The opinion of the court was delivered by: Rebecca R. Pallmeyer United States District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Omnicare, Inc., is the nation's largest institutional pharmacy-that is, a provider of pharmacy services to persons in health care institutions. UnitedHealth Group ("UnitedHealth") and PacifiCare Health Systems, Inc. ("PacifiCare") are health insurers who provide prescription drug coverage to senior citizens under the Medicare "Part D" program. To qualify under that program, a health insurer must demonstrate to federal regulators that it can provide pharmacy services to individuals in long-term care facilities; a contract with an institutional pharmacy such as Omnicare is one way of doing so. Both UnitedHealth and PacifiCare entered into negotiations with Omnicare, and UnitedHealth signed an agreement with Omnicare before UnitedHealth was certified under the Medicare Part D program. During the same time period, UnitedHealth and PacifiCare were engaged in merger talks that culminated in a Merger Agreement between the two parties. PacifiCare broke off its negotiations with Omnicare a week after signing the Merger Agreement and then proceeded to obtain federal certification without Omnicare in its contract "network." PacifiCare later resumed contract talks with Omnicare, ultimately striking a deal far more favorable to it than the one UnitedHealth had achieved. Then, once the UnitedHealth-PacifiCare merger was complete, UnitedHealth abandoned its own deal with Omnicare and took advantage of the more favorable terms in PacifiCare's contract with Omnicare.
In this lawsuit, Omnicare contends that the merger violated antitrust laws and that Defendants are liable for fraud. The court denied Defendants' motion to dismiss, see Omnicare, Inc. v. UnitedHealth Group, Inc., 524 F. Supp.2d 1031 (N.D. Ill. 2007), and the parties proceeded with discovery. Defendants now move for summary judgment on these claims and, for the reasons that follow, the motion is granted.
Medicare is a health insurance program administered by the federal government in order to provide coverage to elderly and disabled Americans. See 42 U.S.C. § 1395 et seq. In 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which created a voluntary prescription drug benefit for seniors called Medicare Part D. Pub. L. No. 108-173, 117 Stat. 2066 (2003). Under Part D, the Centers for Medicare & Medicaid Services ("CMS") make payments to Prescription Drug Plan ("PDP") sponsors-typically insurance providers. PDPs, in turn, pay prescription drug providers-retail and institutional pharmacies-for providing pharmacy services to the individuals enrolled in the PDP. See 42 U.S.C. § 1395w-115. The PDP sponsors are compensated in two ways: through payments from CMS and through premiums paid by enrollees. Id. The prescription drug providers receive their payments pursuant to contracts with the PDP sponsors.
To participate in Part D, which went into effect on January 1, 2006, PDP sponsors were required to be approved by, and enter into a contract with, CMS. (Bagley Report ¶ 17, App. 155 to Mem. in Supp.) CMS divided the United States into thirty-four "PDP regions," and a PDP sponsor had to be approved for each region in which it wished to operate. As part of its bid for CMS approval, a Part D sponsor needed to demonstrate that it had sufficient pharmacy providers in its network in the PDP region to service both retail customers and patients in long-term care facilities ("LTCs"). (3/16/05 Long-Term Care Guidance, App. 57 to Mem. in Supp.) PDPs were required to provide a list of contracts with pharmacies that serve LTCs in order to "ensure that all of [the sponsor's] future Part D enrollees who are institutionalized can routinely receive their Part D benefits through the plans' network of pharmacies" rather than through "out of network" pharmacies. (Id. at 4.) CMS referred to this requirement of nearby, in-network pharmacies providing services to LTC enrollees as the "convenient access" standard. (Id.) In addition, CMS required PDP sponsors to offer a contract to any pharmacy willing and able to participate in the sponsor's LTC network.*fn1 (Id.)
