United States District Court, S.D. Texas, Houston Division
CEDRA PHARMACY HOUSTON, LLC, JAMMZ CHEMISTS LLC d/b/a CEDRA DALLAS, and CEDRA PHARMACY LOS ANGELES LLC, Plaintiffs,
UNITEDHEALTH GROUP, INC., UNITED HEALTHCARE SERVICES, INC., OPTUMRX, INC. CATAMARAN CORPORATION, CATAMARAN PBM OF ILLINOIS, INC., CATAMARAN, LLC, BRIOVARX OF MAINE, INC., BRIOVARX, LLC, and SALVEO SPECIALTY PHARMACY, INC., Defendants.
MEMORANDUM AND RECOMMENDATION
FRANCES H. STACY UNITED STATES MAGISTRATE JUDGE
in this case that has been referred for all further pretrial
proceedings is Defendants' Motion to Dismiss
Plaintiffs' Complaint (Document No. 16). Having
considered the motion, the response in opposition, the
parties' additional briefing, the argument at a status
conference held on January 23, 2019, the allegations in
Plaintiffs' Complaint, and the applicable law, the
Magistrate Judge RECOMMENDS, for the reasons set forth below,
that Defendants' Motion to Dismiss (Document No. 16) be
essentially an unfair competition case brought by three
specialty pharmacies, Cedra Pharmacy Houston, LLC
("Cedra Houston"), Jammz Chemists, LLC d/b/a Cedra
Dallas ("Cedra Dallas") and Cedra Pharmacy Los
Angeles LLC ("Cedra LA"), against three groups of
Defendants: (1) United Health Group, Inc. and United
Healthcare Services, Inc. (the "United
Defendants"); (2) OptumRx, Inc.
("ORX"); and (3) Briovarx of Maine, Inc.,
Briovarx, LLC and Salveo Specialty Pharmacy, Inc. (referred
to hereafter as "specialty pharmacy defendants"),
who Plaintiffs allege have conspired to exclude them from
participating in the pharmacy network maintained by pharmacy
benefit manager ORX on behalf the United Defendants.
According to Plaintiffs, they each applied for admission into
Defendant ORX pharmacy network, and each application was
either denied, or refused consideration. Plaintiffs maintain
that the denial of their applications was not based on any
legitimate reason, but was instead based on Defendants'
desire to dominate and control the specialty drug market for
themselves, and to the exclusion of Plaintiffs.
have alleged eight causes of action in their Complaint: (1) a
Civil RICO claim against the United Defendants and ORX (18
U.S.C. § 1962(c)); (2) a RICO Conspiracy claim against
the United Defendants and ORX (18 U.S.C. § 1962(d)); (3)
an unlawful restraint of trade claim against all Defendants
under § 1 of the Sherman Act (15 U.S.C. § 1); (4) a
monopolization of the pharmacy benefit market (PBM) claim
against all Defendants under § 2 of the Sherman Act (15
U.S.C. § 2); (5) a monopolization of the PBM market
claim against all Defendants under § 7 of the Clayton
Act (15 U.S.C. § 18); (6) an unfair competition claim
against all Defendants under Texas common law; (7) a tortious
interference with prospective business relationships claims
by Plaintiff Cedra Houston against all Defendants under Texas
law; and (8) Plaintiff Cedra LA's fair procedure claim
against Defendants under California common law. Defendants
move for dismissal of all these claims under Rule 12(b)(6)
for failure to state a claim upon which relief may be
Standard of Review - 12(b)(6)
12(b)(6) provides for dismissal of an action for
"failure to state a claim upon which relief can be
granted." Fed.R.Civ.P. 12(b)(6). "To survive a
motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to 'state a claim to
relief that is plausible on its face."' Ashcroft
v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007)). A claim is said to be plausible if the
complaint contains "factual content that allows the
court to draw the reasonable inference that the defendant is
liable for the misconduct alleged." Iqbal, 129
S.Ct. at 1949. Plausibility will not be found where the claim
alleged in the complaint is based solely on legal
conclusions, or a "formulaic recitation of the elements
of a cause of action." Twombly, 550 U.S. at
555. Nor will plausibility be found where the complaint
"pleads facts that are merely consistent with a
defendant's liability" or where the complaint is
made up of'"naked assertions devoid of further
factual enhancement.'" Iqbal, 129 S.Ct. at
1949 (quoting Twombly, 550 U.S. at 557)).
