CVS Pharmacy sues PBM startup Capital Rx, calls noncompete clause 'unenforceable'

CVS Pharmacy has filed suit against startup pharmacy benefit manager Capital Rx, claiming the PBM's noncompete clause is preventing an employee from coming to work for the pharmacy giant.

Suresh Yarlagadda, M.D., joined Capital Rx in May 2021 and was unaware of the noncompete clause as it was "buried in a document" he signed upon joining the company, according to the lawsuit. According to the clause, Yarlagadda was barred from joining a company "that provides technology or services related to pharmacy benefits or pharmacy data services, excluding an operating business delivering medical insurance or medical health plans."

Yarlagadda resigned from his position at Capital Rx in mid-July and accepted a position at CVS Pharmacy where he was scheduled to begin in early August, according to the suit. Capital Rx wrote to CVS threatening legal action, forcing a delay in Yarlagadda's start date.

CVS maintains that the clause is not enforceable in Massachusetts, where Yarlagadda works from his home. The pharmacy giant claims that it informed Capital Rx of its position on Aug. 24.

RELATED: Why startup PBM Capital Rx wants to break the industry's 'roulette wheel of pricing'

However, Capital Rx has continued to threaten litigation against CVS, and in a letter on Sept. 8 demanded that the company refrain from hiring Yarlagadda until Jan. 2022.

"Capital Rx threatened that if CVS did not do so, 'Capital Rx will take all necessary steps to protect its rights,'" according to the lawsuit.

Capital Rx had not responded to a request for comment at the time of publication.

CVS wants the court to deem the noncompete clause invalid, and award the company and Yarlagadda financial damages and attorneys fees.

"CVS and Dr. Yarlagadda have been damaged by Capital Rx’s threats, which forced CVS to postpone Dr. Yarlagadda’s employment and expend resources on responding to Capital Rx," according to the suit.