In 2006, 23 million out of 42 million eligible seniors participated in Medicare Part D. (Ex. A to Rubinfeld Decl. ¶ 31, Attach. to Mem. in Opp'n.) Seniors can become enrolled in a PDP in one of two ways. First, seniors eligible for Medicare can simply choose to participate in Part D. Second, individuals who also qualify for Medicaid-another federal insurance program, one designed to provide coverage for individuals and families with low incomes-are automatically enrolled by the government. These low-income seniors, called "dual eligibles" because they are eligible for both Medicare and Medicaid, are enrolled in PDPs whose premiums are lower than an established cap set by CMS. (Id. ¶ 34.) These enrollees are technically free to switch to any other plan that falls below the cost threshold established by CMS, but a number of factors-such as the physical impairment of these enrollees and bureaucratic obstacles-make this a rarely-used option. (Rubinfeld Decl. ¶ 6(c), Attach. to Mem. in Opp'n.) Dual eligibles are fully subsidized by the federal government, which pays for both premiums and co-payments for the drugs, and constitute up to 65% of LTC residents. (Ex. A to id. ¶¶ 34-35.) Overall, though, Omnicare concedes that all individuals living in LTCs, including both dual-eligibles and voluntary enrollees, comprise only about 3-5% of total PDP enrollees. (Mem. in Opp'n at 6 n.7.) Defendants' negotiations and resulting contracts with Omnicare, the largest LTC pharmacy in the nation, covered only LTC patients. (Omnicare's Supplemental Statement of Undisputed Material Facts ¶¶ 23, 31.)
UnitedHealth and PacifiCare, insurance providers who sought CMS certification as PDP sponsors in 2005, initiated merger discussions in January 2005. (Defs.' 56.1 ¶ 16.) As talks between the two entities intensified in the weeks leading up to signing the Merger Agreement on July 6, they entered into two separate confidentiality agreements dictating how information deemed "confidential" or "highly confidential" was to be exchanged during the "due diligence" period.*fn2 (Defs.' 56.1 ¶ 17.) Although there were some failures to comply with terms of the confidentiality agreements (Omnicare's Resp. to Defs.' 56.1 ¶¶ 17-19), the purpose for the agreements was apparent. The first confidentiality agreement, designed to protect confidential information, made that information available only to members of UnitedHealth's due diligence team and prevented them from sharing it with others outside that team. (Defs.' 56.1 ¶ 17.) The second confidentiality agreement created a "clean room" for highly confidential material and permitted only members of UnitedHealth's "clean team," a subgroup of the due diligence team, to have access to the materials. (Id. ¶ 18.) In addition, prior to the sharing of any information between the two parties, PacifiCare's outside antitrust counsel, Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden"), developed a "data room" where Skadden attorneys reviewed all PacifiCare's documents to determine the propriety of sharing them with UnitedHealth. (Id. ¶ 19.)
Although much of the due diligence process had no relationship to the companies' plans for Part D, several meetings and other exchanges of information concerning Part D did take place. On June 9, 2005, UnitedHealth and PacifiCare met specifically to discuss PacifiCare's Part D program.*fn3 (Id. ¶ 22.) At the meeting, Jacqueline Kosecoff, an Executive Vice President at PacifiCare, made a presentation entitled "Part D Prescription Drug Program," which included general information regarding administrative expense estimates and information about RxSolutions, a wholly-owned subsidiary of PacifiCare responsible for negotiating contracts with pharmacies on PacifiCare's behalf. (Part D Prescription Drug Program, App. 31 to Mem. in Supp.) From Kosecoff's presentation itself and notes prepared after the meeting, it appears that no pricing information was provided in the presentation outside of an assertion that PacifiCare would follow "an aggressive pricing strategy." (Id.; 6/17/05 Memo, App. 26 to Mem. in Supp.) Tom Paul, a UnitedHealth official, noted in a summary prepared after the meeting that PacifiCare provided only "little information" that was "very general," and stated that, based on the meeting, "[t]here is insufficient information to draw any due diligence conclusions about this important program." (Id.) To that end, UnitedHealth sent PacifiCare a list of questions concerning Part D on June 22. (Defs.' 56.1 ¶ 24.) In PacifiCare's response to the document, PacifiCare disclosed its "expected average brand discount off of AWP,"*fn4 which was in fact the same rate that Omnicare ultimately agreed to in its contract with PacifiCare's agent, RxSolutions, in December 2005. (Part D Questions, Ex. 50 to Mem. in Opp'n, at UN008817.)
