CZ Services, Inc. v. Express Scripts Holding Company

Background

After CZ Services, Inc. and CareZone Pharmacy LLC—referred to collectively as CZ—rested their case at trial, the court identified which claims and issues would go to the jury. Express Scripts Holding Company and related defendants are referred to in the opinion as ESI.

Interference Claims

The court expressed doubt that CZ had enough evidence to identify a class of prospective customers beyond pharmacies that were already ESI customers. Nevertheless, it allowed CZ’s claims for intentional and negligent interference with prospective economic relations to go to the jury.

The interference claims were limited to alleged defamation and trade libel. CZ also relied on the Tennessee Any Willing Provider statute as an allegedly independently wrongful act. But the court reaffirmed its earlier summary-judgment conclusions that ESI was a pharmacy benefits manager, not a health insurance issuer or managed health insurance issuer under that statute, and was not an agent of a health insurance issuer.

The court found no trial evidence showing that ESI had voluntarily agreed to follow the Tennessee statute in its relationship with CZ. The contracts between ESI and the two plaintiff pharmacies did not require ESI to follow that law. A separate contract between ESI and Blue Cross Blue Shield did not establish such an obligation because CZ was not a party to that contract and had not shown a connection between that agreement and CZ. The interference claims therefore would go to the jury only on defamation-related theories. The court left open the possibility of addressing the statutory claim separately in an equitable proceeding if later developments warranted it.

Defamation and Trade Libel

The parties agreed that California law governed CZ’s defamation and trade libel claims. The court limited those claims to statements that CZ operated illegally by mailing prescriptions to states where it lacked pharmacy licenses.

The court excluded statements that CZ did not provide affordable or quality care because CZ had not presented trial evidence about those statements and because they were more like opinions than factual assertions. The court also excluded a statement comparing CZ to self-driving Uber cars because the amended complaint did not identify that statement and because it appeared more like a joke or opinion than a factual statement.

The court ruled that the remaining statements—accusing CZ of violating state licensing laws—could be treated as defamation per se, meaning statements that are defamatory without needing additional explanation. The court compared them to statements accusing someone of crimes or dishonest professional conduct.

The court also ruled that the plaintiff pharmacies were limited public figures for purposes of the defamation claims. As a result, CZ had to prove by clear and convincing evidence that ESI knew the statements were false or acted recklessly about whether they were true or false. The court based this conclusion in part on evidence that CareZone, Inc. and the pharmacies were closely related, including common ownership, combined finances, and a purchase option. The court rejected CZ’s argument that the pharmacies should not be treated as involved in the controversy because CareZone, Inc., rather than the pharmacies, created it.

Punitive Damages

CZ sought punitive damages for defamation, trade libel, and interference. California law required clear and convincing evidence of oppression, fraud, or malice. Because CZ presented no trial evidence of those conditions, the issue of punitive damages would not go to the jury.

ESI’s Counterclaims

ESI’s breach-of-contract counterclaim sought restitution of amounts it paid to CZ Services and CareZone Pharmacy LLC while their contracts were in effect. The court concluded that the parties’ proposed jury instructions showed mutual consent under Federal Rule of Civil Procedure 39 to have the contract and restitution issues tried to the jury, even if restitution might be an equitable remedy. The breach-of-contract counterclaim would therefore go to the jury, although the court could later treat the verdict as advisory during post-trial proceedings.

ESI’s promissory-fraud claim was governed by California law, and ESI represented that it sought only the same contract restitution as its remedy. That claim would also go to the jury for the same consent-based reason.

Disposition

The court ordered that final jury instructions and a verdict form be filed consistently with these rulings. It allowed specified interference, defamation, trade-libel, breach-of-contract, and promissory-fraud issues to be presented to the jury; excluded certain alleged statements and punitive damages; and limited the interference claims to defamation-related predicates.