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Union Avenue Pharmacy, Inc. v. Express Scripts-Value Rx

A-2896-01T5 (N.J. Super. App. Div. 2003) (Unpublished)

ARBITRATION; CONTRACTS—Where a party didn’t even try to negotiate the terms of an arbitration provision and there is no evidence that it would have been futile, that party cannot argue that the contract was one of adhesion.

Three related pharmacies sued a pharmaceutical benefit management company. The agreements between the pharmacies and the benefit management company included an arbitration provision, under Michigan law, to be arbitrated in Michigan. According to the Court, with respect to the enforceability of arbitration provisions, Michigan law and New Jersey law were identical. After rejecting a number of procedural arguments against enforcement of the arbitration provision, the Court focused on the drugstores’ contentions that the arbitration provisions in the standard form contract, which they described “as a contract of adhesion, [were] both procedurally and substantively unconscionable.” Apparently, none of the drugstores had ever attempted to negotiate the arbitration provision, and the lower court observed that each had the opportunity to do so. The drugstores contended that they “lacked a meaningful choice regarding the acceptance of the arbitration agreement because of the highly unequal bargaining strength between them and [the benefits management company].” The Appellate Division did not believe that this contention was supported by the record. One of the drugstores only did five percent of its prescription business with the benefits management company; another did only fifteen percent. Further, each drugstore had a significant non-prescription business which contributed their profits and sales. There was no proof that the industry had a uniform arbitration clause and there was proof that at least one of the drugstores had unsuccessfully tried to negotiate out of an arbitration clause with other suppliers.

The drugstores also argued that the arbitration provision was substantively unconscionable because it required the pharmacies to continue to provide prescription services during any arbitration but didn’t require the benefits management company to reimburse the drugstores for prescriptions so filled. They also argued that there was an unreasonably short notice provision to process a claim and that it was a tremendous financial burden to arbitrate matters in Michigan. The Appellate Division rejected those arguments and specifically rejected the forum selection argument pointing out that under case law, “[f]orum-selection clauses are enforceable in New Jersey.”

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