At a meeting between the parties on June 28, 2005,*fn5 approximately one week prior to the signing of the Merger Agreement, PacifiCare provided UnitedHealth with Part D information regarding "(1) product and distribution strategies, (2) benefit plan designs, and (3) financial assumptions," including PacifiCare's average low and average high plan pricing information from a sampling of regions. (Defs.' 56.1 ¶ 23.) On July 2, Peter Frank, an outside actuary retained by UnitedHealth who does not appear to have formally been a member of UnitedHealth's due diligence team, met with PacifiCare officials to exchange information about the Part D program. (Id. ¶ 25.) At this meeting, PacifiCare disclosed national average bid information for its Part D plans, and Frank provided corresponding information concerning UnitedHealth's Part D business. (Id.) The following day, Frank prepared a written summary of the meeting for UnitedHealth officials, in which he disclosed the profit margin PacifiCare expected in its Part D bids. (7/5/05 e-mail from Frank to Jelinek, App. 41 to Defs.' 56.1.) Frank also emphasized that his report was lacking in many specifics, including the names of the PacifiCare officials with whom Frank met "in case [the UnitedHealth officials receiving the report] may know any of them." (Id.) Frank further emphasized that "no information on regional bids or on distribution of expected enrollment by region is available. What you see [in the report] is most of what we have." (Id.) Frank also noted that he "prepared the report quickly under some time pressure to get a copy to the lawyers so that any potential competitively sensitive info could be removed from the report."*fn6 (Id.) Edward Lagerstrom, the head of UnitedHealth's Corporate Development at the time of the merger, agreed that UnitedHealth received limited information, stating in his deposition that UnitedHealth "wanted to be absolutely clear that [PacifiCare's PDP was not] going to lose a lot of money, but I did not need to see the long-term care contracts, particularly given that our antitrust attorney said that we could not see them. So we did not see them." (Lagerstrom Dep. at 218:8-14, App. 22 to Mem. in Supp.)
On July 6, 2005, the two parties signed the Agreement and Plan of Merger ("Merger Agreement"), which announced UnitedHealth's planned purchase of PacifiCare for approximately $8.8 billion. (Defs.' 56.1 ¶ 6.) Section 5.01 of the Merger Agreement prohibits PacifiCare from entering into any contracts before the consummation of the merger, other than those entered into in the ordinary course of business, "without [UnitedHealth's] prior written consent . . . that involves [PacifiCare] or any of its Subsidiaries incurring a liability in excess of three million dollars." (Merger Agreement § 5.01(a)(x), Ex. 72 to Mem. in Opp'n.) The December 2005 contract between RxSolutions and Omnicare generated about $130 million in revenue for Omnicare, which would appear to trigger the requirement of the Merger Agreement that PacifiCare secure UnitedHealth's approval for the Omnicare contract. (Capell Decl. ¶ 6, Attach. to Mem. in Opp'n.) However, Defendants have also provided a Company Disclosure Letter ("Letter"), referred to in § 5.01 of the Merger Agreement,*fn7 which appears by its terms to carve out an exception to the approval requirement. Specifically, the Letter provides that PacifiCare "and its Subsidiaries may enter into or amend any Contracts relating to their Part D standalone business" without seeking approval from UnitedHealth. (Company Disclosure Letter § 5.01(a)(1), Attach. to Phanstiel Decl., App. 47 to Mem. in Supp.)
The United States Department of Justice ("DOJ") reviewed the terms of the Merger Agreement to determine its potential effects on competition. (Defs.' 56.1 ¶¶ 7-8.) Subject to certain divestitures, none of which directly concerned Part D, DOJ approved the merger, and the transaction closed on December 20, 2005. (Id.)
III. PDP Approval & Negotiations with Omnicare
In addition to working on the merger, both UnitedHealth and PacifiCare spent much of the 2005 calendar year developing their PDPs to obtain approval from CMS for 2006. As explained above, a critical component to achieving CMS approval was entering into contracts with prescription drug providers, both for retail and LTC customers. To assist in the negotiations with these pharmacies, potential PDP sponsors contracted with pharmacy benefit managers ("PBMs"), who would act as brokers, negotiating contracts with institutional pharmacies on behalf of potential PDPs. Walgreens Health Initiatives, Inc. ("WHI") served as the PBM for UnitedHealth (and other PDP sponsors) in negotiating contracts with certain pharmacies on behalf of UnitedHealth. (Defs.' 56.1 ¶ 10.) PacifiCare utilized RxSolutions, an internal PBM that is a wholly-owned subsidiary of PacifiCare, to conduct its negotiations. (Id. ¶ 3.)
