Court File and Parties

COURT FILE NO.: CV-24-00716693-0000 DATE: 2024-04-09 SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2512622 ONTARIO INC., Plaintiff (Moving Party) AND: EXPRESS SCRIPTS CANADA also known as EXPRESS SCRIPTS CANADA SERVICES, Defendant (Respondent Party)

BEFORE: L. Brownstone J.

COUNSEL: Rahul Gandotra for the Moving Party Zev Smith and Jordan D. Wajs for the Responding Party

HEARD: April 5, 2024

Endorsement

Introduction

[1] The plaintiff corporation owns and operates a pharmacy known as Square One Pharmacy (“Square One”). The defendant Express Script Canada (“Express”) provides billing services for Square One in accordance with an agreement between the parties. Put simply, Express plays an intermediary role between pharmacists and insurers, providing a service that streamlines benefits insurance reimbursement for patients.

[2] The agreement between Express and Square One allows Express to perform an audit to determine Square One’s compliance with the agreement, and to terminate it for cause without notice, or with 30 days’ notice in the absence of cause.

[3] After conducting an audit, Express determined that Square One was not in compliance with the agreement and terminated it for cause. Square One brought this motion for injunctive relief.

[4] For the reasons that follow, I dismiss Square One’s motion.

Factual Background

[5] Express is a pharmacy benefits manager. It enters into agreements with pharmacists (“providers”) and insurance companies (“sponsors”). It provides intermediary services between the two to facilitate claims adjudication and administration, allowing customers to have their claims approved and paid by their insurer at the point of sale.

[6] Express and Square One entered into their first agreement in 2016 and a second in 2022. The agreements permit Square One to provide claims to Express in accordance with an express list of obligations contained in Express’s Pharmacy Provider Manual (“the Manual”), which was updated from time to time. Both parties agree that the 2022 contract (“the Agreement”) between the parties governs the court’s decision in this case. However, to the degree the court reviews the audit, it must be borne in mind that a portion of that audit reviewed Square One’s 2021 performance, which must be considered in light of the 2016 contract and then-current Manual.

[7] Among other requirements, the Agreement obliges Square One to dispense medications to its customers in accordance with all applicable laws, regulations, applicable standards of practice, the pharmacy benefits plan and other terms of the Agreement (s. 2(b)); to comply with all applicable laws, rules and regulations of provincial and governmental bodies having jurisdiction over the pharmacy (s. 2(h)), and to maintain medical, financial and administrative records in accordance with applicable law (s. 5).

[8] The Agreement gives Express the right to audit Square One’s records to determine its compliance with its obligations under the Agreement (s. 5). Express is given the right to terminate the Agreement without a notice period if, in its sole discretion, it determines that Square One has circumvented or undermined the pricing of medications and/or the total allowable prescription reimbursement, Square One fails to comply with the Manual, Express determines that Square One is dispensing medications in violation of any applicable law, rule and /or regulation, or Express determines that Square One’s continued performance of services poses a risk to the health, welfare or safety of any of its customers (s. 8). In addition, Express has the right to terminate the Agreement on 30 calendar days’ written notice without cause.

[9] In April 2023, SunLife, one of Express’s sponsors, brought some concerns to Express about Square One. Express invoked its audit rights and conducted an audit of Square One’s billings for the period May 15, 2021, to May 14, 2023. It found a number of problems, including:

(a) dispensed prescriptions containing the incorrect date or units of measurement; (b) excessive dispensing fees billed by Square One and paid by a sponsor, including by splitting a single prescription into multiple dispenses such that Square One claimed multiple dispensing fees for a single prescription; (c) nearly $18,000 of improperly billed compounds and compound fees which Square One was not entitled to under the Provider Manual; (d) inadequate documentation detailing the source, mixture breakdown, and tracing the movement of compound drugs purchased and dispensed by Square One; (e) documentation for compound drugs that was inconsistent with the strength of mixture actually made, dispensed and claimed for by Square One; (f) missing documentation for several dispensed prescriptions; and (g) inadequate and missing documentation for verbal prescriptions received and dispensed by Square One.

