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Joel Saban v. Caremark Rx

April 11, 2011

JOEL SABAN, PLAINTIFF/COUNTER-DEFENDANT,
v.
CAREMARK RX, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY, CVS PHARMACY, INC., A RHODE ISLAND CORPORATION, AND CAREMARK L.L.C., A CALIFORNIA LIMITED LIABILITY COM- PANY, DEFENDANTS/COUNTER-PLAINTIFFS.



The opinion of the court was delivered by: Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER

Caremark is a pharmacy business (Caremark is shorthand for related corporate entities), widely known as CVS Pharmacy on retail side of its business.*fn1 Caremark also provides a pharmacy benefits management service, and that part of the company employed Joel Saban as an executive who negotiated discounts with pharmaceutical manufacturers. R. 1 ¶¶ 1, 3, 12. As part of his relationship with Caremark, Saban signed an employment agreement in December 2009. Id. ¶ 1. Part of the agreement is a clause labeled "non-competition." R. 10-1, 15. The clause prevents Saban from "directly or indirectly" engaging in competition with Caremark, or any of its related companies, for a one-year period after leaving employment with Caremark. Id. Saban resigned from his employment on April 20, 2010, R. 1 ¶ 12, and took on a position with SXC Health Solutions, Inc. R. 1 ¶ 13. Saban sued for a declaration invalidating the non-competition clause in his employment agreement. Id. ¶ 1. In response to Saban's declaratory judgment action, Caremark counterclaimed for breach of contract, violations of the Illinois Uniform Trade Secrets Act, 765 ILCS 1065/1 et seq., breach of fiduciary duty, violations of the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030(g), and preliminary and permanent injunctive relief. R. 21, 17-55.

The previously-assigned judge referred Caremark's preliminary-injunction motion to Magistrate Judge Morton Denlow. Now pending before this Court are Caremark's objections to one set of the magistrate judge's evidentiary rulings and to the Report and Recommendation. R. 103. In a thorough 48-page opinion, the Report concluded that Caremark's preliminary-injunction motion should be denied. Id. at 47. For the following reasons, the Court overrules the objections, affirms the magistrate judge's evidentiary rulings, and adopts the Report [R. 103]. Accordingly, Caremark's motion for a preliminary injunction is denied.

I.

"When a magistrate judge prepares a report and recommendation for a district court, the governing statute provides that the district court 'shall make a de novo determination' with respect to any contested matter." Kanter v. C.I.R, 590 F.3d 410, 416 (7th Cir. 2009) (citing 28 U.S.C. § 636(b)(1)(C)). If no specific objection is made, or only a partial objection, the district court reviews the uncontested portions for clear error. Johnson v. Zema Sys. Corp., 170 F.3d 734, 739 (7th Cir. 1999).

A preliminary injunction is "an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Winter v. National Resources Defense Council, 555 U.S. 7, 129 S. Ct. 365, 375-76 (2008). To prevail on a motion for a preliminary injunction, the moving party must show (1) a likelihood of success on the merits; (2) a lack of an adequate remedy at law; and (3) an irreparable harm will result if the injunction is not granted. Lambert v. Buss, 498 F.3d 446, 451 (7th Cir. 2007) (citations omitted). If the moving party meets these requirements, then the court balances the relative harms that could be caused to either party. Id.

A district court reviewing a magistrate's non-dispositive orders may overturn the order if it is "clearly erroneous or is contrary to law." Fed. R. Civ. P. 72(a). "A finding is clearly erroneous when, although there may be some evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.' " Lange v. United States, 31 F.3d 535, 539 (7th Cir. 1994) (citations and quotations omitted). Rulings on evidence are non-dispositive orders. Phillips v. Raymond Corp., 213 F.R.D. 521, 525 (N.D. Ill. 2003) ("rulings on . . . evidence . . . are not dispositive rulings in any sense") (emphasis in original).

II.

An in-depth discussion of the facts can be found in the magistrate judge's Report. R. 103. Rather than reciting the facts at length here, only those facts relevant to the contested findings of fact and conclusions of law are repeated here.

SXC and Caremark provide pharmacy benefits management (PBM) services. R. 103, ¶¶ 2-4. PBMs manage prescription drug coverage for health plans, government agencies, and employees. Id. ¶ 5. As part of that management service, PBMs negotiate for discounts with drug manufacturers. Id. The primary factors that allow PBMs to negotiate discounts are the volume of business provided by a PBM and the PBM's promotion of a particular drug. Id. The terms of negotiated discount and rebate agreements are generally considered confidential. Id.

