Priority Pharmacy, Inc. v. Serono, Inc. et al, No. 3:2009cv01867 - Document 16 (S.D. Cal. 2010)
Court Description: ORDER Denying 9 Motion to Transfer Venue and Granting 9 Motion to Dismiss. Plaintiff's Complaint is dismissed for failure to state a claim. The Court grants Plaintiff leave to file an amended complaint within 20 days of the entry of this order. Failure to do so will result in the closing of this case. Signed by Judge Barry Ted Moskowitz on 1/5/10. (All non-registered users served via U.S. Mail Service)(vet) (jrl).
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Priority Pharmacy, Inc. v. Serono, Inc. et al Doc. 16 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 PRIORITY PHARMACY, INC., a California corporation, CASE NO. 09cv1867 BTM(POR) ORDER DENYING MOTION TO TRANSFER VENUE AND GRANTING MOTION TO DISMISS 12 Plaintiff, 13 14 15 16 17 v. SERONO, INC., a Delaware corporation; SERONO LABORATORIES, INC., a Delaware corporation, and DOES 1 through 20, inclusive, Defendants. 18 Defendants Serono, Inc. and Serono Laboratories, Inc. (collectively “Serono” or 19 Defendants”) have filed a motion to transfer venue, or, in the alternative, to dismiss Plaintiff’s 20 Complaint for failure to state a claim. For the reasons discussed below, Defendants’ motion 21 to transfer venue is DENIED and Defendants’ motion to dismiss is GRANTED. 22 23 I. BACKGROUND 24 In this action, Plaintiff Priority Pharmacy, Inc., sues Serono for attorney’s fees and 25 costs in excess of $300,000 that it incurred in defending itself in United States ex. Rel. 26 Driscoll, et al. v. Serono, Inc., et al., Case No. 00-11680, a qui tam action filed in the United 27 States District Court of Massachusetts. The qui tam action concerned the alleged violation 28 of federal and state law by Serono and certain pharmacies, including Plaintiff, in connection 1 09cv1867 BTM(POR) Dockets.Justia.com 1 with the sale/purchase of Serono’s AIDS treatment drug, Serostim. 2 Since the mid-1990s, Serono has manufactured and sold the drug Serostim, which 3 is approved for the treatment of “wasting” associated with AIDS. Priority is a California San 4 Diego-based pharmacy. 5 Following FDA approval of Serostim, Serono created a Specialty Provider 6 Program/Preferred Provider Program (“SPP/PPP”). Pharmacies that participated in the 7 program collected and provided Serono with data about their Serostim sales. Serono 8 provided the participating pharmacies with a reduction in the price of Serostim to reimburse 9 them for the extra work and costs incurred in providing the data to Serono. 10 11 Plaintiff participated in the SPP/PPP program from 1997 until January, 2001, when Serono terminated the program. 12 On August 17, 2000, the qui tam action was filed again Serono, alleging that Serono 13 knowingly accepted payment or reimbursement from public and private health insurers that 14 exceeded the reimbursement price for Serostim established by agreement between Serono 15 and the FDA. Subsequently, the complaint was amended several times, adding claims 16 against Serono for violations of federal law and the false claim acts of various states, adding 17 as defendants pharmacies which participated in the SPP/PPP program, and adding claims 18 that the pharmacy defendants violated the federal False Claim Act and state false claims 19 acts. 20 The federal government conducted an investigation into Serono’s promotion, 21 marketing, and sales of Serostim. The United States eventually elected to intervene as to 22 the federal claims against Serono, and Serono engaged in settlement negotiations with the 23 federal government and the relators. In October, 2005, Serono, the government, and the 24 relators entered into a settlement agreement under which Serono agreed to plead guilty to 25 criminal charges and pay an amount exceeding $700 million to resolve all of the pending 26 matters. 27 The United States elected not to intervene as to the federal claims against the 28 pharmacy defendants. On August 19, 2007, Plaintiff brought a motion to dismiss the Fourth 2 09cv1867 BTM(POR) 1 Amended Complaint upon various grounds. In an order dated March 18, 2008, the 2 Massachusetts district court dismissed the Fourth Amended Complaint as against the 3 pharmacy defendants on the ground that the relators had failed to plead fraud with 4 particularity. (Plaintiff’s RJN, Ex. 5.) The court explained: “These paragraphs outline a 5 fraudulent scheme, but they fail to identify a single particular false claim submitted for 6 payment by any of the pharmacy defendants to any governmental agency at any time. There 7 are no details concerning such matters as the specific dates, content, identification numbers, 8 or dollar amounts of false claims actually submitted.” (Id.) 9 On May 29, 2009, Plaintiff commenced this action. Plaintiff seeks recovery of the 10 attorney’s fees and costs it incurred in its defense of the qui tam action. Plaintiff asserts 11 claims for (1) equitable indemnification; (2) negligence; and (3) declaratory relief. 