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Judge enjoins CVS exec from joining Amazon

cvs1The CVS Pharmacy corporation was entitled to a preliminary injunction blocking the executive who ran its Caremark retail network from working for Amazon’s new online pharmacy, a U.S. District Court judge in Rhode Island has decided.

Defendant John Lavin, who oversaw operations of CVS Caremark, a “pharmacy benefits manager” — or PBM — that negotiates drug prices with retail and mail-order pharmacies on behalf of benefits plans and their subscribers, had a non-competition agreement that barred him from working for a competitor for 18 months should he leave plaintiff CVS.

When Lavin accepted a position with PillPack, Amazon’s recently acquired mail-in pharmacy, CVS sought a preliminary injunction, arguing that his work with PillPack would violate the agreement.

Judge John J. McConnell Jr. granted the motion, finding sufficient likelihood that Lavin’s move could cause CVS irreparable harm.

“The Court does not grant a preliminary injunction to enforce a non-compete clause lightly,” McConnell wrote, calling such a remedy an “extraordinary and drastic” measure under Rhode Island law.

“However here, months after entering an independent stand-alone Agreement (limited to only 18 months post-employment) for which he was well-compensated, Mr. Lavin, a high senior official at CVS with access to very Confidential Information, went to work for a Competitor,” McConnell continued. “That is wrong, and CVS is entitled to have the Agreement enforced.”

The 20-page decision is CVS Pharmacy, Inc. v. Lavin.

The attorney for CVS, Michael L. Rosen of Boston, declined to comment other than to say his client was pleased with the decision.

Boston attorney Michael R. Creta represented the defendant and could not be reached for comment prior to deadline.

New opportunity

Lavin first went to work for CVS in the early 1990s. At the time of his departure, he was a senior vice president responsible for leading Caremark and its team of 250 employees.

cvs2As a pharmacy benefits manager, Caremark manages prescription benefits for its clients, which include insurance companies, employers, unions and governmental entities that provide such benefits for their policyholders and/or employees.

In that capacity, Caremark negotiates with retail pharmacies to get the best deal for its clients and their subscribers. In addition to Caremark, CVS itself owns and operates thousands of retail pharmacy locations as well as a mail-based retail pharmacy.

Beyond overseeing Caremark’s negotiations with retail pharmacies, Lavin analyzed Caremark’s terms with mail-in retail pharmacies. Additionally, he participated in executive-level strategy with other CVS executives in the PBM and retail business, which apparently was very significant to CVS because of Amazon’s entry into the pharmacy business when it acquired PillPack.

In 2017, Lavin and CVS executed an agreement under which the defendant agreed not to compete with CVS either directly or indirectly during his employment and for “18 months thereafter.”

In exchange, Lavin received restricted stock units worth $157,000 at the time.

A year later, however, Lavin and PillPack allegedly began discussing employment opportunities. After Lavin was interviewed by both PillPack and Amazon executives, PillPack apparently offered him the position of director of third party networks and contracting, in which he would report directly to PillPack CEO TJ Parker.

Lavin ultimately accepted a position with PillPack. According to his new employer, he would be negotiating solely with PBM managers, except for Caremark, on PillPack’s behalf, though his original job description apparently stated he would be negotiating with payers as well.

In his new role, the defendant also was allegedly expected to contribute to PillPack’s overall growth strategy and help drive its long-term strategy to disrupt the prescription delivery market.

After Lavin jumped to PillPack, CVS sued to enforce the noncompete and moved for a preliminary injunction, asserting that its lawsuit was likely to succeed on the merits; that it was likely to suffer irreparable harm should it be denied preliminary relief; that the balance of equities tilted in its favor; and that an injunction would serve the public interest.

Injunctive relief

McConnell emphasized that under Rhode Island law, preliminary injunctions to enforce noncompete agreements are not to be granted lightly, but he found such relief to be justified in the case before him.

In doing so, the judge determined that despite Lavin and PillPack’s arguments to the contrary, PillPack was indeed a CVS competitor and Lavin himself would be involved in the competition.

“At both jobs, Mr. Lavin’s primary focus will be to achieve the most favorable terms for his employer in negotiations related to network inclusion,” McConnell observed. “His job at PillPack will be the same — just on the opposite side of the negotiation table, as CVS argues.”

Meanwhile, McConnell said, the fact that Lavin’s job with Caremark was from the PBM level of negotiations while his job with PillPack would be from the retail level did not impact the analysis, particularly as PillPack had already started contacting Caremark clients and apparently was planning to provide its own PBM-like services.

“[I]n addition to negotiating with PBMs, Mr. Lavin will also oversee negotiating and building relationships with the private Payers (such as health plans and employers) and public Payers (Medicare and Medicaid). These are CVS Caremark’s clients,” the judge pointed out. “The Court concludes that Mr. Lavin’s role at PillPack would be the same or similar to the role he had at CVS Caremark in many relevant aspects.”

McConnell also found that even if Lavin’s new position was not the same or similar, it would violate the agreement anyway since it likely would result in disclosure of confidential information to a competitor.

First, the judge said, Lavin had intimate knowledge of CVS Caremark’s pricing and relationships, confidentiality of which is an “extremely high priority” in its line of business.

In addition, McConnell, continued, Lavin had access to CVS Caremark’s confidential contract terms with payers via his participation in weekly executive underwriting calls to discuss negotiations with its largest clients and prospective clients.

And through his participation in CVS Caremark executive committee meetings, Lavin was privy to the plaintiff’s “highest priority initiatives and strategies” while being intimately involved in CVS Caremark’s strategies for differentiating its own mail-based services from those of potential competitors, the judge remarked.

McConnell further found that the noncompete itself was reasonable in the sense that it was narrowly tailored to serve CVS’s legitimate interest in protecting its confidential information and was reasonable in duration and scope.

Finally, the judge concluded, the balance of equities weighed in favor of issuing an injunction.

“Mr. Lavin received over $150,000 in consideration for agreeing to the limited restrictions on future employment. Yet, less than a year after entering into this Agreement, he sought alternative employment where CVS Confidential Information will be at risk,” McConnell wrote in ordering that the injunction be granted. “[T]he public has a strong interest in preserving the integrity of contracts and protecting confidential business information from competitors.”

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