Plausibility, not sheer possibility or even conceivability,
is required to survive a Rule 12(b)(6) motion to dismiss.
Twombly, 550 U.S. at 556-557; Iqbal, 129
S.Ct. at 1950-1951.
considering a Rule 12(b)(6) motion to dismiss, all well
pleaded facts are to be taken as true, and viewed in the
light most favorable to the plaintiff. Scheuer v.
Rhodes, 416 U.S. 232, 236 (1974). But, as it is only
facts that must be taken as true, the court may
"begin by identifying the pleadings that, because they
are no more than conclusions, are not entitled to the
assumption of truth." Iqbal, at 1950. It is
only then that the court can view the well pleaded
facts, "assume their veracity and [ ] determine
whether they plausibly give rise to an entitlement to
relief." Iqbal, at 950.
to consideration of Plaintiffs' claims, and
Defendants' arguments for dismissal of those claims, it
is important to note that several of the Defendants named by
Plaintiffs, referred to herein as the Catamaran Defendants
(Catamaran Corporation, Catamaran PBM of Illinois, Inc., and
Catamaran, LLC), do not exist, and have not existed as
separate, independent entities since 2015, when they were
acquired by the United Defendants and otherwise merged with
Defendant ORX. That acquisition and merger pre-dated most of
the conduct about which Plaintiffs complain in this case,
including most particularly, Plaintiffs' exclusion from
the ORX network, which occurred in 2016 and 2017.
RICO Claims - Claims 1 and 2
Defendants argue that Plaintiffs have not alleged plausible
RICO claims because they have not alleged a RICO
"enterprise," have not alleged that the RICO
Defendants conducted the affairs of a RICO enterprise, have
not alleged a racketeering activity, and have not alleged a
pattern of racketeering. These pleading allegations are
crucial to a RICO claim.
plaintiff in a civil action may recover damages under the
RICO statute, 18 U.S.C. § 1961, etseq., if he
is able to allege and prove: 1) a violation of 18 U.S.C.
§ 1962(a), (b), (c), or (d), and 2) injury to business
or property as a result of such violation. 18 U.S.C. §
1964(c) ("Any person injured in his business or property
by reason of a violation of section 1962 of this chapter may
sue therefor in any appropriate United States district court.
. . "). Section 1962, as interpreted by the Fifth
Circuit Court of Appeals, provides in its simplest terms,
(a) a person who has received income from a pattern of
racketeering activity cannot invest that income in an
(b) a person cannot acquire or maintain an interest in an
enterprise through a pattern of racketeering
(c) a person who is employed by or associated with an
enterprise cannot conduct the affairs of the enterprise
through a pattern of racketeering activity; and
(d) a person cannot conspire to violate subsections (a), (b),
Crowe v. Henry, 43 F.3d 198, 203 (5th Cir. 1995).
All civil RICO claims require allegations and proof of
"1) a. person who engages in 2) a. pattern
of racketeering activity 3) [which is] connected to the
acquisition, establishment, conduct or control of an
enterprise.'" Id. at 204 (emphasis in
"person", within the meaning of § 1962,
"includes any individual or entity capable of holding a
legal or beneficial interest in property." 18 U.S.C.
§ 1961(3). To be liable as a "RICO person"
under § 1962, however, the defendant must be "one
that either poses or has posed a continuous threat of
engaging in acts of racketeering." Delta Truck &
Tractor, Inc. v. J.I. Case Co., 855 F.2d 241, 242 (5th
Cir. 1988), cert, denied, 109 S.Ct. 1531 (1989).
