                                          -2-
                                           2
      For four years, AdvancePCS helped administer a drug discount program for
AARP (AARP Program). AdvancePCS served as a pharmacy benefit management
company (PBM), negotiating volume discounts with pharmacies and rebates with
drug companies that AARP members would receive in exchange for an annual fee.
As part of this arrangement, AdvancePCS maintained a prescription history for each
AARP Program participant and would check for adverse drug interactions as part of
a Drug Utilization Review (DUR) each time that it processed a drug discount claim.

       Under the AARP Program, AdvancePCS issued drug discount cards to AARP
Program participants that contained each participant's AARP Program code number.
This code number consisted of AARP's "carrier number," a "group number," and an
individual "identification number." These cards also bore the AARP logo, the
participant's name, and AdvancePCS’s "bank information number," indicating to
pharmacists that the individual participated in the AARP Program and that
AdvancePCS was the relevant PBM. Although these were AARP Program code
numbers, AdvancePCS owned the code numbers.

       Often, upon an AARP Program participant’s first visit, pharmacists would
create a patient profile on their computers to be used for future reference. As part of
each individual's profile, the pharmacist would enter the individual's AARP Program
code number and AdvancePCS's bank information number. Once a patient profile
existed, pharmacies would submit the AARP Program participant's request for a drug
discount electronically through an electronic data transfer system. In particular, the
pharmacies' computers would automatically send AARP Program participants' drug
discount claims to AdvancePCS for processing, because AdvancePCS's bank
information number was stored in the AARP Program participant's profile. After
checking the submitted code number to ensure that the person was part of the AARP
Program, AdvancePCS would perform a DUR and inform the pharmacy of the
discount amount.

                                         -3-
                                          3
       In April 2001, United began to manage AARP’s pharmacy services. United
decided to terminate AdvancePCS, choosing Express Scripts Inc. (Express) as
AARP’s PBM starting in September 2001. Instead of purchasing AARP Program
participants’ code numbers from AdvancePCS, United and Express sent AARP
Program participants new cards and code numbers to be used on and after
September 1, 2001.

       United and Express assumed that AdvancePCS would quit processing claims
involving code numbers that were assigned to AARP Program participants prior to
September 1. AdvancePCS, however, decided to launch its own drug discount
program, which is called the AdvancePCS prescription plan. Under this plan,
AdvancePCS would process any drug discount claim directed to it by a participating
pharmacy, including claims submitted electronically via stored patient profiles. If the
patient profile contained an AARP Program participant's pre-September 1 code
number, AdvancePCS would treat this electronic submission as a request to use its
plan and would process the claim itself without notifying the AARP Program
participant that it processed the claim instead of AARP. Consequently, AdvancePCS
would perform a DUR and determine the relevant drug discount for the AARP
Program participant, even though AdvancePCS was no longer associated with the
AARP Program. In these instances, pharmacists continued to send these claims to
AdvancePCS because AdvancePCS’s bank information number was still stored in
the individual's patient profile.

       As AdvancePCS began processing claims containing these old AARP Program
code numbers, a potential divergence developed in AARP members’ prescription
histories, as each PBM (Express and AdvancePCS) learned only of prescriptions
pertaining to drug discount claims that it had processed. DURs thus became
potentially inaccurate as neither PBM necessarily possessed a full prescription history
of the customer. The district court found that an adverse drug reaction resulting from
an incomplete DUR might irreparably harm AARP’s reputation and goodwill among

                                         -4-
                                          4
its members. In particular, it noted that AARP Program participants had no reason
to know that AdvancePCS had processed the claim and could reasonably be expected
to attribute shortcomings in their prescription history to AARP, which specifically
promotes DUR protection. The district court emphasized that a significant number
of AARP Program participants benefitted from DURs. In September and
October 2001 alone, Express sent DUR alerts regarding potential problems for
227,975 claims submitted to it under the AARP Program, resulting in 36,751
occasions on which pharmacists did not fill the relevant prescription. If anything,
these numbers understate the value of DUR services, since the AARP Program's
weekly claim volume immediately decreased by forty percent once AdvancePCS
began processing claims under the AdvancePCS prescription plan. Accordingly, the
district court enjoined AdvancePCS from processing claims that used AARP's carrier
number.