12 13 14 II. DISCUSSION A. Motion to Transfer 15 Defendants contend that this case should be transferred to the Massachusetts district 16 court pursuant to 28 U.S.C. § 1404(a). Upon review of the relevant factors, the Court 17 concludes that Defendants have not satisfied their burden of establishing that a transfer is 18 justified. 19 “For the convenience of parties and witnesses, in the interest of justice, a district court 20 may transfer any civil action to any other district or division where it might have been 21 brought.” 28 U.S.C. § 1404(a). In determining whether transfer is appropriate in a particular 22 case, courts consider factors such as (1) the plaintiff’s choice of forum, (2) the convenience 23 of the witnesses and parties, (3) the ease of access to sources of proof, (4) the respective 24 parties’ contacts with the forum, (5) the contacts relating to the plaintiff’s cause of action in 25 the chosen forum, (6) the differences in the costs of litigation in the two forums, (7) the state 26 that is most familiar with the governing law, and (8) the availability of compulsory process to 27 compel attendance of unwilling non-party witnesses. Jones v. GNC Franchising, Inc., 211 28 F.3d 495, 498-99 (9th Cir. 2000); Decker Coal Co. v. Commonwealth Edison Co., 805 F.2d 3 09cv1867 BTM(POR) 1 834, 843 (9th Cir. 1986). The burden of showing that transfer is appropriate rests on the 2 moving party. Futures Trading Comm’n v. Savage, 611 F.2d 270, 279 (9th Cir. 1979). 3 4 The parties do not dispute that this action could have been brought in the District of Massachusetts. Accordingly, the Court considers the §1404(a) factors. 5 Plaintiff, a California corporation with its principal place of business in San Diego has 6 chosen the Southern District of California as the forum for this action. In general, a plaintiff’s 7 choice of forum is entitled to substantial weight, and the defendant must make a strong 8 showing of inconvenience to warrant upsetting the plaintiff’s choice of forum. Decker Coal 9 Co. v. Commonwealth Edison Co., 805 F.2d 834, 843 (9th Cir. 1986). 10 The factor of convenience of the witnesses and parties does not weigh heavily in 11 either direction. Plaintiff wants the litigation to proceed in California, where it is located. 12 Defendants, on the other hand, find it more convenient to litigate the case in Massachusetts, 13 where Serono has its principal place of business. Plaintiff identifies as potential witnesses 14 three former officers/managers of Priority (it is unclear whether the individuals are still 15 employed by Plaintiff), who are California residents; four California pharmacies that 16 participated in Serono’s SPP/PPP Program; and Mr. Baiden, Serono’s former regional sales 17 representative, who is no longer a Serono employee and resides in Arizona. Defendants, 18 on the other hand, identify as potential witnesses a current Serono employee, three ex- 19 employees of Serono who reside in Massachusetts, and the relators who reside in 20 Massachusetts and Connecticut.1 At this stage in the litigation is unclear which witnesses 21 are truly necessary to Plaintiff’s and Defendants’ cases. Plaintiff can list any number of 22 employees, ex-employees, and pharmacies in California as potential witnesses, while 23 Defendants can counter with an equal number of employees, ex-employees, and other 24 witnesses in Massachusetts. Therefore, the Court does not place much weight on this factor. 25 With respect to ease of access to sources of proof, Defendants argue that the two 26 27 28 1 Plaintiff objects to the declarations filed in support of Defendants’ reply because they provide information, such as the identity of witnesses, that should have been supplied by the moving papers. The Court overrules Plaintiff’s objection because the evidence does not affect the outcome of the Court’s decision. 