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Mark Carlson v. Medco Health Solutions

August 29, 2011


The opinion of the court was delivered by: Honorable Richard J. Arcara United States District Judge



Pending before the Court is a motion by plaintiff Mark Carlson for a preliminary injunction against his former employer, defendant Medco Health Solutions, Inc. ("Medco"),*fn1 pursuant to Rule 65 of the Federal Rules of Civil Procedure ("FRCP"). Plaintiff seeks to enjoin Medco from enforcing covenants against disclosure and competitive employment that he entered when he joined the company in 1991. Plaintiff asserts that these covenants are invalid and are preventing him from pursuing an unspecified job opportunity to which he must respond as soon as possible. According to plaintiff, he will suffer irreparable harm if these invalid restrictive covenants cost him this opportunity and similar ones that may arise. Medco counters that the covenants are reasonable, that plaintiff's assertions about his job opportunity are too vague, and that plaintiff cannot establish irreparable harm given other types of employment opportunities that he can pursue.

The Court held oral argument on August 11, 2011. For the reasons below, the Court denies plaintiff's motion.


This case concerns allegations that invalid employment covenants are hampering plaintiff's efforts to find new work after Medco fired him. Plaintiff, a New York resident, is a licensed pharmacist. Medco, based in New Jersey, is a pharmacy benefits manager that does business in the United States, Puerto Rico, and Canada, as well as other areas. Among other services, Medco provides two services to its customers. Medco operates pharmacies that fill prescriptions in accordance with pharmacy benefit plans that its employer clients may extend to their employees. Related to the pharmacy service, Medco performs a service called coverage review. In short, coverage review consists of analyzing prescriptions that employees submit to their employers to determine whether the employees' pharmacy benefit plans cover those prescriptions. Partly because Medco fills more than 108 million prescriptions per year, and partly because different clients offer different benefits plans to their employees, Medco uses a complex and computerized "rules engine" to perform its coverage review. Medco owns patents for its rules engine and asserts that many details of its operation are proprietary.

Plaintiff and Medco began their relationship when Medco hired plaintiff in April 1991. Originally, Medco hired plaintiff to work as a mail-order pharmacist at a facility in Ohio. When plaintiff began with Medco, the parties entered an employment contract called a Key Employee Agreement (the "Agreement") that would be governed by Ohio law. The Agreement established that plaintiff was an employee at will and could be terminated at any time at Medco's discretion. Section 1 of the Agreement set forth that any ideas or inventions that plaintiff conceived during his employment would belong to Medco. Section 5 consisted of a non-disclosure covenant. Through this covenant, plaintiff agreed never to disclose proprietary information or customer information, and not to target actual or potential customers of Medco for one year following termination. Section 6 consisted of a non-compete covenant. Through this covenant, plaintiff agreed to a one-year moratorium on employment with any other pharmacy benefits company to perform services similar to whatever he was performing in the year preceding any termination. Because Section 6 is central to plaintiff's pending motion, the Court will quote the relevant language here in full:

During the term of my employment and for a period of one (1) year after termination, for any reason, of my employment, absent the Employer's prior written approval, I will not (as principal, agent, employee, consultant or otherwise), directly or indirectly, engage in the United States of America, its territories and possessions, including Puerto Rico and in the Dominion of Canada (the "Territory") in activities (similar to those in which I shall have engaged for the Employer during the one (1) year period prior to such termination) with, nor render services (similar to those which I shall have rendered for the Employer during such one (1) year period) to, any firm or business engaged or about to become engaged in the Territory in the independent third party prescription drug claims business or marketing to funded medical benefit plans prescription drug benefits or any other business in which the Employer or any affiliate, subsidiary or associate company is then engaged. (Dkt. No. 1-2 at 17.)