Omnicare is the largest pharmacy servicing LTC facilities in the country. (Ex. A to Rubinfeld Decl. ¶ 21, Attach. to Mem. in Opp'n.) In June 2005, Omnicare distributed its template pharmacy-network contract, which included a section called the "18 Patient Protections" (the "Patient Protections" or "Protections"). (Defs.' 56.1 ¶ 37.) According to Omnicare, the provisions grew out of an awareness of Omnicare's importance in the LTC marketplace and were designed primarily "to address the specific health and safety needs of nursing home residents, who require a higher standard of care." (Mem. in Opp'n at 8.) The Protections did provide certain benefits to plan enrollees; for example, one provision provision granted residents up to 180 days to transition from drugs not included in the plan to drugs that are, and another provision required the PDP sponsor to waive certain requirements that could delay the provision of drugs to LTC residents. (Mem. in Opp'n at 8.) Omnicare further contends that the Patient Protections represent best clinical practices.
Indeed, some potential defense witnesses acknowledged this in their depositions. (Bagley Dep 260:1-13, Ex. 96 to Mem. in Opp'n; Infante Dep. 158:17-19, Ex. 164 to Mem. in Opp'n.)
The parties differ greatly in their characterizations of the Patient Protections, however. Defendants argue that many of the Patient Protections in fact violate Medicare regulations and would render a PDP ineligible to receive reimbursement from CMS. (Infante Memo at 1, App. 133 to Mem. in Supp.) In the opinion of outside counsel Marie Infante, who was retained by UnitedHealth, the violations would render UnitedHealth ineligible to receive reimbursement from CMS under Part D for its provision of drugs to LTC patients.*fn8 (Id.) Among other objections concerning the scope of the coverage afforded by the Patient Protections, Infante wrote that the Protections also impermissibly shifted the obligation of the PDP to respond to inquiries from enrollees to Omnicare. (Id. at 1-3.) Defendants also argue that PDP sponsors "had a rational economic incentive" not to agree to the Patient Protection provisions because those provisions would increase the costs of providing prescription drugs to the LTC patients. (Defs.' 56.1 ¶ 41.) Omnicare argues that the Protections were in fact in the economic interest of the sponsors because the sponsors had an interest in contracting with Omnicare (based on its large size). (Omnicare's Resp. to Defs.' 56.1 ¶ 41.) Further, Omnicare contends, because the Protections were favorable to potential enrollees, their adoption would enhance the PDPs' efforts to market themselves to potential enrollees. (Id.)
A. WHI-Omnicare Agreement
On July 29, 2005, after two months of negotiations, WHI, acting as the PBM for UnitedHealth as well as four smaller PDPs, entered into a pharmacy-network agreement with Omnicare (the "WHI-Omnicare Agreement"). (Defs.' 56.1 ¶¶ 11, 49.) In these pharmacy network contracts, the pharmacy is reimbursed for prescription drugs at a rate calculated as a percentage discount from the average wholesale price ("AWP"), plus a dispensing fee. (Id. ¶ 39.) The PDP's economic interest is to obtain a large discount from AWP, and a small dispensing fee. (Id. ¶ 40.) The Agreement also contained Omnicare's 18 Patient Protections, as did all the pharmacy-network agreements that Omnicare entered into prior to the August 1, 2005 deadline for PDPs to submit their LTC networks to CMS. (Id. ¶ 42.) In addition, the WHI-Omnicare Agreement provided that it would apply to any pharmacy acquired by Omnicare, but did not contain a parallel provision extending its reach to any PDP acquired by UnitedHealth. (Id. ¶ 52.) Omnicare contends that as a matter of interpretation, a PDP acquired by UnitedHealth would "automatically [be] covered under the WHI Agreement," but the Agreement contains no explicit provision providing for such a contingency. (Omnicare's Resp. to Defs.' 56.1 ¶ 52.) Finally, Omnicare acknowledges that the Agreement did not contain any provision "that would have prevented [UnitedHealth] from withdrawing the [UnitedHealth] Part D plans from the WHI-Omnicare Agreement and switching them to another Part D pharmacy network." (Id; Omnicare's Resp. to Request to Admit No. 21, App. 56 to Mem. in Supp.)