4 09cv1867 BTM(POR) 1 million documents produced in the course of the qui tam action are in Serono’s possession 2 in Massachusetts. However, it is doubtful that all of these documents are relevant to this 3 action. Moreover, the physical location of evidence is a minor factor when considering a 4 motion to transfer. See Van Slyke v.Capital One Bank, 503 F. Supp. 2d 1353, 1362 (N.D. 5 Cal. 2007) (“With technological advances in document storage and retrieval, transporting 6 documents does not generally create a burden.”) There are witnesses who are not subject 7 to compulsory process in California (ex-employees of Serono who reside in Massachusetts 8 and relator Garcia), witnesses who are not subject to compulsory process in Massachusetts 9 (officers, managers, or employees of other pharmacies in California and ex-employees of 10 Plaintiff who reside in California), and witnesses who are not subject to compulsory process 11 in either California or Massachusetts (relator Christine Driscoll and Mr. Baiden). Therefore, 12 this factor carries little weight. 13 For the same reasons as discussed above, the Court is not convinced that the overall 14 cost of litigation will be greater in this forum than it would be in Massachusetts. It seems that 15 a transfer would just shift costs from Defendants to Plaintiff. 16 Both parties have contacts with this forum that relate to Plaintiff’s cause of action. The 17 agreements relating to the SPP/PPP program were executed by Plaintiff in San Diego. 18 (Zeiger Decl. ¶¶ 8, 11.) Plaintiff performed its duties under the agreements in San Diego. 19 Furthermore, any wrongful acts that might subject Defendants to liability for indemnification 20 arguably would have been directed toward Plaintiff in San Diego. 21 Defendants claim that the Massachusetts District Court would be more familiar with 22 the governing law because Massachusetts law applies due to a choice-of-law clause in the 23 Data Collection Administrative Fee Agreement. (Def.’s RJN, Ex. B.) The choice-of-law 24 provision provides, “This Agreement shall be governed by and construed in accordance with 25 the laws of the Commonwealth of Massachusetts, regardless of the choice of law principles 26 of that or any other jurisdiction.” Here, however, Plaintiff is not suing under the Agreement, 27 therefore the choice-of-law provision does not apply. See Kitner v. CTW Transport, Inc., 53 28 Mass. App. Ct. 741, 871-72 (2002) (holding that choice-of-law provision that provided that 5 09cv1867 BTM(POR) 1 the laws of North Dakota “shall govern the identity, construction, enforcement, and 2 interpretation of this Agreement” did not encompass tortious conduct or other unfair acts). 3 Therefore, whether Massachusetts or California law applies is determined upon an 4 application of the forum’s choice-of-law rules. This Court is certainly capable of applying 5 California’s choice-of-law rules. 6 Defendants suggest that the Massachusetts district court would be in a better position 7 to determine the reasonableness of any attorney’s fees that Plaintiff is entitled to recovery. 8 Although the Massachusetts district court may be more familiar with the procedural history 9 of the qui tam action, the Court is confident that it could familiarize itself with the pertinent 10 aspects of the qui tam action and could properly assess the reasonableness of attorney’s 11 fees sought by Plaintiff. 12 Finally, Defendants contend that a transfer is justified in the interests of justice and 13 judicial economy. Citing to Shelby v. Factory Five Racing, Inc., 2009 WL 481555 (C.D. Cal. 14 Feb. 23, 2009) and B&B Hardware, Inc. v. Hargis Indus., Inc., 2006 WL 4568798 (C.D. Cal. 15 Nov. 30, 2006), Defendants argue that this case should be transferred because the 16 Massachusetts district court presided over the qui tam action and is familiar with the issues 17 in the case. The Court does not find this argument persuasive. Shelby and B&B Hardware 18 are distinguishable. In Shelby, the court transferred the case because there was an issue 19 regarding the preclusive effect of prior litigation in the Eastern District of Arkansas. In B&B 20 Hardware, transfer was appropriate because the previously-filed action in the District of 21 Massachusetts and the action at issue involved “substantially similar parties and issues – the 22 crux of both actions is Factory Five’s allegedly unlawful use of the Shelby parties’ marks in 23 the marketing, sale, and distribution of its products.” 2006 WL at * 4. Although this action 24 arises out of the qui tam action, this action presents different issues – i.e., whether 25 Defendants have engaged in conduct that render them liable for indemnification. The 26 Massachusetts district court did not deal with this issue, and no duplication of efforts will 27 result from this action remaining in this forum. 