[10] Express assigned Square One a post-assessment score of 79, calculated using a proprietary grading rubric. That score represents a "medium to high risk" to Express under the Manual, which explains that pharmacies within this category are at risk of being terminated if fraud or high abuse is confirmed. Fraud and high abuse are undefined terms.

[11] Express presented its initial audit report with these findings to Square One in October 2023, and gave Square One a short time period in which to respond. Square One provided a response which resolved some issues but Express determined that a substantial number of claims were unresolved. Express determined that Square One’s recordkeeping was in breach of statutory and regulatory requirements.

[12] On November 29, 2023, Express issued its final audit report and concluded that Square One had claimed and obtained reimbursements of over $30,000.00 to which it was not entitled. That report demanded repayment and particularized its concerns. The final risk score assigned to Square One was 87, which is a high-risk score.

[13] That day, Express had a call with Square One and its counsel to discuss the audit report. Evidence about that telephone call came out during the cross-examination of Express’s affiant. He testified that during the telephone call, Express walked through the reasons in the audit reports, talked about the post-assessment score and the next steps which would include a complaint to the College of Pharmacists, continued monitoring of Square One’s claims, and internal discussions at Express about possible termination of the Agreement. Square One objects to the court relying on this evidence on the basis that the information was not in Express’s affidavit, that Square One had no chance to respond to evidence that came out for the first time in cross-examination, that the evidence was not responsive to the question asked and was self-serving. Square One did not seek leave to adduce evidence in response to this testimony. I do not accede to Square One’s objection. Cross-examination can elicit evidence that is unfavorable, even damaging, to the examining party. The line of questioning here related to steps taken by Express after the audit, and communications between Express and Square One between the time Square One paid the claw-back and the termination letter. I do not find the evidence given to be unresponsive to the question asked and find no basis upon which it can be said that the evidence is inadmissible.

[14] Express continued to monitor Square One and on February 27, 2024, sent Square One a letter advising that the Agreement would be terminated for cause effective March 11, 2024. The letter advised that Express was terminating the Agreement under s. 9.C.(vii), which allows for immediate termination if the pharmacy is dispensing medications in violation of any applicable law and/or regulation. The letter referred to Express having identified numerous instances where Square One had improperly submitted and received reimbursement for dispensing prescriptions that it determined was in contravention of provincial legislation. The termination letter further stated that Square One had failed to comply with its contractual obligations in several respects.

[15] In February 2024, Square One entered into an agreement to sell its business to a third party. Its counsel proposed to Express that Square One would not contest the validity of Express’s termination letter if the parties could come to an interim solution that would allow Square One to sell the business and would allow the new owner to be approved to participate in Express’s reimbursement verification platform. Express did not agree and stood by its termination.

[16] On March 20, 2024, Square One requested an urgent date on which to argue its motion seeking injunctive relief.

Governing Law and Analysis

[17] Section 101 of the Courts of Justice Act, R.S.O. 1990, c. C.43 provides the court with authority to order an interlocutory injunction or mandatory order where it is just or convenient to do so.

[18] The parties agree in general on the test to be applied. The usual test for injunctive relief comprises three parts. The moving party must demonstrate that there is there a serious issue to be tried, that it will suffer irreparable harm in the absence of the injunction, and that the balance of convenience favours the granting of the injunction: RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311 at p. 334.

1) Is the requested injunction prohibitory or mandatory?

[19] The parties disagree on whether the injunction Square One seeks is mandatory or prohibitory, and therefore on the threshold Square One must reach on the first branch of the test. If the relief sought is a mandatory injunction, the moving party must meet not the low threshold of serious issue to be tried, but the elevated threshold of demonstrating a strong prima facie case: R. v. Canadian Broadcasting Corp., 2018 SCC 5, [2018] 1 SCR 196 (“CBC”) at para. 15.

[20] Square One’s position is that it merely seeks to prohibit Express from terminating the Agreement. It is simply seeking to restore the parties to their pre-existing contractual obligations, not to impose any new obligations on Express, and therefore it is a prohibitory injunction.