B. RxSolutions-Omnicare Agreement
The negotiations between Omnicare and RxSolutions, PacifiCare's internal PBM, were considerably more complicated and drawn out. According to Defendants, PacifiCare's strategy was to set up its pharmacy networks using the RxSolutions template contract-called an "Any Willing Provider" contract-rather than using contracts prepared by pharmacies. Consistent with that strategy, in 2005, RxSolutions did not sign any contract that was prepared by a retail or LTC pharmacy. (Defs.' 56.1 ¶ 56, 59.) The standard reimbursement rate provided in the RxSolutions "Any Willing Provider" contract was substantially more favorable for the PDP than the one established by the WHI-Omnicare Agreement, providing both a lower dispensing fee and a greater discount from AWP. (Id. ¶ 57.)
On June 6, 2005, in the course of its negotiations on behalf of PacifiCare, RxSolutions sent a copy of its "Any Willing Provider" contract to Omnicare. (Id. ¶ 59.) Later that day, Tim Bien, Omnicare's Senior Vice-President of Professional Services who was responsible for negotiating pharmacy-network contracts with PBMs, participated in a conference call with RxSolutions and PacifiCare in which Bien stated that he would send a copy of Omnicare's form contract to RxSolutions. (Id. ¶¶ 36, 60.) Bien did so on June 21. (Id. ¶ 61; 6/21/05 e-mail from Smith to Anchondo, App. 73 to Mem. in Supp.) Both Omnicare and RxSolutions pushed for use of its own form contract as the basis for further negotiations; Robert Hill at Omnicare suggested that RxSolutions make revisions to Omnicare's form contract, but expressed a willingness for some flexibility by noting that the mark-up "will not commit Prescription Solutions to necessarily using Omnicare's form of agreement." (Defs.' 56.1¶ 63; 6/24/05 e-mail from Hill to Cortes, Ex. 91 to Mem. in Opp'n.) By the time of their next conference call on July 6, Bien noted that the parties were still "way off on price," but PacifiCare agreed to suggest changes to the Omnicare form contract rather than continue to insist upon its own. (Defs.' 56.1 ¶ 65; Bien Dep. 204:6-205:7, App. 18 to Mem. in Supp.) Rochele Cortes, a Pharmacy Contracting Manager at RxSolutions, did mark up the Omnicare form contract, noting in several places RxSolutions's position that various provisions, especially the Patient Protections, were either untenable from a business standpoint or violated CMS regulations; as of July 2005, Omnicare refused to agree to a contract that did not contain the Patient Protections. (Defs.' 56.1 ¶¶ 66-67; App. 75 to Mem. in Supp.)
According to Defendants, this impasse caused PacifiCare to conclude it would be unable to reach an agreement with Omnicare prior to the August 1 deadline and therefore broke off the negotiations. (Defs.' 56.1 ¶ 68.) Omnicare contends in this lawsuit that PacifiCare's termination of negotiations was actually the result of a conspiracy with UnitedHealth, designed to obtain more favorable rates from Omnicare for both PacifiCare and UnitedHealth. (Omnicare's Resp. to Defs.' 56.1 ¶ 68.) On July 14, about one week after PacifiCare and UnitedHealth signed the Merger Agreement, the negotiations between PacifiCare and Omnicare broke down. Rochele Cortes at RxSolutions sent Bien an e-mail stating, "We regret to inform you that based on the Omnicare agreement and the counteroffer rate . . . we will not be engaging in a contract at this time with your company for Medicare Part D. Please feel free to contact me with any comments or questions." (7/14/05 e-mail from Cortes to Bien, App. 78 to Mem. in Supp.) Bien responded by saying, "Thanks for letting me know. We stand ready to negotiate should you decide to do so." (7/15/05 e-mail from Bien to Cortes, App. 78 to Mem. in Supp.) The next day, RxSolutions Director of Network Relations David Chaney e-mailed Cortes, "This time next year, after we merge with United, they [i.e. Omnicare] will be begging to come in." (7/15/05 e-mail from Chaney to Cortes, App. 80 to Mem. in Supp.) Cortes responded, "Let them beg!" (7/15/05 e-mail from Cortes to Chaney, App. 80 to Mem. in Supp.)
