In re: Rotavirus Vaccines Antitrust Litigation v.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

_____________

No. 20-3460

_____________

In re: ROTAVIRUS VACCINES ANTITRUST

LITIGATION

SUGARTOWN PEDIATRICS, LLC;

SCHWARTZ PEDIATRICS SC;

MARGIOTTI & KROLL PEDIATRICS, PC

v.

MERCK SHARP & DOHME CORP.,

Appellant

_____________

On Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. No. 2-18-cv-01734)

District Judge: Honorable J. Curtis Joyner

_____________

Argued on September 24, 2021

Before: CHAGARES, Chief Judge, HARDIMAN, and

MATEY, Circuit Judges

(Filed: March 21, 2022)

Ashley E. Bass [argued]

Andrew D. Lazerow

Mark W. Mosier

Covington & Burling

850 10th Street, N.W.

One City Center

Washington, DC 20001

Lisa C. Dykstra

Morgan Lewis & Bockius

1701 Market Street

Philadelphia, PA 19103

Counsel for Appellant

Leonardo Chingcuanco

Daniel H. Silverman [argued]

Daniel A. Small

Cohen Milstein

1100 New York Avenue, N.W.

West Tower, Suite 500

Washington, DC 20005

Gary L. Azorsky

Cohen Milstein

1717 Arch Street

3 Logan Square, Suite 3610

Philadelphia, PA 19103

Eric L. Cramer

David A. Langer

2

Daniel J. Walker

Berger Montague

1818 Market Street

Suite 3600

Philadelphia, PA 19103

Counsel for Appellees

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OPINION OF THE COURT

________________

HARDIMAN, Circuit Judge.

This appeal comes to us from an order denying a motion

to compel arbitration. Appellant Merck contends the District

Court should have compelled Sugartown Pediatrics, Schwartz

Pediatrics, and Margiotti & Kroll Pediatrics (the Pediatricians)

to arbitrate their claim that Merck’s vaccine bundling scheme

was anticompetitive. We agree. We will reverse and remand

for the District Court to grant Merck’s motion to compel

arbitration.

I

This case involves two types of contracts. Both are part

of Merck’s loyalty program, whereby medical practices

receive discounts if they buy sufficient vaccine quantities from

Merck. The first type of contract is between Merck and

Physician Buying Groups (PBGs). These loyalty contracts

entitle PBG members to discounts if they buy a large enough

percentage of their vaccines from Merck. The loyalty contracts

also include an arbitration provision. The second type of

3

contract is between PBGs and medical practices. These

membership contracts give medical practices discounts on

Merck vaccines for enrolling in PBGs. PBGs thus form the

bridge between medical practices and Merck, contracting with

both Merck and medical practices. They are middlemen in all

but one relevant sense: PBGs never possess the vaccines.

Medical practices buy their vaccines directly from Merck, but

they receive discounts for belonging to a PBG.

Though they were members of PBGs that contracted

with Merck, 1 the Pediatricians never signed contracts

containing an arbitration clause. So the Pediatricians filed

federal suits alleging Merck’s vaccine bundling program was

anticompetitive. Merck responded with a motion to compel

arbitration based on the arbitration clause contained in its

loyalty contracts with the PBGs, which the District Court

denied under the summary judgment standard. In re Rotavirus

Vaccines Antitrust Litig. (Rotavirus I), 362 F. Supp. 3d 255,

261, 264–65 (E.D. Pa. 2019). The first time this case came

before us, we vacated the order of the District Court, holding

that it should have allowed discovery on arbitrability. In re

Rotavirus Vaccines Antitrust Litig. (Rotavirus II), 789 F.

App’x 934, 938 (3d Cir. 2019).

After the parties conducted discovery, Merck renewed

its motion to compel arbitration and the Pediatricians cross-

moved for summary judgment on arbitrability. In re Rotavirus

Vaccines Antitrust Litig. (Rotavirus III), 2020 WL 6828123, at

*1 (E.D. Pa. Nov. 20, 2020). The District Court once again

1

Schwartz was a member of Children’s Community

Physicians Association Purchasing Partners (CCPAPP).

Sugartown and Margiotti & Kroll were members of Main

Street Vaccines (MSV).