"pattern of racketeering" within the meaning of
§ 1962 "requires at least two acts of racketeering
activity." 18 U.S.C. § 1961(5). In this circuit,
"a pattern of racketeering activity" has two
elements: "1) predicate acts-the requisite racketeering
activity, and 2) a pattern of such acts." In re
Burzynski, 989 F.2d 733, 742 (5th Cir. 1993). Predicate
acts are delineated in 18 U.S.C. § 1961(1), and include,
for purposes of this case, extortion. To set out a pattern of
predicate acts, a plaintiff must demonstrate that the
predicate acts are related and that such acts have some type
of continuity. Id.
"enterprise" within the meaning of § 1962
"includes any individual, partnership, corporation,
association, or other legal entity, and any union or group of
individuals associated in fact although not a legal
entity." 18 U.S.C. § 1961(4). If the plaintiff is
alleging an association-in-fact enterprise, there must be
allegations and evidence demonstrating '"an ongoing
organization, formal or informal, and . . . evidence that the
various associates function as a continuing unit."'
Whelan v. Winchester Prod. Co., 319 F.3d 225, 229
(5th Cir. 2003) (quoting United States v.
Turkette, 101 S.Ct. 2524, 2528(1981)). "The
enterprise is not a pattern of racketeering activity, but
must exist separate and apart from the pattern of
racketeering activity in which it engages." Id.
while Defendants argue, for a multitude of reasons, that
Plaintiffs have not alleged plausible RICO claims, the
plausibility of Plaintiffs' RICO claim is most directly
and clearly affected by Plaintiffs' failure to allege a
plausible "racketeering activity." Plaintiffs'
RICO claims are subject to dismissal on that basis
their Complaint, Plaintiffs allege that the RICO Defendants,
through one or both of their association-in-fact enterprises,
"have engineered a wide-ranging campaign to economically
extort Plaintiffs, by repeatedly threatening Plaintiffs
and/or the Cedra Owners with economic harm in order to coerce
Cedra Houston, and ultimately Cedra Dallas and Cedra LA, into
respectively foregoing their exercising of their right and
opportunity, under Federal and state law, to service
customers whose pharmacy benefits were administered by ORX in
their respective geographical areas." Complaint
(Document No. 1) at ¶ 184 Plaintiffs also allege that
the RICO Defendants subjected Cedra Houston to
"arbitrary, capricious and protracted audits,"
Id. at ¶ 185 and also "arranged for the
simultaneous audit of four new York pharmacies affiliated
with Plaintiffs, in order to send a thinly-veiled threat to
Plaintiffs that their continued attempt to join ORX's
network and expand their operations would result in harm to
the Cedra Owners, in the hope that the financial pressure
placed on the Cedra Owners would induce Cedra Houston, Cedra
Dallas, and Cedra LA to withdraw their network applications,
and thus forego the opportunity to service customers in their
respective areas whose pharmacy benefits were administered by
ORX". Id. at ¶ 191. Plaintiffs allege that
this conduct constitutes extortion under the Hobbs Act, 18
U.S.C. § 1951(b)(2), and that extortion is a form of
racketeering under RICO.
under the Hobbs Act, which would serve as a predicate act of
racketeering for purposes of a civil RICO claim, 18 U.S.C.
§ 1961(1) (definition of "racketeering
activity"), is defined as "the obtaining of
property from another, with his consent, induced by wrongful
use of actual or threatened force, violence, or fear, or
under color of official right." 18 U.S.C. § 1851
(b)(2). Here, the property interest Plaintiffs claim
to have lost is their "right and opportunity" to
provide pharmacy services to those covered by ORX's
network. But assuming that such a right or opportunity
exists, and exists as Plaintiffs' "property,"
extortion does not occur simply when a plaintiff claims to
have lost property by virtue of a defendant's wrongful
conduct. Instead, the predicate act of extortion requires
that the RICO Defendants obtain, or otherwise gain,
Plaintiffs' property. InScheidler v. Nat'l Org.
for Women, Inc., 537 U.S. 393, 404 (2003), the Supreme
Court made it clear that the extortion provisions of the
Hobbs Act "require not only the deprivation but also the
acquisition of property." See also Block v.