28 In sum, Defendants have not made a sufficient showing of inconvenience to upset 6 09cv1867 BTM(POR) 1 Plaintiff’s choice of forum. Therefore, Defendants’ motion to transfer the case is DENIED. 2 3 B. Motion to Dismiss 4 Defendants contend that Plaintiff’s claims should be dismissed for failure to state a 5 claim. The Court agrees. As discussed below, Plaintiff has failed to allege facts establishing 6 that it is entitled to indemnification under California or Massachusetts law.2 7 8 1. California Law 9 Although Plaintiff states claims for declaratory relief and negligence in addition to 10 equitable indemnification, Plaintiff’s central claim is for indemnification. Without a right to 11 indemnification, Plaintiff’s negligence claim is not a vehicle for the recovery of attorney’s fees. 12 See Davis v. Air Technical Indus., Inc., 22 Cal. 3d 1, 6 (1978) (explaining that “attorney’s 13 fees are not an ordinary item of actual damages.”). 14 Plaintiff claims that it is entitled to equitable indemnification as a result of the “tort of 15 another.” However, the California Supreme Court “has consistently ruled that a cause of 16 action for indemnity does not accrue until the indemnitee suffers loss through payment of an 17 adverse judgment or settlement.” City of San Diego v. U.S. Gypsum, 30 Cal. App. 4th 575, 18 588 (1995). See also Western Steamship Lines, Inc. v. San Pedro Peninsula Hospital, 8 Cal. 19 4th 100, 110 (1994) (“a fundamental prerequisite to an action for partial or total equitable 20 indemnity is an actual monetary loss through payment of a judgment or settlement.”) (quoting 21 Christian v. County of Los Angeles, 176 Cal. App. 3d 466, 471 (1986)). Plaintiff did not pay 22 an adverse judgment or settlement. 23 California law provides for the recovery of attorney’s fees in certain specified 24 circumstances set forth in Cal. Civ. Proc. Code § 1021.6. “Section 1021.6 codifies an 25 exception to the general rule of section 1021 that each party must bear its own attorney fees 26 unless otherwise provided by statute or contract.” Wilson, McCall & Daoro v. American 27 28 2 The parties have not briefed the issue of choice-of-law. Therefore, the Court will analyze the claims under the laws of California and Massachusetts. 7 09cv1867 BTM(POR) 1 Qualified Plans, Inc., 70 Cal. App. 4th 1030, 1035 (1999). The Ninth Circuit noted in Unocal 2 Corp. v. United States, 222 F.3d 528, 549 (9th Cir. 2000), that section 1021.6 codified 3 California’s “tort of another” doctrine. Section 1021.6 provides: 4 9 Upon motion, a court after reviewing the evidence in the principal case may award attorney's fees to a person who prevails on a claim for implied indemnity if the court finds (a) that the indemnitee through the tort of the indemnitor has been required to act in the protection of the indemnitee's interest by bringing an action against or defending an action by a third person and (b) if that indemnitor was properly notified of the demand to bring the action or provide the defense and did not avail itself of the opportunity to do so, and (c) that the trier of fact determined that the indemnitee was without fault in the principal case which is the basis for the action in indemnity or that the indemnitee had a final judgment entered in his or her favor granting a summary judgment, a nonsuit, or a directed verdict. 10 Plaintiff does not satisfy the requirements of section 1021.6 because there was no 11 determination that Plaintiff was without fault. The claims were dismissed against Plaintiff for 12 failure to state fraud with particularity. No judgment was entered in Plaintiff’s favor. In 13 addition, there are no allegations that Plaintiff demanded that Defendants provide the 14 defense in the qui tam action. 5 6 7 8 15 Plaintiff relies on Prentice v. North Amer. Title Guar. Corp., 59 Cal. 2d 618 (1963), 16 where sellers of land were allowed to recover from a negligent escrow holder the attorney’s 17 fees they incurred in suing third parties to quiet title. The Court notes that this case was 18 decided before the enactment of section 1021.6. To the extent Prentice allows for fee 19 shifting separate and apart from section 1021.6, Prentice is limited to unique cases involving 20 “exceptional circumstances.” See Davis v. Air Technical Indus., Inc., 22 Cal. 3d 1, 6 (1978) 21 (“However, the Prentice exception was not meant to apply in every case in which one party’s 22 wrongdoing causes another to be involved in litigation