Pharmacy Cannot Use Equitable Estoppel To Enforce Pdaa Against Non-Signatory Consumers, Ninth Circuit Holds

It is hornbook law that a signatory to a broad predispute arbitration agreement (“PDAA”) is bound by its terms under the Federal Arbitration Act (“FAA”), and that sometimes such an arbitration agreement can be enforced by or against a non-signatory via equitable estoppel. That broad topic was at issue in Stafford v. Rite Aid Corp., No. 20-55333 (9th Cir. May 21, 2021), where the Court was asked to decide whether consumers – who did not sign the agreement between Rite Aid and its “pharmacy benefits managers” containing the PDAA – could be compelled to arbitrate their statutory claims against the pharmacy. “No,” says a unanimous Ninth Circuit. Lead Plaintiff Stafford had brought a class action against Rite Aid, contending that the pharmacy had: “fraudulently inflated the reported prices of prescription drugs to insurance companies … result[ing] in class members paying Rite Aid a higher co-payment for the drugs than they would have paid if Rite Aid had reported the correct price to their insurance companies.” In affirming the District Court’s refusal to compel arbitration, the Ninth Circuit panel holds: “Rite Aid’s duty not to commit fraud is independent from any contractual requirements with the pharmacy benefit managers. As noted, statutes and common law – not provisions in the contracts – entitle Stafford to relief. The principles of equitable estoppel, therefore, do not require Stafford to submit to the arbitration clauses of contracts between Rite Aid and the pharmacy benefits managers.”

(ed: The Court also rejected Rite Aid’s assertion that Stafford’s claims were
“intertwined” with Rite Aid’s contracts with the pharmacy benefits managers.)

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