4

denied Merck’s motion to compel arbitration and granted

summary judgment for the Pediatricians. Id. at *15. The Court

concluded, as relevant here, that the Pediatricians were not

bound under an agency theory because they had not authorized

the PBGs to enter into arbitration agreements. Id. at *13–14.

This appeal followed.

II

The District Court had jurisdiction over the

Pediatricians’ antitrust claims. See 28 U.S.C. § 1331; 15

U.S.C. § 4. We have jurisdiction to review the order denying a

motion to compel arbitration under 9 U.S.C. § 16(a)(1)(B). For

jurisdictional purposes, motions to compel arbitration and

motions for summary judgment on arbitrability—both of

which are at issue in this appeal—are equivalent. See Bacon v.

Avis Budget Grp., Inc., 959 F.3d 590, 598–99 & n.4 (3d Cir.

2020).

Our review of the District Court’s decision, including

its legal conclusion that the PBGs were not the Pediatricians’

agents, is plenary. O’Hanlon v. Uber Techs., Inc., 990 F.3d

757, 766 n.5 (3d Cir. 2021). We apply the summary judgment

standard, so “[t]he party opposing arbitration is given the

benefit of all reasonable doubts and inferences that may arise.”

Griswold v. Coventry First LLC, 762 F.3d 264, 270 (3d Cir.

2014) (quoting Kaneff v. Del. Title Loans, Inc., 587 F.3d 616,

620 (3d Cir. 2009)). No material facts are in dispute.

III

The Federal Arbitration Act (FAA) “‘declare[s] a

national policy favoring arbitration’ of claims that parties

contract to settle in that manner.” Preston v. Ferrer, 552 U.S.

5

346, 353 (2008) (quoting Southland Corp. v. Keating, 465 U.S.

1, 10 (1984)). But courts must be sure that the parties have

agreed to arbitrate their claims. After all, “[a]rbitration is

strictly a matter of consent.” Lamps Plus, Inc. v. Varela, 139

S. Ct. 1407, 1415 (2019) (quoting Granite Rock Co. v.

Teamsters, 561 U.S. 287, 299 (2010)).

Nonsignatories will be bound to an arbitration

agreement only when “traditional principles of contract and

agency law” so require. Hamilton Park Health Care Ctr. Ltd.

v. 1199 SEIU United Healthcare Workers E., 817 F.3d 857,

864 (3d Cir. 2016) (quoting E.I. DuPont de Nemours & Co. v.

Rhone Poulenc Fiber & Resin Intermediates, S.A.S., 269 F.3d

187, 194 (3d Cir. 2001)). Pennsylvania contract law recognizes

“five theories for binding nonsignatories to arbitration

agreements,” including agency. Allstate Settlement Corp. v.

Rapid Settlements, Ltd., 559 F.3d 164, 170 (3d Cir. 2009)

(quoting Trippe Mfg. Co. v. Niles Audio Corp., 401 F.3d 529,

532 (3d Cir. 2005)). A principal will be bound by his agent’s

acts—including an agreement to arbitrate—if the agent has

actual or apparent authority. Wisler v. Manor Care of

Lancaster PA, LLC, 124 A.3d 317, 323 (Pa. Super. Ct. 2015).

A

Merck argues that the Pediatricians granted the PBGs

actual authority to consent to the arbitration clauses on the

Pediatricians’ behalf. We agree, at least as to Schwartz

Pediatrics.

Under Pennsylvania law, “the three basic elements of

agency are: [1] the manifestation by the principal that the agent

shall act for him, [2] the agent’s acceptance of the

undertaking[,] and [3] the understanding of the parties that the

6

principal is to be in control of the undertaking.”

Commonwealth v. Britton, 229 A.3d 590, 598 (Pa. 2020)

(quoting Basile v. H & R Block, Inc., 761 A.2d 1115, 1120 (Pa.

2000)).

Schwartz’s contract with its PBG satisfies the first two

prongs of this test. Its 2016 PBG membership contract made

the PBG Schwartz’s “non-exclusive agent to arrange for the

purchase of goods and services,” Rotavirus III, 2020 WL

6828123, at *9; and a previous version of the membership

agreement, effective in 1999, contained a similarly explicit

provision, see App. 2412 (“Each Limited Partner hereby

appoints the Partnership as its agent for the purpose of

negotiating and entering into Vendor Arrangements, and the

Partnership hereby accepts such appointment.”). By agreeing

to these terms, Schwartz manifested an intent to have the PBG

act for it, and the PBG accepted that responsibility. The PBG

acted on this authority in 2012 by executing the loyalty

contract with Merck that included the arbitration clause. Thus,

the first two elements of the agency test are satisfied here for

Schwartz.