Snohomish Cty., 733 Fed.Appx. 884, 888 (9th Cir. 2018)
("extortion as used in the RICO context requires showing
that the defendant received something of value which can be
'exercised, transferred or sold.'"). Here,
taking Plaintiffs' allegations as true, Defendants did
not obtain, or gain, anything of Plaintiffs - nor could they
under the facts alleged. The United Defendants are health
care companies. ORX is a pharmacy benefit manager. The
specialty pharmacy defendants are specialty pharmacies in the
ORX pharmacy network, who are affiliated with the United
Defendants. None of these Defendants obtained, or sought to
obtain, any tangible or intangible property, right or
opportunity claimed by Plaintiffs in this case. Moreover,
none of the Defendants was in any position to obtain any
tangible or intangible property, right or opportunity claimed
by Plaintiffs in this case. And, obtaining or seeking to
obtain property is key to an extortion claim; conduct which
merely interferes with or otherwise deprives someone of
property is not sufficient to constitute Hobbs Act extortion.
United States v. McFall, 558 F.3d 951, 956
(9th Cir. 2009) ("We have stated that Hobbs
Act extortion is a 'larceny-type offense,' which
'does not occur when a victim is merely forced to part
with property.' Instead, 'there must be an
"obtaining": someone-either the extortioner or a
third person-must receive the property of which the victim is
deprived.'") (internal citation omitted); see
also Sekhar v. United States, 570 U.S. 729, 734 (2013)
("the Hobbs Act defines its crime of 'extortion'
as 'the obtaining of property from another, with
his consent, induced by wrongful use of actual or threatened
force, violence, or fear, or under color of official
right.' Obtaining property requires 'not only the
deprivation but also the acquisition of property.' That
is, it requires that the victim 'part with' his
property, and that the extortionist 'gain possession'
of it. The property extorted must therefore be
transferable-that is, capable of passing from one
person to another.") (internal citations omitted).
Plaintiffs have not alleged that Defendants obtained, or
attempted to obtain, their property, Plaintiffs have not
alleged a plausible predicate act for purposes of their
§ 1962(c) RICO claim, and that claim is subject to
dismissal pursuant to Rule 12(b)(6). See e.g., S. Snow
Mfg. Co. v. SnoWizardHoldings, Inc., 912 F.Supp.2d 404,
424 (E.D. La. 2012) (finding that Plaintiffs had not alleged
viable predicate acts of extortion to support a civil RICO
claim where the alleged extortion was based on "the
transmission of cease and desist letters, the commencement of
litigation on the basis of intellectual property rights,
internet postings that' [SnoWizard] will protect [its]
legal and trademark right,' and the refusal to provide
services or retail products to Plum Street employees"),,
affd, 567 Fed.Appx. 945 (Fed. Cir. 2014), cert,
denied, __U.S. __, 135 S.Ct. 1416 (2015); Mendez
Internet Mgmt. Servs., Inc. v. Banco Santander de Puerto
Rico, No. CIV. 08-2140 (JAF), 2009 WL 1392189, at *4
(D.P.R. May 15, 2009) (dismissing plaintiffs civil RICO claim
predicated on extortion where the supporting allegations were
that defendants interfered with plaintiffs "license to
establish a dinar sales outlet in Puerto Rico" but there
were no allegations that defendants "actually acquired
Mendez' license to distribute dinars in Puerto
Rico"), affd, 621 F.3d 10 (1st Cir. 2010);
Walker v. Beaumont Indep. Sch. Dist., No.
1:15-CV-379, 2017 WL 928459, at *9 (E.D. Tex. Mar. 6, 2017)
(where plaintiff alleged that "when he refused to join
the union" he was "threatened that they 'would
get him one way or another'" but there was "no
indication that the IBEW took or sought to take property from
Walker or that he was induced to give consent to the taking
of such property" plaintiff had not stated a plausible
attempted extortion claim), report and recommendation
adopted, No. 1:15-CV-379, 2017 WL 1166779 (E.D. Tex.
Mar. 28, 2017), appeal filed, No. 17-40752. In
addition, because Plaintiffs have not alleged a plausible
§ 1962(c) RICO claim, their RICO conspiracy claim under
§ 1962(d) is also not plausible, and is subject to
dismissal as well. N. Cypress Med. Ctr. Operating Co. v.
