United HealthCare Services v. Merck & Co.

Background and Parties

This antitrust action centers on allegations that a 2010 settlement between defendant Merck & Co., Inc. and generic manufacturer Glenmark Pharmaceuticals Inc., USA — the "Zetia Settlement Agreement" — illegally delayed generic competition for the cholesterol-lowering drugs Zetia (ezetimibe) and Vytorin (ezetimibe/simvastatin), causing overcharges to plaintiff United HealthCare Services, Inc. (UHS) and its insureds. UHS is the centralized contracting entity responsible for prescription drug payments made on behalf of UnitedHealthcare insured members.

Third-party defendant Cardinal Health, Inc. (together with Cardinal Health 110, LLC and Cardinal Health 112, LLC, collectively "Cardinal") is a direct purchaser of Zetia and Vytorin. Cardinal previously assigned its direct purchaser antitrust claims against Merck to UHS, which UHS now asserts in this case.

The case was originally transferred to the Eastern District of Virginia for consolidated pretrial proceedings in the multidistrict litigation (MDL) titled In re: Zetia (Ezetimibe) Antitrust Litigation, MDL No. 2836, then remanded to the District of Minnesota on December 23, 2023. UHS filed its operative amended complaint on May 17, 2024.

The Two Agreements at Issue

Zetia Settlement Agreement (2010)

Cardinal, as a direct purchaser, is a party to the Zetia Settlement Agreement. Under that agreement, Cardinal agreed to indemnify Merck for "any liability, damages, costs and fees arising out of [a claim against Merck assigned by Cardinal]." The agreement also contains a dispute-resolution clause providing that any disputes arising out of its interpretation are to be mediated on an expedited basis and decided in the first instance by former U.S. District Judge Layn R. Phillips, with the parties consenting to the jurisdiction of the U.S. District Court for the Eastern District of Virginia for any enforcement action or appeal of Judge Phillips's decision.

MAD Agreement (2012)

Cardinal became a direct purchaser of Zetia and Vytorin under the Merck Authorized Distributorship Agreement (MAD Agreement). Cardinal agreed to indemnify Merck under certain conditions for liabilities relating to indirect purchaser claims arising from its resale of the drugs. The MAD Agreement contains a broad arbitration clause, invoked pursuant to the Federal Arbitration Act (FAA), requiring mandatory, binding, confidential arbitration for "any controversy, claim or dispute" arising out of or related to the agreement's performance, construction, or interpretation — including disputes about the scope and meaning of the arbitration clause itself. Arbitration is to occur in Philadelphia, Pennsylvania under American Arbitration Association (AAA) rules.

Merck's Third-Party Complaint

On March 24, 2025, Merck filed a third-party complaint (a complaint filed by a defendant against a new party who may be liable to the defendant) alleging: (1) under the Zetia Settlement Agreement, Cardinal must indemnify Merck for any liability on UHS's federal antitrust claims (counts one and three); and (2) under the MAD Agreement, Cardinal must indemnify Merck for any liability on UHS's indirect purchaser state-law claims (counts two and four). Cardinal denies any obligation to indemnify Merck under either agreement.

Cardinal's Motion

Cardinal moved to dismiss the third-party complaint or, alternatively, to stay the litigation pending resolution by the designated dispute-resolution forums specified in the two agreements — i.e., arbitration under the MAD Agreement and Judge Phillips under the Zetia Settlement Agreement.

Analysis

Threshold Note on Dismissal vs. Stay

The court cited Smith v. Spizzirri, 601 U.S. 472, 478 (2024), and declined to consider whether outright dismissal would be appropriate, applying the stay framework instead.

MAD Agreement — Arbitration (Counts Two and Four)

The court applied the Eighth Circuit's two-part test for compelling arbitration under the FAA: (1) validity of the arbitration agreement, and (2) whether the dispute falls within its scope. The court found the validity of the arbitration clause uncontested and proceeded to scope.

The MAD Agreement's arbitration clause is broadly worded to cover "any" dispute and expressly delegates questions of "scope, applicability and meaning" of the arbitration clause to the arbitrator. The court found the indemnification question regarding indirect purchaser state-law claims plainly falls within this scope.

Moreover, under Eighth Circuit precedent (Fallo v. High-Tech Inst., 559 F.3d 874 (8th Cir. 2009)), incorporation of AAA rules constitutes a "clear and unmistakable" delegation of arbitrability questions to the arbitrator. The court found that any remaining question about what is arbitrable is itself for the arbitrator to decide.

The court rejected Merck's argument that a prior MDL court ruling rendered the MAD Agreement's arbitration clause wholly unenforceable. The MDL ruling had declined to compel arbitration of the federal antitrust merits; here, the question is indemnification — a contractual matter separate from the antitrust merits. The court held counts two and four are subject to arbitration notwithstanding the prior MDL ruling.

Zetia Settlement Agreement — Judge Phillips (Counts One and Three)

The court found that the dispute-resolution clause in the Zetia Settlement Agreement is broad enough to cover the parties' disagreement about whether the indemnification provision requires Cardinal to protect Merck from federal antitrust liability. The clause covers "any" disputes arising out of the proper interpretation of the agreement, and Cardinal's challenge is to the meaning and scope of the indemnification provision — a question of interpretation.

The court rejected Merck's estoppel argument (i.e., that Cardinal should be barred from invoking the clause because it had not first pursued mediation). The court reasoned that whether mediation is a necessary precursor is itself a question of interpretation under the agreement, which must be decided by Judge Phillips. The court also noted, as a practical matter, that because Judge Phillips himself served as mediator in the Zetia case, requiring the parties to first mediate with a third party before turning to him would be inconsistent with the agreement's logic.

Disposition

The court granted in part and denied in part Cardinal's motion. The motion to dismiss was denied. The motion to stay was granted. Litigation in the district court on the third-party complaint is stayed pending: (1) resolution by Judge Phillips (and any subsequent appeal) of counts one and three under the Zetia Settlement Agreement; and (2) resolution by arbitration of counts two and four under the MAD Agreement.