By Lee P. Dunham, J.D.
Under New Jersey law, the claims arose under and were intertwined with the parties’ distribution agreement.
The federal antitrust claims brought by Rochester Drug Cooperative (RDC), a purchaser and wholesale distributor of the drug Remicade against Johnson & Johnson (J&J), arose out of or related the distribution contract between J&J and RDC, and were therefore subject to the contract’s arbitration clause, the U.S. Court of Appeals in Philadelphia has ruled. The arbitration clause which provided that "any controversy or claim arising out of or relating to" the distribution agreement is subject to mandatory mediation and arbitration. The agreement was governed by the state law of New Jersey, under which the terms "arising out of" or "relating to" are interpreted as indicative of an "extremely broad" agreement to arbitrate any dispute relating in any way to the contract," and such language should be read to encompass RDC’s antitrust claims (In re: Remicade [Direct Purchaser] Antitrust Litigation, September 13, 2019, Krause, C.).
RDC was a plaintiff in an action by direct and indirect purchasers of the biologic imfliximab drug Remicade against J&J for using exclusive agreements and coercive bundled rebates to foreclose competition posed by biosimilar versions of the drug, in violation of Sections 1 and 2 of the Sherman Act. RDC had a distribution agreement with J&J which set out various logistical obligations for its distribution of Remicade, provided that J&J "will sell Products to the Distributor at the applicable Product’s Wholesale Acquisition Cost (WAC), and contained an arbitration clause which provided that "any controversy or claim arising out of or relating to" the distribution agreement is subject to mandatory mediation and arbitration.
The federal district court in Philadelphia denied J&J’s motion to compel arbitration of RDC’s antitrust claims on the ground that the claims "are separate from, and cannot be resolved based on," the distribution agreement. J&J appealed.
Governing law. The parties disagreed as to the applicable body of law used to interpret the scope of that clause. While J&J argued that it "is a matter of federal law" and the federal presumption in favor of arbitration therefore ended the inquiry, RDC contended that courts must apply ordinary state law principles to evaluate arbitration agreements, so long as they do not conflict with the Federal Arbitration Act. The court held that while federal law may tip the scales in favor of arbitration where state interpretive principles do not dictate a clear outcome, may displace state law through preemption, or may inform the interpretive analysis in other ways, applicable state law governs the scope of an arbitration clause—as it would any other contractual provision—in the first instance. As the agreement in question was governed by New Jersey law, the court applied that law in interpreting the scope of the arbitration clause.
Scope of arbitration clause. The court found that when it comes to ascertaining the scope of an arbitration provision, New Jersey courts have generally read the terms "arising out of" or "relating to" in a contract as indicative of an extremely broad agreement to arbitrate any dispute relating in any way to the contract. Further, the phrase "[a]ny other unresolved disputes arising out of this Agreement" encompassed antitrust claims challenging allegedly anticompetitive conduct that resulted in overcharges based on the underlying contract. Applying that reasoning, the court held that the gravamen of RDC’s complaint was that J&J’s anticompetitive plan enabled it to sell Remicade "at artificially inflated prices," and the only "inflated price" that could have caused RDC’s injury was the price it paid J&J for Remicade, i.e., the WAC provided for in the agreement. Thus, RDC’s antitrust claims were "undeniably intertwined" with the agreement because it was the fact of RDC’s entry into the agreement containing the allegedly inflated price that gave rise to the claimed injury.
The court rejected RDC’s argument that ascertaining the scope of the arbitration clause by considering whether the claims would not exist except for the agreement contravened the Third Circuit’s recent admonition against equating the meaning of "arising out of" with the concept of but-for causation," as the dispositive issue was not whether the antitrust claims could not exist but-for the Agreement. Rather, it was that they could not be adjudicated without "reference to, and reliance upon," it. The court also rejected RDC’s argument that the arbitration clause failed to comply with New Jersey’s rule of contractual interpretation requiring waivers of constitutional or statutory rights to be stated "clearly and unambiguously." That rule does not extend to commercial contracts, the court noted.
This case is No. 18-3567.
Attorneys: Zachary D. Caplan (Berger & Montague, PC) for Rochester Drug Cooperative Inc. Sara A. Arrow (Patterson Belknap Webb & Tyler LLP) for Johnson & Johnson.
Companies: Rochester Drug Cooperative Inc.
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