[21] It is important to examine the actual relief requested by Square One, which varies in its different documentation. Its notice of motion, on which the responding party is entitled to rely as setting the frame for the order requested, seeks orders requiring Express to abide by the dispute resolution provision in the Agreement, and prohibiting Express from terminating the Agreement until the disposition of the action. In its factum Square One seeks the following relief: 1) that an injunction be granted prohibiting Express from relying on the termination letter to terminate the Agreement, and by extension that Express be ordered to abide by the Agreement; 2) to effect that relief, an order directing Express to forthwith: (a) notify all of its sponsors that Square One is forthwith re-instated to the provider network; (b) direct the sponsors to inform their members to disregard any other or prior communications made to them and to unequivocally confirm that Express has re-instated Square One; and 3) any other ancillary relief or order which may be required to effect the injunction granted and to restore the status quo as existed immediately before the effect of the termination letter. In its oral argument, Square One stated it was seeking an order that Express should not be able to terminate the Agreement in accordance with its termination letter, which would amount, in essence, to a declaration that the termination letter was improper and is of no force and effect. In its factum Square One argued that the “removal of [Square One] from [Express’s] Provider Network has caused continuing and increasing harm which directly impacts [Square One’s] goodwill and its ability to stay in business through the duration of this action.” (emphasis added). In its statement of claim it seeks, among other things, that Express be required to “retract/withdraw the termination letter and permanently re-instate the agreement”. However it is phrased, Square One is seeking an injunction that Express abide by the Agreement until trial.

[22] Express argues that the Agreement has been terminated for cause, and Square One is asking the court to mandate Express’s performance of a contract that has been terminated. Because Square One’s notice of motion asks that the Agreement be re-instated until trial, it is in effect seeking to impose a new contract on Express, one in which Express can no longer rely on its contractual rights to terminate the Agreement with or without cause. In addition, Express will have to expend significant resources closely monitoring Square One’s compliance with the Agreement; this is not a return to a state of co-existence under the contractual terms that it had bargained for.

[23] Both parties rely on CBC and on Ryerson Students’ Union v. Ryerson University, 2020 ONSC 1490. In Ryerson, the university and the students’ union had been parties to an agreement for decades whereby the university collected student fees and provided them to the union, which used the fees to fund various student programs and initiatives. When questions were raised about possible improper spending by the union, the university advised the union it was withholding the fees until the union conducted an audit, after which the parties would negotiate a new agreement. After some attempts at an expenditure review and negotiation of a new agreement, the university advised the union it was immediately terminating the agreement. The union sought an injunction, which it claimed was prohibitory, stopping Ryerson from terminating the agreement. Ryerson argued the union was seeking a mandatory injunction, as the contract had already been terminated by the time the injunction was sought. Justice Koehnen determined the relief sought was prohibitory.

[24] As in CBC, Koehnen J. noted that the line between prohibitory and mandatory injunctions is not always clear, and does not admit of a formalistic approach. The court is required to “take a closer look at the substance of the matter at hand”: Ryerson at para. 33. He noted that the consequences of the university abiding by the agreement were not costly or burdensome, but simply required it to abide by the agreement by which it had abided for decades. No notice period was specified in that contract and the university had given none. However, Koehnen J. noted that a contract that had been in place for decades would normally require some notice period, and the union was enjoining a breach of contract – at a minimum, termination without notice. The university’s obligations under the contract were minimal. The continued contractual performance did not impose any new rights or obligations.

[25] In this case, unlike in Ryerson, requiring Express to reinstate the Agreement in the way Square One seeks imposes significant obligations on Express and provides Square One with rights it did not have under the contract it negotiated. Express, based on the information obtained in its audits, would have to perform ongoing real-time monitoring of Square One’s prescriptions. It would have to allocate significant resources to this function. As noted by Square One, no audit had been performed by Express in the first seven years of the Agreement. Monitoring compliance at a granular level is to be an irregular, not an ongoing, tool under the terms of the Agreement. Express expected to test and occasionally review compliance, not to supervise or monitor compliance of claims on an ongoing basis in real time which it would be required to do if the Agreement were reinstated, given its findings of breaches to date. It is clear that the proposed injunction would require Express to do something, not to refrain from doing something: CBC at para. 16. In addition, Square One would have the right to have the Agreement continued in circumstances in which it had bargained for termination without notice for cause, or termination for convenience with thirty days’ notice. It goes without saying that an order enjoining the termination of the Agreement until trial will endure long beyond thirty days. For these reasons, I find that the injunction Square One seeks is a mandatory one.