Cigna Healthcare, 7'81 F.3d 182, 203 (5th
Cir. 2015) ("Since North Cypress failed to properly
plead a claim under §§ 1962(a), (b), or (c), it
correspondingly failed to properly plead a claim under §
1962(d)."); Allstate Ins. Co. v. Benhamou, 190
F.Supp.3d 631, 663 (S.D. Tex. 2016) ("when a plaintiff
fails properly to allege a violation of § 1962(c), his
§ 1962(d) claim is without basis").
Anti-Trust Claims - Claims 3, 4, and 5
Plaintiffs assert anti-trust claims under sections 1 and 2 of
the Sherman Act, alleging that Defendants conspired to
restrain trade in the specialty drug market, and monopolized
and/or sought to monopolize the specialty drug market.
Plaintiffs also assert a claim under section 7 of the Clayton
Act, alleging that the merger between ORX and the Catamaran
Defendants lessened competition and created a monopoly in the
relevant market. Plaintiffs allege that:
216. The relevant service market affected by
Defendants['] conduct is the specialty pharmacy market
that are reimbursed by insurance, including, but not limited
to, the dispensing of prescriptions. The relevant product
market affected by Defendants['] conduct are prescription
drugs reimbursed by insurance, including, but not limited to,
specialty drugs such as those used to treat Hepatitis C.
217. The relevant geographic market is the United States,
including, but not limited to, the State of Texas and the
State of California.
218. Defendants, by administering the drug benefits of 65
million Americans, control a significant portion of the
219. Defendants' conspiracy had the unlawful effect of
restraining and eliminating competition in the provision of
pharmacy services, in particular the dispensing of specialty
drugs, in all markets which Plaintiffs and other independent
pharmacies did and could operate in interstate commerce.
Complaint (Document No. 1).
1 of the Sherman Act prohibits "[e]very contract,
combination in the form of trust or otherwise, or conspiracy,
in restraint of trade or commerce". 15 U.S.C. § 1.
The Supreme Court has construed section 1 to outlaw
unreasonable restraints of trade. Ohio v. Am.
Express Co., __ U.S.__, 138 S.Ct. 2274, 2283 (2018)
("This Court's precedents have thus understood
§ 1 'to outlaw only unreasonable
restraints.'") (citing State Oil Co. v.
Khan,522 U.S. 3, 10 (1997)). To state a claim under
section 1 of the Sherman Act, a plaintiff must allege
"the defendants '(1) engaged in a conspiracy (2)
that restrained trade (3) in a particular market.'"
MM Steel, L.P. v. JSW Steel (USA) Inc., 806 F.3d
835, 843 (5th Cir. 2015) (quoting
Spectators' Commc'n Network, Inc. v. Colonial
Country Club,253 F.3d 215, 220 (5th Cir.
2001)), cert, denied, __U.S.__, 137 S.Ct. 372
(2016). Section 2 of the Sherman Act prohibits the
monopolization of, as well as the attempt to monopolize,
trade or commerce. 15 U.S.C. § 2. To state a claim under
section 2 of the Sherman Act, a plaintiff must either allege
that the defendant "1) possesses monopoly power in the
relevant market and 2) acquired or maintained that power
willfully, as distinguished from the power having arisen and
continued by growth produced by the development of a superior
product, business acumen or historic accident," Rio
Grande Royalty Co. v. Energy Transfer Partners, L.P.,786 F.Supp.2d 1190, 1196 (S.D. Tex. 2009), or "(1) that
the defendant has engaged in predatory or anticompetitive
conduct with (2) a specific intent to monopolize and (3) a
dangerous probability of achieving monopoly power."
Retractable Techs., Inc. v. Becton Dickinson &
Co.,842 F.3d 883, 891 (5th Cir. 2016),
cert, denied, __U.S.__, 137 S.Ct. 1349(2017).
Section 7 of the Clayton Act, 15 U.S.C. § 18,
"forbids mergers in any line of commerce where the
effect may be 'substantially to lessen competition or
tend to create a monopoly.'" SureShot Golf