       Loss of intangible assets such as reputation and goodwill can constitute
irreparable injury. See General Mills, Inc. v. Kellogg Co., 824 F.2d 622, 625 (8th Cir.
1987). AdvancePCS, however, argues that potential DUR inaccuracy is out of the
case because it has now operated its program for more than six months, and six
months of prescription history enables it to offer a complete DUR. Thus,
AdvancePCS contends that the threat of irreparable injury has “evaporated.”

       We agree that the irreparable injury inquiry must concentrate on current threats,
not past ones, but we disagree that the threat of irreparable injury has evaporated here.
AdvancePCS’s contention is premised on the belief that AARP Program participants
will use the same pharmacy each time. This premise is inaccurate, as undisputed
evidence suggests that the average AARP Program participant uses more than one
pharmacy and has three prescriptions filled per visit. Whereas some of the 47,000
pharmacies participating in the AARP Program have chosen also to participate in the
AdvancePCS Plan, many have not. For instance, CVS, the largest pharmacy chain
participating in the AARP Program (operating over 4,000 pharmacies and dispensing

                                          -5-
                                           5
approximately 12 percent of all prescriptions in the United States), and four other
major pharmacy chains have chosen to forego the AdvancePCS Plan. This creates a
sufficiently high probability that AARP Program participants will use both
pharmacies that process their claims through Express and those that process their
claims through AdvancePCS (via patient profile information), thus producing an
incomplete DUR, since both Express and AdvancePCS will have divergent
prescription information. Given that AARP Program participants may never learn
that they had used the AdvancePCS Plan, it is reasonable to think that they would
attribute shortcomings in their prescription history to AARP.

       AdvancePCS also contends that AARP’s potential reputational loss is not
irreparable, because AARP failed to mitigate its alleged damages and to “protect”
AARP members by accepting AdvancePCS’s offer to share its patient history
information with AARP. We disagree. For DURs to be complete, prescription data
must be shared on a real-time basis. Despite AdvancePCS’s offer to share
information, AdvancePCS presents no evidence that the requisite technology for real-
time sharing exists. AdvancePCS’s offer, therefore, decreased the threat of
irreparable harm but by no means eliminated it altogether.

       Last, AdvancePCS argues that the potential reputational harm is too
speculative, because there is no evidence that an AARP Program participant has
complained because of an adverse drug reaction resulting from an incomplete DUR.
Like the district court, we do not find the lack of complaints to be dispositive of the
issue, as it might take months for a loss of goodwill to become manifest. Indeed,
AARP Program participants have no reason to know that their prescription histories
may be inaccurate given AdvancePCS’s secretive manner of processing claims. The
district court did not clearly err in finding a threat of irreparable harm in AARP’s
potential loss of reputation and goodwill among its customers.

                                         -6-
                                          6
       The district court also found a threat of irreparable harm in United’s potential
loss of reputation and goodwill among pharmacists, as AdvancePCS’s diversion of
claims threatens to frustrate United’s business advantage arising out of its exclusive
relationship with AARP. In light of our conclusion above, however, we need not
reach this issue, as the first Dataphase consideration is already satisfied.

       We next consider appellees' likelihood of success on the merits. The district
court found AARP and United likely to succeed on several of their MDTPA claims.
The MDTPA provides that:

      A person engages in a deceptive trade practice when, in the course of
      business, vocation, or occupation, the person:

      (1)  passes off goods or services as those of another;
      (2)  causes likelihood of confusion or of misunderstanding as to the
           source, sponsorship, approval, or certification of goods or
           services;
      (3) causes likelihood of confusion or of misunderstanding as to
           affiliation, connection, or association with, or certification by,
           another;
           ...
      (5) represents that goods or services have sponsorship, approval,
           characteristics, ingredients, uses, benefits, or quantities that they
           do not have or that a person has a sponsorship, approval, status,
           affiliation, or connection that the person does not have;
           ...
      (13) engages in any other conduct which similarly creates a likelihood
           of confusion or of misunderstanding.

Minn. Stat. § 325.D44, subd. 1. The district court found likely violations of subparts
(1), (2), (3), and (13), but not (5). We address only subpart (1), the “passing off”
claim, since AARP and United’s likely success on this claim obviates the need for
any further inquiry.