2) Has Square One demonstrated it has a strong prima facie case?

[26] Having found the injunction sought is mandatory, the test to be applied is whether Square One has shown it has a strong prima facie case. This means Square One must show that based on the law and the evidence, there is a strong likelihood that it will succeed at trial: CBC at paras. 17 and 18.

[27] Square One claims against Express for breach of contract, breach of the duty of good faith and honest contractual performance, and misrepresentation. It argues that the termination letter sets out the entire basis on which Express should be permitted to rely in support of its purported termination. That letter is vague and undetailed, and when questioned about it Express modified and added to the grounds for termination, which it ought not be entitled to do, at least for purposes of this injunction.

[28] Square One also argues that Express failed to provide data that Express relied on to conclude Square One had engaged in high abuse and fraudulent conduct, did not respond to data provided by Square One in this regard, and acknowledged that in some circumstances, the issues were not a violation of law but of Express’s policies.

[29] Square One further claims that Express acted in bad faith. Its concerns in this regard can be summarized as follows: Express assigned Square One a worse score after its final audit report than it had assigned it after its initial audit report, even though Square One had co-operated and provided explanations; Express led Square One to believe that repayment would bring the audit to an end and there would be no further repercussions; Express failed to engage in the dispute resolution mechanism provided for in the Agreement; Express had greater bargaining power than did Square One; Express cavalierly included personal pharmaceutical records of Square One’s owner in court materials and mischaracterized those records; Express interfered with Square One’s relationship with Express’s sponsors; and Express “piled on” reasons for termination for cause that were not included in its original termination letter.

[30] Express claims that it clearly acted in accordance with its contractual rights. It operates in a highly regulated industry, which has complicated regulations and safeguards in place given the industry’s potential to adversely affect public health. Having found concerning lapses on the part of Square One, in breach of the Agreement, it exercised its right to terminate the Agreement for cause.

[31] Express provides specific examples of breaches of the Agreement and the Manual. These include cases in which Square One did not have records on which Express, or anyone else, could determine the amount of drugs dispensed. Express provides an example of a controlled substance being dispensed incorrectly and another example of a controlled substance being dispensed without required information provided. There were many acknowledged instances of Square One wrongfully claiming compounding fees. Express notes that Square One does not deny breaches of the Agreement or the Manual. Square One merely states that they were due to human error, or to Square One’s admitted lack of familiarity with the contents of the Manual. The reason for the breaches is, however, irrelevant.

[32] With respect to the requirement to abide by the dispute resolution clause, Express argues that the Agreement clearly allows it to terminate for cause without invoking that clause, otherwise the termination for cause provision would be meaningless. Given that sponsors rely on Express to ensure that standards are being met when they agree to pay out claims, it would be untenable to read the Agreement as requiring Express to continue providing its services having found reason to terminate for cause.

[33] Express denies it acted arbitrarily or in bad faith. Nor did it misrepresent anything; it clearly told Square One that termination was possible, and in any event, this possibility was laid out in the Agreement.

[34] There are two evidentiary issues raised. First, Express sought to strike paragraphs of Square One’s affidavit as inadmissible in that they contain opinion evidence, speculation, and legal conclusions. I have relied on the factual record in reaching my conclusions below. To the degree the affidavit contains speculation and legal conclusions, I have not relied upon it. Second, the court raised the issue of the admissibility under s. 36(3) of the Regulated Health Professions Act, 1991, S.O. 1991, c. 18 of the College of Pharmacist’s published summaries of its decisions regarding Square One. The fact that there were complaints to and decisions made by the College are not covered by s. 36 and are admissible: K.K. v. M.M., 2022 ONCA 72. However, the content of those decisions is expressly covered by s. 36(3) and is inadmissible. I have not considered those decisions in reaching my conclusions below.