Accordingly, the only remaining question is whether

Schwartz exercised sufficient control over its PBG to meet the

control requirement of the Pennsylvania agency test. See

Britton, 229 A.3d at 598.

1

Although the parties dispute how it applies here,

Pennsylvania agency law is clear on the control requirement.

“[A]n agency relationship is established only when the

principal exercises control over the action at hand.” Id.; see

also Menichini v. Grant, 995 F.2d 1224, 1233 n.14 (3d Cir.

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1993). The principal can control the agent by “prescribing what

the agent shall or shall not do before the agent acts,” or by

directly controlling the agent during performance. Smalich v.

Westfall, 269 A.2d 476, 480–81 (Pa. 1970) (quoting

Restatement (Second) of Agency § 14 cmt. a (Am. L. Inst.

1958)). The question in this appeal is whether Schwartz—the

alleged principal—had the right or ability to control its PBG,

the alleged agent. See Commonwealth v. Minds Coal Mining

Corp., 60 A.2d 14, 20 (Pa. 1948) (“[C]ontrol over the means

of performance is not the test of agency.”).

Here, Schwartz exercised control over its PBG by

circumscribing the PBG’s authority. Schwartz made the PBG

its agent only for the limited purpose of vaccine purchases.

Rotavirus III, 2020 WL 6828123, at *9 (2016 CCPAPP

membership contract, limiting agency to “the purchase of

goods and services as set forth herein”); App. 2412 (1999

membership contract “appoint[ing] the [PBG] as [Schwartz’s]

agent for the purpose of negotiating and entering into Vendor

Arrangements”). Thus, Schwartz simultaneously demonstrated

its intent to create an agency relationship and exercised control

over the scope of the PBG’s agency by contract.

The Pediatricians counter that this case is like Basile,

where the Pennsylvania Supreme Court held that no agency

relationship exists where the alleged agent merely presents an

opportunity to the alleged principal. Basile, 761 A.2d at 1121.

In Basile, H & R Block offered its customers the opportunity

to obtain loans from a third party. Id. at 1117. The court held

that H & R Block’s “mere facilitation” of the loan did not

create an agency relationship. Id. at 1121. “Rather, the action

[giving rise to the agency relationship] must be a matter of

consequence or trust, such as the ability to actually bind the

principal or alter the principal’s legal relations.” Id. (emphasis

8

omitted). Because such action was lacking, there was no

agency relationship.

The Pediatricians’ reliance on Basile is inapt. In that

case, the customers did not contractually designate H & R

Block as their agent. So the court looked to the parties’ conduct

to determine whether an agency relationship existed. In doing

so, the Basile court distinguished “mere facilitation” of an

opportunity from an agency relationship. Id. Unlike in Basile,

here Schwartz signed a membership contract that expressly

designated the PBG as its purchasing agent. Because of the

explicit authority delegated by that contract, Merck need not

rely on the relationship between the parties to establish an

agency relationship.

2

The Pediatricians also argue that the PBGs were not

acting as their agents because they did not notify the

Pediatricians about the arbitration clauses. The Pediatricians

claim that the PBGs had no authority to agree to “undisclosed

terms” with Merck. This argument also rests on a flawed

analogy to Basile.

To exercise the requisite degree of control, the principal

must be adequately informed of the agent’s actions.

Accordingly, the agent has a fiduciary duty to keep the

principal informed of “all relevant information.” Id. at 1120.

Because of the agent’s duty to disclose, the agent’s knowledge

is imputed to the principal. W.C.A.B. v. Evening Bulletin, 445

A.2d 1190, 1192 (Pa. 1982); see also Restatement (Third) of

Agency § 5.03 (Am. L. Inst. 2006) (“[N]otice of a fact that an

agent knows or has reason to know is imputed to the principal

9

if knowledge of the fact is material to the agent’s duties to the

principal.”).