                                         -7-
                                          7
      The district court noted correctly that neither the statute itself nor Minnesota
courts have precisely defined what constitutes “passing off” under the MDTPA.
Looking to other jurisdictions, the district court ultimately construed "passing off" as
"[a]ny conduct, the nature and probable tendency and effect of which is to deceive the
public so as to 'pass off' the goods or business of one person as and for the goods or
business of another." (quoting Morton B. Katz & Assocs. v. Arnold, 333 S.E.2d 115,
116, 175 Ga. App. 278, 279 (1985)). Under this definition, the district court
concluded that United and AARP were likely to succeed on their "passing off" claim,
as AdvancePCS's conduct had the probable tendency and effect of deceiving AARP
Program participants into believing that the discount they received on their
prescriptions and the DURs were obtained through the AARP Program.

       Prior to the MDTPA's enactment, the Supreme Court of Minnesota described
"passing off" as conduct that "deceives, or is likely to deceive, a customer exercising
ordinary care in the making of a purchase of the particular goods, and induces him to
purchase defendant's goods in the belief that they are those of plaintiff." Winston &
Newell Co. v. Piggly Wiggly Northwest, 22 N.W.2d 11, 16, 221 Minn. 287, 293
(1946). See generally Developments in the Law: Passing Off, 77 Harv. L. Rev. 908,
910 (1964) (describing the "tort of passing off by product simulation"). The MDTPA,
enacted in 1973, evidently endorsed this definition of "passing off," since it explicitly
states that proof of an "intent to deceive is not required." Minn. Stat. § 325D.45,
subd. 1; cf. Ellis v. Great-West Life Assurance Co., 43 F.3d 382, 387 (8th Cir. 1994).
We also agree with the district court that AdvancePCS's conduct, processing AARP
Program participants' claims using code numbers issued to them before September 1
without obtaining their consent, is likely to deceive AARP Program participants into
believing that they received AARP services.

      AdvancePCS contends otherwise, arguing that AARP and United caused the
confusion through their dilatory handling of their "re-engineering" of the AARP
Program (for instance, by refusing to compensate pharmacists for switching over

                                          -8-
                                           8
AARP members' code numbers in their stored patient profiles) and that AdvancePCS
never misleadingly asserted that it had a continuing relationship with AARP after
September 1. Both contentions fail to appreciate how proof of a "passing off" claim
differs from the proof required under other subparts of the MDTPA. Neither proof
that AdvancePCS caused the confusion nor affirmative misrepresentations are
required to prove "passing off" under the MDTPA.

       Unlike subparts (2) and (3), which explicitly require that one's conduct "causes
[a] likelihood of confusion," subpart (1), "passing off," does not require proof of
causation. At common law, a plaintiff need only establish "both a likelihood of
confusion and direct competition in order to demonstrate a likelihood of success
under the [passing] off theory." Worthington Foods, Inc. v. Kellogg Co. 732 F. Supp.
1417, 1432 (S.D. Ohio 1990); cf. Toho Co. v. Sears, Roebuck & Co., 645 F.2d 788,
793 (9th Cir. 1981). Assuming arguendo that United and AARP created the
opportunity for customer confusion through their post-termination conduct,
AdvancePCS is still liable for failing to take reasonable precautions to prevent
customer confusion with the pre-existing product. Cf. Kellogg Co. v. Nat'l Biscuit
Co., 305 U.S. 111, 122 (1938); Shredded Wheat Co. v. Humphrey Cornell Co., 250
F. 960, 966-67 (2d Cir. 1918) (L. Hand, J.). Even if AdvancePCS did not solely
cause the customer confusion, it still created the likelihood of confusion here by
silently processing AARP Program participants' claims without obtaining explicit
consent first.

       AdvancePCS argues that the district court clearly erred in finding a likelihood
of customer confusion given the absence of any affidavits from customers stating they
were confused. This argument is doubly flawed. First, proof of actual confusion is
not required. See Minn. Stat. § 325D.44, subd. 2. Second, the absence of affidavits
alleging customer confusion is not dispositive when customers never had reason to
know that AdvancePCS had processed any of their past claims. Cf. Woodsmith
Publ'g Co. v. Meredith Corp., 904 F.2d 1244, 1249 (8th Cir. 1990). Given the

                                         -9-
                                          9
surreptitious manner in which AdvancePCS processed AARP Program participants'
claims and the undisputed evidence indicating pharmacist confusion, we hold that the
district court did not clearly err in finding that customers were likely to be confused.