After breaking off negotiations with Omnicare, PacifiCare determined that its LTC network was 80-90% complete (i.e. PacifiCare had contracted with pharmacies within 75 miles of 80-90% of the LTC facilities where it had enrollees). (Defs.' 56.1 ¶ 72.) Defendants claim that PacifiCare intended to fill in the remaining gaps in its network with smaller, independent pharmacies; according to Omnicare, given how small these independent pharmacies were, that was not a realistic goal. (Omnicare's Resp. to Defs.' 56.1 ¶ 72.) In August 2005, CMS declared that PacifiCare's existing LTC network was deficient and informed PacifiCare that it needed to contract with additional pharmacies. (Defs.' 56.1 ¶ 77.) According to Cortes, PacifiCare considered approaching Omnicare to make up the gaps in its network; Omnicare disputes this, noting that after negotiations broke down in July, PacifiCare officials commented that Omnicare "shouldn't hold [its] breath" in waiting to hear back from PacifiCare. (Omnicare's Resp. to Defs.' 56.1 ¶ 78; 7/15/05 e-mail from Chaney to Cortes, Ex. 100 to Mem. in Opp'n.) In any event, PacifiCare decided that, given the short time frame (three days) that CMS provided to PacifiCare to cure the gaps, PacifiCare could satisfactorily plug the gaps by contracting with Managed Health Care Associates, Inc. ("MHA"), an organization that represented a number of smaller LTC pharmacies and with whom PacifiCare had fewer outstanding disagreements than it had with Omnicare. (Defs.' 56.1 ¶ 78.) Even with MHA in its network, CMS initially concluded that PacifiCare's LTC network was still deficient in one region, but after learning that PacifiCare in fact had seven LTC pharmacies in the region at issue (the District of Columbia), CMS approved PacifiCare as a national PDP on September 30, 2005. (Id. ¶¶ 80-81.) CMS also certified at least one other national PDP, Humana, without Omnicare in its network. (Id.)
Omnicare changed its strategy in late 2005 and early 2006 to accept contracts with PDPs that did not contain the Patient Protections. (Omnicare's Resp. to Defs.' 56.1 ¶ 107.) The reasons for the change, according to Omnicare, were to enable Omnicare to provide coverage for as many of its LTC patients as possible, and to respond to increasing pressure from CMS to do so. (Bien Dep. 127:12-128:4, Ex. 79 to Mem. in Opp'n.) PacifiCare, on the other hand, argues the change in strategy was caused by a weaker negotiating position and a concern that Omnicare might lose clients if it did not contract with more PDPs. Defendants point to an e-mail Bien received from other Omnicare officials that stated, "Two [LTC] facility Executive Directors indicated it would be easier to change pharmacies than to change that many patients . . . [which] underlines the need that exists . . . to have a contract with [PacifiCare]." (11/30/05 e-mail from Evans to Bien, App. 104 to Mem. in Supp.) Omnicare denies that any threatened loss of business was significant and insists that no such concern had any bearing on its strategy shift in late 2005. (Omnicare's Resp. to Defs.' 56.1 ¶ 99.) In any event, it is undisputed that the majority (fifteen out of twenty-one) of the contracts that Omnicare entered into between August 1, 2005 and April 1, 2006 were PDP-written contracts that did not contain the Patient Protections. (Id. ¶ 43.) As of February 2006, the PDP-written contracts without the Protections governed over one-third of Omnicare's Part D business (including the RxSolutions contract, described below). (Id. ¶ 83.)
Presumably in order to determine whether Omnicare should resume its efforts to contract with PacifiCare, on October 17, 2005, Bien at Omnicare e-mailed Craig Stephens, the Vice President in charge of UnitedHealth's Part D contracting, asking, "Is there a sense of when United will close the acquisition of PacifiCare? When the deal closes, will PacifiCare be contracted with Omnicare as a result of the acquisition? Thanks for your help on this."*fn9 (Defs.' 56.1 ¶¶ 48, 84.) Stephens did not reply to this e-mail before conferring with other UnitedHealth officials, including Ann Tobin, counsel at UnitedHealth. Forwarding Bien's e-mail, Stephens wrote to Tobin, "Interesting-should we assume PacifiCare has not agreed with Omnicare?" (Id. ¶ 85.) After another e-mail from Bien pressed him for a reply, Stephens finally wrote back on October 31, explaining that "PacifiCare's Part D offering for 2006 is a unique contract with CMS. If and when the deal closes, PacifiCare will follow their own Part D product strategy throughout the 2006 calendar year." (Id. ¶ 87.) The next day, Bien forwarded this response to Omnicare CEO Joel Gemunder, noting his conclusion that "PacifiCare will not be included with the United Part D offering." (Id. ¶ 93.)