Plaintiff's responsibilities at Medco increased as time passed. Although plaintiff began at Medco as a mail-order pharmacist, he gradually became more involved in the coverage review process and the use of the rules engine. Around 2003, plaintiff became Senior Director of Operations for Coverage Review and supervised the entire coverage review process. Medco was paying plaintiff an annual salary of $303,000 to work with and to supervise approximately 800 employees nationwide who handled the various aspects of the coverage review process. The geographical layout of the coverage review process reflected the national scope of Medco's client base. Plaintiff worked from his home in Orchard Park, New York; reported to Medco's vice president in Ohio; and traveled to call centers and facilities in Ohio, Nevada, and Texas. As part of his work responsibilities, plaintiff was one of a small number of employees at Medco who had special password access to the rules engine and the other confidential details of the coverage review process. Plaintiff held his title of Senior Director when Medco developed a program in 2006 to address Medicare Part D prescription claims, after Congress created Part D.

Plaintiff's employment with Medco ended abruptly after alleged mishandling of a Medicaid audit. The record indicates that the federal Medicaid program was one of the pharmacy benefit plans for which Medco provided services. In the fall of 2010, Medicaid officials audited Medco's coverage review process for compliance with federal regulations. Medicaid officials identified certain corrections that Medco had to make with respect to how it handled Medicaid pharmacy claims. According to Medco, plaintiff erroneously certified to Medicaid officials that the necessary corrections had been made before they actually were made. Medco corrected the problem before running afoul of any federal regulations, but blamed plaintiff for the problem and terminated him for it. Medco terminated plaintiff on May 21, 2011.

Plaintiff subsequently sought to nullify Sections 5 and 6 of the Agreement to allow him to return immediately to the pharmacy benefits industry. Originally, plaintiff commenced litigation in New York State Supreme Court, Erie County on July 20, 2011. The papers that plaintiff filed that day included a verified complaint for declaratory judgment along with an order to show cause, granted in state court (Michalek, J.), for a preliminary injunction. Among other requests for relief, plaintiff sought a declaratory judgment that Sections 5 and 6 of the Agreement are invalid and a preliminary injunction barring Medco from enforcing those sections. In support of the relief that he sought, plaintiff submitted a sworn affidavit explaining that "I have received an opportunity for new employment in the industry, and enforcement of the Restriction on Competitive Employment provision would preclude me from taking this position, making a living, and providing for my family. I must respond to the prospective employer very soon." (Dkt. No. 1-4 ¶ 34.) Nowhere in the papers filed in state court did plaintiff explain any details of this supposed job opportunity or the deadline for responding to it.

On July 25, 2011, the day of the scheduled hearing in state court for plaintiff's motion for a preliminary injunction, Medco removed the case to this Court. On August 4, 2011, plaintiff filed the pending motion for a preliminary injunction with this Court. Again, plaintiff provides no details about any job opportunity that he currently has or any deadline for responding to it.*fn2 Plaintiff relies on a more philosophical position that he "faces the possibility of being unemployable because he will be removed from the market for a year by the threat of enforcement of an unenforceable agreement." (Dkt. No. 7-2 at 4.) At oral argument, plaintiff substantiated his argument about being removed from the market by asserting that he has been in contact with headhunters trying to set up interviews for him for jobs in the pharmacy benefits industry. These headhunters allegedly have informed him that they have reviewed the Agreement and are aware that Medco will try to enforce it, and that plaintiff is untouchable as an applicant as a result. As for other requirements for injunctive relief, plaintiff asserts that the geographical restrictions in Sections 5 and 6 are excessively broad, and that the type of job that he is pursuing becomes available sufficiently infrequently that he will suffer irreparable harm if he cannot pursue these opportunities when they arise.

Medco counters that plaintiff's request for injunctive relief is too speculative without more information about the supposed job opportunity. Medco argues further that the employment restrictions in the Agreement will last for only about nine more months and apply only to coverage review, which is the work that plaintiff performed in his last year before termination. According to Medco, plaintiff remains free to work as a pharmacist as he sees fit. Additionally, Medco defends the geographical scope of the restrictions as matching those places where it does business. Medco concludes its opposition to ...

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