[35] I find that Square One has not established that it has a strong prima facie case. Express conducted a lengthy, detailed audit. It provided its reports to Square One. It advised Square One it was continuing to monitor Square One’s claims, and that termination of the Agreement was possible. The Manual and Agreement both indicate that termination is a possible result for scores that Square One received on the audit and for non-compliance with the Manual and governing legislation. Square One acknowledged breaches of the Agreement and the Manual, and acknowledged a lack of familiarity with the requirements of the Manual by which it had agreed to be bound.

[36] Express’s entitlement to terminate the Agreement is clear and unambiguous. I agree with Express that applying the principles of contractual interpretation set out in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 SCR 633, reading the agreement as a whole and giving words their ordinary meaning, the termination clause could be effected without Express having to resort to the dispute resolution clause. To give the Agreement the interpretation Square One seeks would be to render the termination for cause provision meaningless. That is not the manner in which contracts are to be interpreted.

[37] I reject the submission that Square One has a strong prima facie case with respect to its claims of arbitrariness, bad faith, and misrepresentation. The very purpose for which the audit and termination provisions were created was to ensure that providers comply with the careful standards and procedures governing the industry, and to allow Express to terminate the Agreement on various bases, the relevant portions of which are referred to in paragraph 8 above. There is no evidence that Express exercised its termination right for any extraneous purpose; rather, it exercised its power, after a lengthy and detailed audit and reporting process for the very purpose for which the power was granted to it: Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7, [2021] 1 SCR 32 at paras. 69-71.

[38] With respect to misrepresentation, Square One states that Express advised that if it paid the claw-back amount, the audit would be at an end. However, Express also advised Square One that termination was possible in their telephone call of November 29, 2023. Square One knew Express would at least continue to monitor Square One closely, and knew that the terms of the Agreement, giving Express termination rights, continued to apply.

[39] Square One therefore does not meet the first branch of the test.

3) Has Square One demonstrated it will suffer irreparable harm if the injunction is not granted?

[40] Square One argues it will suffer irreparable harm in that it will be put out of business if the injunction is not granted: Axiom Group Inc. v. Inter Automotive Closures Inc. at paras 47-49, Erinwood Ford Sales Ltd. v. Ford Motor Co. of Canada Ltd. at para. 87. It further argues it will suffer reputational harm, and suggests patients will be harmed if they cannot fill their prescriptions.

[41] The responding party argues that the moving party’s evidence on the financial impact of the Agreement’s termination is not credible. If it is credible, it demonstrates that Square One was barely afloat and the termination of the Agreement had very little to do with its survival. If it is not credible it does not demonstrate irreparable harm.

[42] At the hearing, counsel for Square One indicated it was only asking that Express be prohibited from terminating the Agreement on the basis of the termination letter. It acknowledged that Express may terminate the Agreement on 30 days’ notice without cause. It also acknowledged that, even if I were to accept its argument that the evidence in support of cause should be limited to evidence that was specified in the termination letter, Express could rely on other instances of cause to seek to terminate the Agreement for cause without notice. However, it argued that these positions were hypothetical because Express had not terminated without cause, nor had it issued a further notice to terminate for cause relying on issues discovered or communicated after the date of the termination letter.

[43] I do not agree. Square One has the obligation of demonstrating it would suffer irreparable harm if the injunction is not granted. It has failed to do so.

[44] Irreparable harm refers to the nature, not the magnitude, of the harm. It is harm that either cannot be quantified or cannot be cured, the latter usually because the moving party will be unable to collect damages: RJR MacDonald. I accept that putting an entity out of business, even if theoretically compensable in damages, constitutes irreparable harm: Axiom, Erinwood Ford.

[45] However, under the terms of the Agreement at issue in this case, once Express determined it wished to end the Agreement, it could end it immediately with cause or on 30 days’ notice without cause. Even if it were ultimately determined that Express breached the Agreement by wrongfully terminating it without notice, Square One would be entitled only to a measure of damages equal to the minimum performance of the Agreement by the defendant, that is, losses sustained by failure to provide 30 days’ notice. This is what the parties bargained for: Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 SCR 303 at paras. 17, 18, and 20. Even if I accept Square One’s evidence, its monthly damages from Express’s actions amount to somewhere in the range of $20,000. Such a contained and quantifiable measure of damages is incompatible with an argument that Square One would suffer irreparable harm if the injunction were not issued. There is no suggestion that Square One would be unable to collect these damages from Express, if ordered.

