PHILADELPHIA – A federal appellate court has unanimously determined that arbitration proceedings are forthcoming for a class-action lawsuit filed against Merck, which alleged that the pharmaceutical giant discouraged competition for its rotavirus vaccine.
On March 21, U.S. Court of Appeals for the Third Circuit judges Thomas M. Hardiman, Michael A. Chagares and Paul B. Matey ruled that Sugartown Pediatrics, LLC, Schwartz Pediatrics SC and Margiotti & Kroll Pediatrics, PC, who purchased the vaccine through Physician Buying Groups (PBGs), were bound by arbitration clauses between those groups and Merck.
Such PBGs allow medical offices to band together for group discounts on vaccine purchases, and the Third Circuit’s ruling reversed a lower federal court ruling from 2019 which decreed that the arbitration clauses were invalid.
Over a time period spanning 2006-2008, Merck’s RotaTeq was the only vaccine available in the United States to treat rotavirus, a disease capable of causing severe diarrhea, vomiting, fever and abdominal pain.
Sugartown Pediatrics, Schwartz Pediatrics and Margiotti & Kroll Pediatrics initially filed suit against Merck in the U.S. District Court for the Eastern District of Pennsylvania, arguing that Merck violated federal antitrust guidelines in the Sherman Act – when it stipulated that customers buy its rotavirus vaccines from the company or they would be forced to pay higher prices for its other vaccines, subsequent to the Food and Drug Administration giving a green-light to a different rotavirus vaccine a decade prior.
In response, Merck motioned to compel arbitration with the plaintiffs, pointing to arbitration clauses contained in its contracts with the PBGs.
However, U.S. District Court for the Eastern District of Pennsylvania Judge J. Curtis Joyner denied the company’s motion in 2019, referring to evidence which illustrated that individual members of PBGs did not directly negotiate with Merck and were not aware the contracts had an arbitration clause.
Though the Third Circuit ordered Joyner to reconsider that decision, Joyner upheld his initial ruling in November 2020. The lower federal court’s ruling was then once again appealed to the Third Circuit.
In authoring the Third Circuit’s opinion, Hardiman explained that Joyner’s ruling must be reversed.
“Even if the Pediatricians were right that the arbitration provision is limited to ‘the parties,’ they would still be covered under agency principles. The PBGs were acting as their agents, who stand ‘in the shoes’ of their principals, including when they ‘alter the legal relations between the principal and third persons.’ When the PBGs signed the agreement in their capacity as agents, they bound the Pediatricians. For these two independently sufficient reasons, we hold that the Pediatricians are covered by the arbitration provision,” Hardiman said.
“The District Court erred when it denied Merck’s motion to compel arbitration. Schwartz Pediatrics made the PBG its agent by contract, then the PBG used its authority to bind Schwartz to an arbitration clause. Sugartown and Margiotti & Kroll must arbitrate because their PBG had apparent authority to bind them to the arbitration clause with Merck. We will reverse the order of the District Court and remand with the instruction that the Court grant Merck’s motion to compel arbitration.”
U.S. Court of Appeals for the Third Circuit case 20-3460
U.S. District Court for the Eastern District of Pennsylvania case 2:18-cv-01734
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com