But what if the agent does not fulfill its fiduciary duties?

An agency relationship still exists even if the agent fails to

notify the principal of all relevant information. See

Restatement (Third) of Agency § 5.03 cmt. b (Am. L. Inst.

2006) (“A principal may not rebut the imputation of an agent’s

notice of a fact by establishing that the agent kept silent.”). Put

more simply, an agent might fail to perform his duty but remain

the principal’s agent. In such a case, the proper recourse for the

principal is an action against the agent for breach of fiduciary

duty or malpractice; but the principal will nevertheless be

bound by the agent’s actions. See, e.g., Patel v. Mericle Com.

Real Est. Grp., 2017 WL 11144107, at *4 (M.D. Pa. 2017)

(allowing malpractice and breach of fiduciary duty claims

against an agent to proceed based on the agent’s failure to

disclose material information).

Here, the Pediatricians claim ignorance of the

arbitration clause. Based on that fact, the District Court

concluded that the Pediatricians were not bound by the

arbitration clause because the PBGs were not acting within the

scope of their agency authority when they agreed to the

arbitration clauses. Rotavirus III, 2020 WL 6828123, at *14

(“[W]e are constrained to conclude that the member practices[]

granted only very limited authority to their PBGs to enter into

those terms and conditions of the Merck contracts which had

been communicated to them.”).

The District Court’s conclusion does not follow from its

premise. The Pediatricians’ lack of notice is relevant to the

adequacy of the PBGs’ performance as agents, but it does not

answer the antecedent question of whether an agency

10

relationship existed. See Restatement (Third) of Agency § 5.03

cmt. b (Am. L. Inst. 2006). Unlike in Basile, where there was

no contract conferring agency on H & R Block, the contracts

between the PBGs and the Pediatricians clearly established the

agency relationship, and the authority to agree to an arbitration

clause is part and parcel of the agency relationship in

commercial contexts. See Dye v. Tamko Bldg. Prods., Inc., 908

F.3d 675, 684–86 (11th Cir. 2018); see also HealthplanCRM,

LLC v. AvMed, Inc., 458 F. Supp. 3d 308, 335 (W.D. Pa. 2020)

(noting that Dye “provides persuasive guidance consistent with

Pennsylvania law”). Subsequent actions, such as the PBGs’

alleged failure to notify, go only to whether the PBGs fulfilled

their fiduciary duties. Even if the PBGs breached their duties

to the Pediatricians, that does not release the Pediatricians from

their obligations under the arbitration clause. If this case were

more like Basile, and there was no explicit contract conferring

agency on the PBGs, then the Pediatricians would be correct—

we would look to the parties’ conduct to determine the

existence and scope of their agency relationship. But here, a

written contract created an agency relationship that included

the implied authority to accept an arbitration provision.

For these reasons, Schwartz Pediatrics is bound to

arbitrate because it granted actual authority to its PBG.

B

Sugartown and Margiotti & Kroll’s contract with their

PBG would have established actual authority had it been

signed earlier. That contract authorized the PBG to “act as a

purchasing agent for [PBG members] to enter into contracts

with third-party vendors to furnish goods or services to [PBG

members].” Rotavirus III, 2020 WL 6828123, at *11. But that

language was not inserted into the membership contract until

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2019, years after the PBG executed its 2012 loyalty contract

with Merck. The earlier contracts between the two

Pediatricians and their PBG were less explicit about the PBG’s

agency but still contained provisions from which agency could

be inferred. See App. 2347 (stating that the Pediatricians

“accept[] the conditions and terms offered in the [PBG-Merck]

contract” and wish to “participate”); see also App. 2224–25

(testimony by MSV president that MSV acts as members’

“limited agent” and has “always negotiated the contracts on

behalf of [its] members”). In any event, we need not decide

whether those earlier contracts sufficed to establish actual

agency authority because, at a minimum, the PBG had apparent

authority to act for Sugartown and Margiotti & Kroll.

An agent has apparent authority if “the principal, by

word or conduct, causes people with whom the alleged agent

deals to believe that the principal has granted the agent

authority to act.” Wisler, 124 A.3d at 324 (quoting Walton v.