Shortly thereafter, Omnicare did contact PacifiCare to resume negotiations. (Id. ¶ 95.) PacifiCare asserts that, even though CMS had approved its LTC pharmacy-network without Omnicare, PacifiCare remained interested in negotiating with Omnicare in order to expand its network. (Id. ¶ 96.) Omnicare argues that PacifiCare actually still needed Omnicare, because it was concerned that CMS might heighten the "convenient access" standard by requiring that a PDP's LTC enrollees reside even closer to the pharmacies that provided their drugs. (Omnicare's Resp. to Defs.' 56.1 ¶ 96.) Specifically, Omnicare points to testimony from Angelo Giambrone, the RxSolutions Vice President of Industry and Network Relations, suggesting PacifiCare was concerned that CMS might be "raising the bar" regarding convenient access standards. (Giambrone Dep. 183:12-19, Ex. 86 to Mem. in Opp'n.) At Bien's request, in mid-November, Cortes again sent him the RxSolutions form contract, which PacifiCare claims it still wanted to use as the starting point for any negotiations. (Defs.' 56.1 ¶¶ 95, 97.) Together with the RxSolutions "Any Willing Provider" contract, Cortes sent an-email saying, "We will need to work with this document in order to proceed." (11/18/05 e-mail from Cortes to Bien, App. 102 to Mem. in Supp.) Omnicare claims that it understood that the form contract proposal was a "take it or leave it" proposition and not an invitation to commence negotiations; in particular, Bien testified that because of time restrictions-Omnicare wanted to finalize its Part D network before January 1, 2006-he asked PacifiCare and RxSolutions "for their best contract that they would give us, and I believe [the "Any Willing Provider" contract] was purported to be that." (Omnicare's Resp. to Defs.' 56.1 ¶¶ 97-98; Bien Dep. 434:13-435:7, App. 18 to Mem. in Supp.)
In any event, after receiving the RxSolutions form contract, Omnicare made no attempt to negotiate any of its terms-not even the reimbursement rate-and simply signed the contract on December 6, 2005. (Defs.' 56.1 ¶¶ 100-101.) Chaney at RxSolutions testified that he was surprised that Omnicare made no attempt to negotiate any terms. (Chaney Dep. 124:18-22, App. 67 to Mem. in Supp.) The reimbursement rate in the RxSolutions contract was substantially lower than the rates Omnicare negotiated with other national PDPs, including UnitedHealth-in fact, UnitedHealth's discount off of AWP in the WHI contract was only 75% of the discount provided in the RxSolutions contract, and UnitedHealth also paid a larger dispensing fee. (Rubinfeld Decl. ¶¶ 11-12, Attach. to Mem. in Opp'n.) Still, at least three small local PDPs, representing less than 1% of Omnicare's January 2006 revenues, did negotiate lower rates than the RxSolutions contract contained. (Id.) As described above, Bien had directly asked Stephens whether PacifiCare would become a party to UnitedHealth's contract as a result of the merger. Yet Omnicare negotiators apparently did not consider the flip side of that question, and the contract contained no provision that precluded UnitedHealth from participating, after the merger, in the agreement that RxSolutions negotiated on behalf of PacifiCare.
