On Thursday, the Third Circuit Court of Appeals released a precedential opinion in the case In re: Rotavirus Vaccine Antitrust Litigation. The opinion sides with Merch, ruling in favor of the application of a mandatory arbitration clause.
Merck, the defendant, contracts with Physician Buying Groups (PBGs) to provide loyalty discounts on products for members of the group in exchange for a guaranteed amount of purchasing, the opinion recounted. The physician buying group then contracts with individual medical practices for participation in these discounts. Merck does not have a direct contract with the individual practices, even though the eventual purchase is made directly from Merck by the individual practices. The physician buying group contract with the individual practices does not contain an arbitration provision, however the contract between the physician buying group and Merck does.
At the trial court, Merck moved to compel arbitration and the court denied the motion without permitting discovery. This was overturned in a prior decision of the Third Circuit, which remanded with instructions to permit discovery. The trial court then again denied the motion to compel arbitration, which Merck appealed.
The court held that Merck was correct in its interpretation and remanded with instructions to allow the motion to compel arbitration. Per the court, a nonsignatory to a contract may still be bound to an arbitration agreement if the traditional principles of contract and agency law so require.
In reviewing these principles, the court found that the individual medical practices had granted agency authority to the PBG to act on their behalf in regards to negotiating the discounts. The analysis included a manifestation of intent that the PBG act on their behalf, acceptance by the PBG of such authority, and the understanding of the parties that the principals (individual practices) are in control of the undertaking.
The Schwartz practice specifically acknowledged this control by limiting the authority of the PBG in its contract, while the other two practices named in this suit gave apparent authority by their specific business practices, per the court.