with a third party. If applied so 23 broadly, the judicial exception would eventually swallow the legislative rule that each party 24 must pay for its own attorney.”); see also Isthmian Lines, Inc. v. Schirmer Stevedoring Co., 25 255 Cal. App. 2d 607, 612 (1967) (explaining that the exception in Prentice covers a limited 26 class of cases); Vacco Indus., Inc. v. Van Den Berg, 5 Cal. App. 4th 34 (1992) (explaining 27 that Prentice does not apply in the case of joint tortfeasors). This case, in which Plaintiff was 28 alleged to have engaged in its own wrongdoing – i.e., making false claims by seeking 8 09cv1867 BTM(POR) 1 reimbursement for the full price of Serostim – does not appear to be the type of “exceptional 2 case” where recovery of attorney’s fees is permitted. 3 The Court concludes that Plaintiff is not entitled to the recovery of its attorney’s fees 4 under the theory of equitable indemnification, Cal. Civ. Proc. Code § 1021.6, or any other 5 California law. 6 7 2. Massachusetts Law 8 Under Massachusetts law, a right to indemnification may arise (1) where there is an 9 express contract for indemnification; or (2) where a right to indemnification is implied from 10 the contractual relationship between the parties; and (3) under the common law, where a 11 party is exposed to liability because of the negligent act of another. Araujo v. Woods Hole, 12 693 F.2d 1, 2 (1st Cir. 1982); 13 Plaintiff argues that in this case, a right to indemnification can be implied from a 14 special relationship between the parties. The Court disagrees. The Massachusetts Supreme 15 Court explains, “We shall recognize an implied right to contractual indemnity only when there 16 are ‘special factors’ surrounding the contractual relationship which indicate an intention by 17 one party to indemnify another in a particular situation.” Fall River Housing Authority v. H.V. 18 Collins Co., 414 Mass. 10, 14 (1992). The existence of an indemnity agreement is inferred 19 “only when the terms of the contract themselves contemplated such indemnification.” Larkin 20 v. Ralph O. Porter, Inc., 405 Mass. 179, 184 (1989). 21 There is nothing in the agreements or the relationship between the parties that 22 indicates that the parties contemplated Defendants indemnifying Plaintiff against claims that 23 Plaintiff made false claims for reimbursement with federal and state programs. Although 24 Defendants came up with the SPP/PPP Program, which resulted in a reduced price for 25 Serostim, it does not appear that the Program governed how and to whom Plaintiff and the 26 other participating pharmacies would make reimbursement claims. In addition, the Data 27 Collection Administrative Fee Agreement provided that it was Plaintiff’s responsibility to 28 “comply with applicable laws and regulations governing the practice of pharmacy in 9 09cv1867 BTM(POR) 1 Pharmacy’s state and the prevailing standards of practice in Pharmacy’s state.” (Paragraph 2 1.4.) 3 Furthermore, implied indemnity “is limited to those cases in which the would-be 4 indemnitee is held derivatively or vicariously liable for the wrongful act of another.” Decker 5 v. The Black and Decker Mfg. Co., 389 Mass. 35, 40 (1983). If it is alleged that the would-be 6 indemnitee engaged in wrongdoing of its own, there is no basis for implying indemnification. 7 Id. at 41 (“If as the third-party plaintiffs contend, the plaintiff’s injuries were not caused by 8 their negligence or breach of warranty, this will constitute an absolute defense to the main 9 action. Such a defense, however, does not provide the basis for an indemnity claim.”). In 10 the qui tam action, the relators claimed that Plaintiff itself violated federal and state law by 11 making false claims for reimbursement. Plaintiff was not exposed to derivative or vicarious 12 liability, but, rather, was accused of actively engaging in unlawful conduct. Therefore, a right 13 to indemnification cannot be implied under Massachusetts law. 14 15 III. CONCLUSION 16 For the reasons discussed above, Defendants’ motion to transfer venue is DENIED 17 and Defendants’ motion to dismiss is GRANTED. Plaintiff’s Complaint is DISMISSED for 18 failure to state a claim. The Court grants Plaintiff leave to file an amended complaint within 19 20 days of the entry of this order. Failure to do so will result in the closing of this case. 20 IT IS SO ORDERED. 21 22 DATED: January 5, 2010 23 24 Honorable Barry Ted Moskowitz United States District Judge 25 26 27 28 10 09cv1867 BTM(POR)
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