Johnson, 66 A.3d 782, 786 (Pa. Super. Ct. 2013)). In

Pennsylvania, “apparent authority [may] be established with a

showing of: (1) limited authority given to the agent by the

principal; and (2) conduct of the agent which demonstrates to

the third-party the agent’s apparent authority to bind the

principal.” Leidigh v. Reading Plaza Gen., Inc., 636 A.2d 666,

667–68 (Pa. Super. Ct. 1994) (citation omitted).

Both prongs of the test for apparent authority are met

here. The District Court found “the member practices[] granted

only very limited authority to their PBGs.” Rotavirus III, 2020

WL 6828123, at *14. Testimony in the District Court

confirmed that Sugartown and Margiotti & Kroll’s PBG acted

on their behalf. See, e.g., id. at *9 (describing testimony by

MSV’s president that “if a practice was enrolling in the [MSV]

program through completion of their Enrollment

12

Form/Membership Agreement, they were also enrolling into

the contract which [MSV] had with Merck and agreeing that

they would abide by the terms and conditions of this contract”);

App. 2224–25 (testimony by MSV’s president that MSV acts

as members’ “limited agent” and has “always negotiated the

contracts on behalf of [its] members”). At a minimum, this

testimony justified the District Court’s finding that the

Pediatricians delegated “very limited authority” to their PBGs.

Rotavirus III, 2020 WL 6828123, at *14.

So we turn to the second prong of the test: the conduct

of the agent. Pennsylvania law tilts in favor of finding that an

agent has apparent authority. Third parties dealing with an

agent need only exercise “reasonable diligence to ascertain the

agent’s authority.” Bolus v. United Penn Bank, 525 A.2d 1215,

1222 (Pa. Super. Ct. 1987). Moreover, “[a]n admitted agent is

presumed to be acting within the scope of his authority where

the act is legal and the third party has no notice of the

limitations on the agent’s authority.” Id. at 1222.

Here, Merck was justified in believing that the PBGs

were the Pediatricians’ agents because the PBGs represented

themselves as agents in their contracts with Merck. App. 2141

(Merck-CCPAPP contract, warranting that CCPAPP had “the

authority of the [Pediatricians] to participate in this

Agreement”); App. 2157 (Merck-MSV contract with identical

language). Additionally, the Merck-PBG contracts required

each PBG to meet the federal definition of a “group purchasing

organization.” App. 2145 (Merck-CCPAPP contract); App.

2161 (Merck-MSV contract). “Group purchasing

organization” is defined by federal regulation as “an entity

authorized to act as a purchasing agent” for medical providers.

42 C.F.R. § 1001.952(j)(2). By purchasing vaccines at the rates

specified in the Merck-PBG contracts, the Pediatricians

13

confirmed the impression that the PBGs were acting as their

agents. Thus, Merck had reason to believe the PBGs were the

Pediatricians’ agents.

The Pediatricians’ best argument to the contrary is

based on a supposed concession by Merck. Merck represented

to the District Court that, until the Pediatricians submitted their

contracts with the PBGs, “Merck did not have sufficient

information about the nature of the relationship between the

PBGs and their members to assert that the PBGs acted as

agents for the members with respect to Merck’s contracts.”

App. 124 n.6. Such a concession would defeat an apparent

authority theory because Merck could not have believed the

PBGs were the Pediatricians’ agents if Merck did not know

about the “nature of the relationship between the PBGs and [the

Pediatricians].” Id.

Merck claims this footnote did not concede anything

substantive; it merely recognized a procedural hurdle.

Specifically, Merck explains it could not prove an agency

relationship based solely on the Pediatricians’ complaint and

needed the Pediatricians to incorporate the agreements into the

complaint, which they eventually did. Merck’s explanation is

plausible since the Pediatricians’ complaint devotes only a few

paragraphs to their relationship with their PBGs. However,

Merck’s District Court briefing states that “Merck did not have

sufficient information,” not just that the Pediatricians’

complaint lacked sufficient information. Id. So even if we do

not fully accept Merck’s explanation, Merck knew something

about the “nature” of the PBG-Pediatrician relationship

because of (1) the PBGs’ contractual representations that they

were the Pediatricians’ agents and (2) the Pediatricians’

subsequent purchases of discounted vaccines. That gave Merck

sufficient reason to believe that the PBGs were the

14

Pediatricians’ agents, even if it never saw the PBG-Pediatrician

contracts before this litigation.