[46] Other irreparable harm Square One suggests it will suffer is speculative. There is no evidence that other pharmacy benefits managers will follow Square One’s footsteps and terminate their agreements with Square One, that Square One will suffer reputational harm, or that patients will be unable to either pay for their prescriptions and claim reimbursement directly from the sponsors, or have their prescriptions filled elsewhere.

4) Does the balance of convenience favour granting or refusing the injunction?

[47] Assessing the balance of convenience requires the court to determine whether Square One would suffer greater harm if I deny the injunction than Express would suffer if I grant it.

[48] I find that the balance of convenience favours Express. Square One’s maximum recovery is 30 days of damages in the event it is found at trial that Express should have terminated without cause instead of with cause. However, it seeks to have Express obligated to perform its contractual obligations pending trial. Express’s evidence is that it would have to deploy significant resources to monitor and audit Square One’s claims given its findings and concerns. This will not be a passive, easy or inexpensive endeavour. It goes well beyond what the parties ever bargained for.

Disposition

[49] Square One’s motion is therefore dismissed.

Costs

[50] Express’s costs outline seeks costs in the amount of $65,962.00 on a partial indemnity scale. Square One’s costs outline totaled $24,122 on a partial indemnity basis and $34,197 on a substantial indemnity scale.

[51] Fixing costs is a discretionary exercise under s. 131 of the Courts of Justice Act, R.S.O. 1990 c.C.43. Rule 57 outlines, in a non-comprehensive list, factors for me to consider in exercising this discretion. Relevant factors include the results of the proceeding, the principle of indemnity, the amount an unsuccessful party could reasonably expect to pay, the complexity of the proceeding and the importance of the issues. Ultimately, I must fix an amount of costs that is proportionate, and that is fair and reasonable for the unsuccessful party to pay: Boucher v. Public Accountants Council for the Province of Ontario at para. 26. A costs award should “reflect what is reasonably predictable and warranted for the type of activity undertaken in the circumstances of the case, rather than the amount of time that a party’s lawyer is willing or permitted to expend”: Apotex Inc. v. Eli Lilly Canada Inc., 2022 ONCA 587 at para. 65.

[52] Square One argues that if successful, it should have costs on a substantial indemnity basis payable within 30 days. If unsuccessful, Express’s costs should be reduced given the relative rates of counsel who are of similar vintage (Express’s counsel’s hourly rates are more than twice that of Square One’s counsel), the lengthier time spent by Express’s counsel on the matter, the reasonable expectation of the parties, and the fact that Square One had no choice but to proceed with the motion given that Express would not participate in a dispute resolution process. Square One should have to pay no more than $20,129.14, which is equivalent to the plaintiff’s partial indemnity fees, plus any valid disbursements. Those costs should be payable in the cause.

[53] Express argues that the amounts at issue on the motion were significant to it since, if it was unsuccessful, it faced substantial out-of-pocket financial harm. It argues that the issues were broad and complex, and the factual record detailed. Because Express was publicly accused of bad faith and dishonest conduct, and because a request for a mandatory injunction requires a detailed review of the merits, the defendant had to marshal substantial evidence. The inclusion of improper evidence in the plaintiff’s affidavit made Express’s task more difficult. There should be no discount for the disparity in hourly fees between the two lawyers; the defendants’ fees are within the range of hourly rates generally charged for commercial litigation in Toronto: Infor v Centrilogic, 2023 ONSC 3375.

[54] Injunctions require intensive activity within a short time period. The issues were important to both parties and the stakes were high. The motion required fairly detailed evidence to be put forth, cross-examined upon, and made digestible to the court, all on a compressed schedule. Although the responding party spent more hours on the file than did the moving party, I do not find the time spent disproportionate or duplicative as between the two counsel involved for Express. Considering the holdings of the Court of Appeal in the Boucher and Apotex cases, referred to above, I order that Square One pay Express its costs in the amount of $55,000 inclusive, payable within 30 days. I see no reason that costs should payable in the cause.

L. Brownstone J. Date: April 9, 2024