Hyams v. CVS Health Corporation

Background

Ryan Hyams alleged that he was formerly employed by CVS as a pharmacist and was terminated after CVS conducted a Drug Utilization Review audit involving a fictitious patient and prescriptions. His first amended complaint asserted eight causes of action against CVS Health Corporation, CVS Pharmacy, Inc., Garfield Beach CVS, LLC, and CVS RX Services, Inc. The motion at issue concerned only the second cause of action: disparate-impact discrimination based on race or color under California’s Fair Employment and Housing Act (FEHA).

Hyams filed a complaint with California’s Department of Fair Employment and Housing (DFEH) and received a right-to-sue letter. The defendants argued that his DFEH charge exhausted a theory of disparate treatment—meaning intentional unequal treatment—but not disparate impact, which concerns a facially neutral employment practice that affects one group more harshly and cannot be justified by business necessity.

Motions and Legal Standard

The defendants first moved under Federal Rule of Civil Procedure 12(b). The court denied that motion as untimely because the defendants had already filed an answer, while Rule 12(b) generally requires the motion to be filed before a responsive pleading when one is allowed.

The court then considered the defendants’ motion under Rule 12(c), which permits judgment on the pleadings after the pleadings are closed. The court explained that Rule 12(c) uses essentially the same analysis as a motion to dismiss for failure to state a claim under Rule 12(b)(6): accepting the complaint’s factual allegations as true, the court determines whether the plaintiff is legally entitled to a remedy.

Administrative Exhaustion

Before filing a FEHA lawsuit, an employee must exhaust administrative remedies by filing a timely and sufficient charge with the DFEH and receiving a right-to-sue notice. The civil lawsuit generally may include conduct alleged in the charge and conduct that is “like or reasonably related to” the charge or could reasonably be expected to arise from the agency’s investigation.

The court rejected Hyams’s argument that a general discrimination designation on a DFEH intake form automatically exhausted both disparate-treatment and disparate-impact theories. The court also noted that Hyams submitted a blank version of the form and did not provide sworn testimony or another admissible submission showing what had been checked on the form. In any event, the court concluded that a general discrimination designation would not by itself exhaust both theories because the two theories must be separately exhausted.

The court found that the attorney-prepared DFEH charge alleged only intentional discrimination. It described Hyams as the only African-American pharmacist in his district, alleged that the audit was pretextual and intended to entrap him, and stated that he was treated differently because of his race. The court concluded that these allegations did not identify a facially neutral audit policy causing a disproportionate effect on African-American employees.

The court also rejected Hyams’s argument that the disparate-impact theory was reasonably related to the charge. Although the audit could be viewed as a company policy, the charge alleged that it was used as a pretext to target Hyams because of his race and that he alone was selected for the audit. The court reasoned that an investigation into a facially neutral policy would not reasonably be expected to grow from a charge alleging direct, intentional targeting.

The court did not decide whether facts Hyams mentioned for the first time at the hearing—concerning other pharmacists allegedly terminated after similar audits—could support a disparate-impact claim. It held that those new allegations did not cure the exhaustion problem because the exhaustion inquiry focuses on what the administrative charge alleged, not on new facts later identified by the plaintiff.

Leave to Amend and Disposition

Hyams requested permission to amend the civil complaint so he could exhaust the disparate-impact theory. The court explained that an amended administrative charge may relate back to an earlier charge when both theories are based on the same operative facts. But the court found that the facts in Hyams’s original charge could not support the new theory. In the court’s view, a disparate-impact theory would require additional facts, so an amended charge would not relate back to the original filing date. The court therefore found amendment futile.

The court’s final dispositions were: the defendants’ Rule 12(b) motion was DENIED; the defendants’ Rule 12(c) motion was GRANTED as explained in the order; Hyams’s disparate-impact theory was DISMISSED WITH PREJUDICE; and the defendants’ administrative motion to modify the pretrial order was DENIED AS MOOT.