Court Confirms Almost $23M Arbitration Award

A court recently confirmed an arbitration award totaling nearly $23 million after rejecting the losing party’s arguments that the arbitrator exceeded his authority, improperly calculated damages, and violated an American Arbitration Association rule.

AIDS Healthcare Foundation (AHF) operated a number of pharmacies that supported AIDS patients. AHF contracted with Caremark LLC and Caremark PCS LLC for certain pharmacy benefit management services. Pursuant to the agreement, Caremark took Medicare Part D monies earmarked to pay for prescriptions for people of limited financial means to pay that money to Medicare Part D plan sponsors. AHF claimed that the manner in which Caremark did that violated the agreement between AHF and Caremark. An arbitrator agreed and awarded AHF $22.6 million in damages plus approximately $366,000 in costs and fees.

Caremark moved to vacate the award. The U.S. District Court for the District of Arizona rejected Caremark’s claims and added additional costs, fees, and interest to the award.

Caremark first claimed that the arbitrator exceeded his authority by adjudicating the claims of 51 separate pharmacies collectively. According to Caremark, that violated the arbitration agreement’s provision that “[a]ll disputes are subject to arbitration on an individual basis, not on a class or representative basis, or through any form of consolidated proceedings.” The court concluded that the arbitrator’s interpretation of the anti-class action provision as not being violated by consolidating claims from separate AHF pharmacies was not “completely irrational” or in “manifest disregard of the law” and further noted that the agreement permitted consolidation of claims from any contracts and agreements from participation in Caremark’s networks.

The court similarly rejected Caremark’s argument that the arbitrator’s damages computation was irrational. It agreed with the arbitrator that Caremark first raised that claim in a motion to recalculate the damages and that the argument should have been raised earlier.

Finally, the court found that the arbitrator acted properly in increasing the damages after the deadline set by Rule 50 of the AAA rules had passed. The arbitrator concluded that Rule 50 did not apply because the award he amended was an interim award. The court found that the arbitrator’s interpretation of Rule 50 was plausible and therefore acceptable.

The court also awarded costs, fees, and interest related to Caremark’s motion to vacate.

Caremark LLC v. AIDS Healthcare Foundation, No. 2:21-cv-01913 (D. Ariz. Sept. 15, 2022).