C. UnitedHealth Joins RxSolutions-Omnicare Agreement
Omnicare contends in this lawsuit that UnitedHealth's decision in February 2006 to withdraw from the WHI-Omnicare Agreement and join the RxSolutions contract had been planned by UnitedHealth and PacifiCare for a long period of time before the merger was finalized. Omnicare claims that UnitedHealth's basic strategy is summed up in a document referred to as the "stalking horse memorandum," first circulated between UnitedHealth and PacifiCare officials on September 6, 2005.*fn10 The two-page memo is titled "UnitedHealth Group's Pharmacy Management Options." (Ex. 215 to Mem. in Opp'n, at UN034675.) Page 1 discusses UnitedHealth's past experiences with PBMs and presents some basic information about RxSolutions, including the fact that it operates solely as an "in-house" PBM for PacifiCare and a description of the services RxSolutions provides. (Id.) The top of page 2 reads, in bold, "Several strategic options need to be considered to capitalize on the value proposition Prescription Solutions can bring to United." (Id. at UN034676.) The memo then lists three strategic options: "1. Continue to outsource all of United's PBM services . . . . 2. Adopt a mixed strategy of outsourcing selected PBM services/functions to external vendors and in source [sic] selected services/functions to Prescription Solutions . . . . 3. Eventually consolidate all PBM services internally under Prescription Solutions." (Id.) Under the second option, the memorandum asked, "Is there a role for a central group to manage all PBM services for United whether they are in-sourced or out-sourced to obtain the best financial terms, contracts and service?", and suggested as a solution, "Use Prescription Solutions as a stalking horse to obtain the best service and contracts." (Id.) Omnicare contends that this reference to using RxSolutions as a stalking horse demonstrates UnitedHealth's intention to "surreptitiously obtain more favorable contracts for [UnitedHealth] from vendors such as Omnicare." (Mem. in Opp'n at 21.)
UnitedHealth has a different explanation for its eventual withdrawal from the WHI-Omnicare Agreement. According to Defendants, UnitedHealth began harboring legal concerns about the WHI-Omnicare Agreement in general, and the 18 Patient Protections in particular, as early as August 2005. (Defs.' 56.1 ¶¶ 117-18.) Indeed, on September 12, two months before negotiations between Omnicare and PacifiCare resumed, Tobin sent Stephens an e-mail saying that UnitedHealth "may be requiring WHI to renegotiate our Omnicare agreement." (Id. ¶ 119). On November 9, Attorney Infante warned that there were legal problems with the WHI Agreement (as noted, Omnicare questions whether this decision was reached independently). (Id. ¶ 121.) Around this same time, WHI's own senior attorney, Kelly Simenson, also concluded that the WHI-Omnicare Agreement, at least as it concerns UnitedHealth, conflicted with Medicare Part D regulations.*fn11 (Id. ¶ 124.) On December 8, two days after Omnicare signed the RxSolutions contract, UnitedHealth expressed its concerns about the WHI Agreement to Omnicare, apparently for the first time. (Id. ¶ 125.) Later that month, WHI forwarded a copy of the WHI-Omnicare Agreement to Omnicare, with proposed changes that WHI contended were necessary to bring the agreement into compliance with federal law and regulations. (Id. ¶ 126.) Omnicare concedes that "one or two" other unnamed PDPs raised legal concerns about the Patient Protections, and that several PDPs-including MedImpact, Caremark, RxAmerica, Coventry, FirstHealth, and Independent Health-signed contracts with Omnicare that did not contain the Protections. (Omnicare's Resp. to Defs.' 56.1 ¶ 131.) Bien believed that these objections regarding the Protections, including the claim that the Protections violated CMS regulations, were simply a negotiating tactic. (Id.) In early January 2006, UnitedHealth's outside counsel proposed an agreement, without many of the Protections, to replace the agreement negotiated on UnitedHealth's behalf by WHI. (Defs.' 56.1 ¶ 130.)
Defendants claim that UnitedHealth learned of the RxSolutions-Omnicare Agreement in January 2006. (Id. ¶ 132.) Omnicare contends that the evidence recited above-especially the stalking horse memorandum-demonstrates that UnitedHealth both knew of and devised strategy around the RxSolutions contract months before this time. (Omnicare's Resp. to Defs.' 56.1 ¶ 132.) Yet on January 11, 2006, Stephens at UnitedHealth e-mailed Giambrone, his counterpart at RxSolutions, asking, "Quick question-do you have a Part D network agreement with Omnicare for LTC pharmacy?" (Defs.' 56.1 ¶ 132.) Later that day, Giambrone affirmed that RxSolutions/PacifiCare did have such an agreement: "Yes-Do you?" (Id.) Stephens responded twenty minutes later, "Yes-we do through WHI. Let's discuss on Friday." (Id.) According to Defendants, this correspondence marked the first time that UnitedHealth became aware of the RxSolutions contract with Omnicare. (Id.)
Following a meeting between Giambrone and Stephens on January 20, Stephens wrote an e-mail to Tobin exploring the possibility that UnitedHealth might benefit from ...