       Nor does appellees' case fail for the lack of affirmative misrepresentations on
AdvancePCS's part. At common law, courts explicitly differentiated "false
designation of origin" cases involving false advertising from those involving "passing
off." See Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 778 (1992)
(Stevens, J., concurring in the judgment). Over time, courts interpreted " 'false
description or representation' language [in trademark statutes] to mean more than
mere 'palming off.' " Id. at 779 (citing L'Aiglon Apparel, Inc. v. Lana Lobell, Inc.,
214 F.2d 649 (3d Cir. 1954)). Similarly, the MDTPA codified misrepresentation as
to sponsorship or affiliation in subpart (5). Minn. Stat. § 325D.44, subd. 1(5). We
find it sufficient that AdvancePCS processed AARP Program participants' claims
through code numbers issued before September 1 and stored in patient profiles,
without notifying AARP members of its involvement.

       We acknowledge that AdvancePCS owned the code numbers. The MDTPA's
requirements, however, override proprietary interests. Although we recognize that
United and AARP bear a heavier burden than usual because the preliminary
injunction gives them substantially all the relief they would obtain after a trial on the
merits, Rathmann Group v. Tanenbaum, 889 F.2d 787, 790 (8th Cir. 1989), we
believe that they have met their heavier burden here. The district court did not abuse
its discretion in granting the preliminary injunction.

                                          II.
       Next, we consider the district court's decision to forego an evidentiary hearing
before granting the preliminary injunction. We review this decision for an abuse of
discretion. Bradshaw v. United States, 153 F.3d 704, 708 (8th Cir. 1998).

                                          -10-
                                           10
       AdvancePCS contends that the district court abused its discretion by failing to
hold an evidentiary hearing, because the parties disputed what constituted "industry
practice" after PBM termination and who caused the confusion. We disagree. An
evidentiary hearing is required prior to issuing a preliminary injunction only when a
material factual controversy exists. See Movie Sys., Inc. v. MAD Minneapolis Audio
Distribs., 717 F.2d 427, 432 (8th Cir. 1983). Neither of the allegedly disputed issues
are relevant to the "passing off" claim. As AdvancePCS admits, industry practice
pertaining to PBM termination addresses only pharmacist's expectations of who
should notify them of the terminated relationship. "Passing off," on the other hand,
focuses on the customer's perspective. Relatedly, AdvancePCS disputes who caused
the confusion. As discussed above, however, "passing off" has no such causation
requirement.

       AdvancePCS contends that it is unknown how many individuals voluntarily
used its program and how many did not. This fact, however, is irrelevant, since it
concerns only the extent of "passing off" that occurred and not its existence. The
district court did not abuse its discretion by failing to hold an evidentiary hearing.
                                           III.
       We consider finally the amount of the bond that the district court set to secure
"payment of such costs and damages as may be incurred or suffered by any party who
is found to have been wrongfully enjoined." Fed. R. Civ. P. 65(c). We review the
amount of the bond for an abuse of discretion. Rathmann Group, 889 F.2d at 789.

       United and AARP had asked the district court to set the bond amount at
$100,000. AdvancePCS, on the other hand, argued that the bond should be set at
$54 million because United sought that amount of damages in its unjust enrichment
claims. The district court ordered a $1 million bond, stating that $100,000 was
insufficient given the sheer volume of claims at issue but that $54 million was too
much given the lack of evidence suggesting that AARP Program participants
knowingly used the AdvancePCS Plan, thus making significant damages unlikely.

                                         -11-
                                          11
       AdvancePCS contends that the district court abused its discretion by not
equating the bond amount with the alleged amount of unjust enrichment claim, as $54
million represents United's own estimation of how much AdvancePCS would be
enriched through its Plan. We disagree. A district court can properly "fix the amount
of the bond" when "the risk of harm is remote." Hoechst Diafoil Co. v. Nan Ya
Plastics Corp., 174 F.3d 411, 422 n.3 (4th Cir. 1999). Given the minimal amount of
evidence indicating conscious use of the AdvancePCS Plan, a $1 million bond was
clearly within the district court's discretion.

                                      IV.
      Accordingly, we affirm the judgment of the district court.

      A true copy.

             Attest:

                CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                        -12-
                                         12