Because both prongs of the apparent authority test are

satisfied here, Sugartown and Margiotti & Kroll must arbitrate

their disputes with Merck.

C

In a final attempt to avoid arbitration, the Pediatricians

argue that the arbitration clause’s language does not

encompass them or their claims. The clause reads: “Any

controversy, claim or dispute arising out of or relating to the

performance, construction, interpretation or enforcement of

this Agreement shall, if not resolved through negotiations

between the parties, be submitted to mandatory binding

arbitration pursuant to the Federal Arbitration Act, 9 U.S.C.

Sec. 1, et. seq.” Rotavirus III, 2020 WL 6828123, at *2.

1

The Pediatricians insist their antitrust claims against

Merck do not “arise out of or relate to” the contracts between

Merck and the PBGs. Ped. Br. 25–26. Pennsylvania law

suggests otherwise. When confronted with an arbitration

clause nearly identical to this one—with the same “arising out

of or relating to” language—the Pennsylvania Supreme Court

concluded that it was framed in the “broadest conceivable

language,” and inferred “that the parties intended the scope of

the submission to be unlimited.” Borough of Ambridge Water

Auth. v. Columbia, 328 A.2d 498, 501 (Pa. 1974); see also

Battaglia v. McKendry, 233 F.3d 720, 727 (3d Cir. 2000)

(“[W]hen phrases such as ‘arising under’ and ‘arising out of’

15

appear in arbitration provisions, they are normally given broad

construction.”).

The Pediatricians rely on a case where a more limited

arbitration clause was at issue. See CardioNet, Inc. v. Cigna

Health Corp., 751 F.3d 165, 173–74 (3d Cir. 2014) (“[O]nly

those disputes ‘regarding the performance or interpretation of

the Agreement’ must be arbitrated.” (emphasis added)). In

CardioNet, we held that the arbitration agreement did not cover

the plaintiffs’ claims. Id. at 179. But in doing so, we

distinguished a case where an “undisputedly broader”

arbitration clause was at issue. Id. at 176 (citing Sweet Dreams

Unlimited, Inc. v. Dial-A-Mattress Int’l, Ltd., 1 F.3d 639, 642–

43 (7th Cir. 1993)). That broader clause required arbitration for

disputes “arising out of” the contract—the same language

contained in the arbitration clause at issue here. Sweet Dreams,

1 F.3d at 642. So CardioNet undermines the Pediatricians’

arguments.

For these reasons, we hold that the Pediatricians’

antitrust claims are covered by the arbitration clause.

2

The Pediatricians also claim they are not “parties”

within the meaning of the contractual language. We disagree.

First, it is not clear that the scope of the arbitration provision is

limited to the “parties.” The portion of the clause which

mentions “the parties” applies only to pre-arbitration

negotiations: “Any controversy . . . arising out of or relating to

. . . this Agreement shall, if not resolved through negotiations

between the parties [be arbitrated].” Rotavirus III, 2020 WL

6828123, at *2 (emphasis added). The operative provision of

the arbitration clause, on the other hand, is not limited to “the

16

parties.” See id. (requiring arbitration of “[a]ny controversy,

claim or dispute arising out of or relating to [the contract]”).

And even if the Pediatricians were right that the

arbitration provision is limited to “the parties,” they would still

be covered under agency principles. The PBGs were acting as

their agents, who stand “in the shoes” of their principals,

including when they “alter the legal relations between the

principal and third persons.” Tribune-Review Publ’g Co. v.

Westmoreland Cnty. Hous. Auth., 833 A.2d 112, 120 (Pa.

2003) (cleaned up). When the PBGs signed the agreement in

their capacity as agents, they bound the Pediatricians.

For these two independently sufficient reasons, we hold

that the Pediatricians are covered by the arbitration provision.

* * *

The District Court erred when it denied Merck’s motion

to compel arbitration. Schwartz Pediatrics made the PBG its

agent by contract, then the PBG used its authority to bind

Schwartz to an arbitration clause. Sugartown and Margiotti &

Kroll must arbitrate because their PBG had apparent authority

to bind them to the arbitration clause with Merck. We will

reverse the order of the District Court and remand with the

instruction that the Court grant Merck’s motion to compel

arbitration.

17