Caremark breaks its PBM business into three areas: sales, trade, and operation. R. 103 ¶ 6. Sales interacts with the groups serviced by the PBM; trade interacts with the pharmaceutical manufacturers to negotiate discounts and contracts pharmacies to join a particular plan/network; and operation is responsible for the actual dispensing of the pharmaceuticals at the pharmacies. Id. As a Caremark employee, Saban worked in the trade area and negotiated discounts and return policies with pharmaceutical manufacturers. Id. ¶ 6. Additionally, he oversaw the management of the Maximum Allowable Cost (MAC) pricing lists, a process by which Caremark sets prices on generic pharmaceuticals for clients. Id. ¶ 21. Saban had no responsibility for the operations group, which handled the mail order and specialty pharmacy business. Id. ¶ 21. Saban was on a number of Caremark business committees, and his service on those committees included interaction with other parts of Caremark's PBM business. Id. ¶¶ 23-26.

Caremark's PBM services are much larger than SXC's services. R. 103 ¶ 8. Caremark services 2,000 health plans and offers health plan participants access to their pharmaceuticals at roughly 60,000 pharmacies. Id. ¶ 8. Caremark is one of the "Big 3" PBMs, and the Big 3 collectively have roughly 65% of the PBM market. Id. The remaining "Little 100," of which SXC is a member, service the remaining 35%. Id. Caremark's PBM revenue in 2009 was $50 billion, SXC's was $1 billion. Id. ¶ 9. Due to the size difference, the companies have to engage in negotiations with pharmaceutical manufacturers differently. Caremark is able to negotiate directly with manufacturers. Id. ¶ 10. In contrast, SXC has to aggregate with other PBMs via a third-party company to negotiate contracts. Id. ¶ 10. Caremark and SXC have been finalists for fewer than ten of the same clients over the past five years. Id. ¶ 11.

On December 14, 2009, Saban signed an employment agreement as part of his employment with Caremark. R. 103 ¶ 13. Part of the agreement was a non-competition clause providing that for "twelve months following the termination of employment, 'Executive will not, directly or indirectly, engage in competition with [Caremark].'" Id. ¶ 14. The non-competition clause defined "competition": "'Competition' shall mean engaging in any activity for a Competitor of the Company [in any capacity]." Id. (emphasis added). The clause also defined "competitor" as follows:

"Competitor" shall mean any person, corporation, or other entity . . . doing business in any geographical area in which the Company or any of its subsidiaries or affiliates are doing or have imminent plans to do business, and which is engaged in the operation of: (a) a retail business which includes or has imminent plans to include a pharmacy (i.e. the sale of prescription pharmaceuticals) as an offering or component of its business, . . . and/or (b) a business which includes or has imminent plans to include mail order prescription, specialty pharmacy and/or pharmacy benefits management . . . and/or (c) a business which includes or has imminent plans to include offering, marketing or the sale of basic acute health care services . . . [excluding businesses dedicated to the direct provision of health care, i.e. a hospital].

Id. ¶ 14.

Additionally, as part of the employment agreement, Saban agreed to a broad non-disclosure provision prohibiting him from using information obtained through his Caremark employment for any purpose other than his employment with Caremark.

R. 103 ¶ 15. Further, the employment agreement contains a severability clause providing that "the unenforceability of any one clause shall in no way impair the enforceability of any of the other clauses herein." Id. ¶16.

Because both SXC and Caremark have various departments that could gain an improper advantage in their respective industries with confidential information from other departments, both SXC and Caremark have "firewalls" setup in their companies.

R. 103 ¶¶ 40-43. A firewall is a company's system to compartmentalize departments or different branches of the business to maintain integrity and prevent disclosure of information between certain parts or departments of a company. Id. ¶ 40.

Saban resigned from Caremark on April 20, 2010. R. 103 ¶ 51. Saban does remember some of the pricing and rebate/discount information contained in the contracts he negotiated while working at Caremark. Id. ¶ 53. Now, at SXC, Saban is Executive Vice President for Pharmacy Operations. Id. ¶ 16. His job responsibilities include overseeing the taking and filling of orders at pharmacies, lowering the time it takes to fill orders, and lowering the overhead costs of dispensing pharmaceuticals. Id. ¶ 27.

On April 20, 2010, Saban filed a declaratory judgment action seeking to invalidate the non-competition provision in his employment agreement. R. 103 ¶ 63. Caremark counterclaimed seeking injunctive relief and damages for breaches of contract and fiduciary duty, violation of Illinois' Trade Secrets Act, 76 ILCS 1065/1 et seq., and violation of the Computer Fraud and Abuse Act, 18 U.S.C. § 1030(g). Id. On May 12, 2010, Judge Pallmeyer entered a Temporary Restraining Order enjoining Saban from working at SXC for fourteen days; the time was extended until receipt of the magistrate judge's Report. Id. ¶ 64.

III.

For the following reasons, Caremark's objections to the magistrate judge's rulings and Report are overruled. The magistrate judge's exclusion of computer forensic evidence was not clearly erroneous and the ...


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