Priority Pharmacy, Inc. v. Serono, Inc. et al, No. 3:2009cv01867 - Document 25 (S.D. Cal. 2010)
Court Description: ORDER granting 21 Motion to Dismiss. The first amended complaint is dismissed for failure to state a claim. The Court will grant Priority one final chance to amend its complaint. If Priority chooses to do so, Priority must file the Second Amended Complaint within 20 days of the entry of this Order. Signed by Judge Barry Ted Moskowitz on 5/20/10. (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. 25 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 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 dismiss Plaintiff’s First Amended Complaint. For the 20 reasons discussed below, Defendants’ motion to dismiss is GRANTED. 21 22 I. BACKGROUND 23 In this action, Plaintiff Priority Pharmacy, Inc. (“Priority”), sues Serono for attorney’s 24 fees and costs in excess of $300,000 that it incurred in defending itself in United States ex. 25 Rel. Driscoll, et al. v. Serono, Inc., et al., Case No. 00-11680, a qui tam action filed in the 26 United States District Court of Massachusetts. The qui tam action concerned the alleged 27 violation of federal and state law by Serono and certain pharmacies, including Priority, in 28 connection with the sale/purchase of Serono’s AIDS treatment drug, Serostim. 1 09cv1867 BTM(POR) Dockets.Justia.com 1 Since the mid-1990s, Serono has manufactured and sold the drug Serostim, which 2 is approved for the treatment of “wasting” associated with AIDS. Priority is a California San 3 Diego-based pharmacy. 4 Serono devised a promotional program called the “data collection program” under 5 which participating pharmacies collected data and provided information to Serono regarding 6 the sale and dispensation of Serostim. (FAC ¶ 16.) Such data allowed Serono to track sales 7 of Serostim and establish a quota and bonus structure for its sales representatives in order 8 to further increase sales of Serostim. (Id.) To reimburse the pharmacies for the costs 9 associated with performing the services requested by Serono under the data collection 10 program, Serono provided the pharmacies with a so-called “price reduction” for Serostim. 11 (Id.) The “price reduction” was not in the form of a discounted purchase price, but, rather, 12 took the form of reimbursement payments that Serono made periodically. (Id.) The 13 reimbursement paid to Priority under the Serostim Pharmacy Data Collection Administrative 14 Fee Agreement (Defs.’ RJN filed on 9/30/09, Ex. B, ¶ 2.1) was $2 per mg of Serostim sold. 15 Priority participated in the data collection program from 1997 through January 2000. 16 (FAC ¶ 20.) 17 On August 17, 2000, the qui tam action was filed against Serono, alleging that Serono 18 knowingly accepted payment or reimbursement from public and private health insurers that 19 exceeded the reimbursement price for Serostim established by agreement between Serono 20 and the FDA. (FAC ¶ 27.) Subsequently, the complaint was amended several times, adding 21 claims against Serono for violations of federal law and the false claim acts of various states, 22 adding as defendants pharmacies which participated in the data collection program, and 23 adding claims that the pharmacy defendants violated the federal False Claim Act and state 24 false claims acts. 25 The United States eventually elected to intervene as to the federal claims against 26 Serono, and Serono engaged in settlement negotiations with the federal government and the 27 relators. (FAC ¶ 32.) In October, 2005, Serono, the government, and the relators entered 28 into a settlement agreement under which Serono agreed to plead guilty to criminal charges 2 09cv1867 BTM(POR) 1 and pay an amount exceeding $700 million to resolve all of the pending matters. (FAC ¶ 31.) 2 The United States elected not to intervene as to the federal claims against the 3 pharmacy defendants. (FAC ¶ 34.) On August 19, 2007, Priority brought a motion to dismiss 4 the Fourth Amended Complaint upon various grounds. In an order dated March 18, 2008, 5 the Massachusetts district court dismissed the Fourth Amended Complaint as against the 6 pharmacy defendants on the ground that the relators had failed to plead fraud with 7 particularity. (Pl.’s RJN filed on 10/23/09, Ex. 5.) The court explained: “These paragraphs 8 outline a fraudulent scheme, but they fail to identify a single particular false claim submitted 9 for payment by any of the pharmacy defendants to any governmental agency at any time. 10 There are no details concerning such matters as the specific dates, content, identification 11 numbers, or dollar amounts of false claims actually submitted.” (Id.) 12 In the FAC, Priority alleges that Serono induced Priority into entering into the data 13 collection program by (1) failing to disclose to Priority that the data collection program would 14 be susceptible to government investigation and litigation because of Serono’s structuring of 15 the program with so-called “price reductions” in the cost of Serostim; and (2) failing to 16 disclose that Serono’s activities to promote Serostim would be subject to intense 17 governmental scrutiny and investigation because Serono was engaged in fraudulent activities 18 such as inducing physicians to prescribe Serostim with improper financial incentives and 19 developing medical devices which were improperly altered in a manner to support increasing 20 the dosages of Serostim prescribed to AIDS patients. (FAC ¶¶ 21-22.) Priority claims that 21 it did not ever knowingly submit any false or overstated claims for reimbursement for 22 Sersotim to any healthcare agency and that it was forced to defend the qui tam action solely 23 due to Serono’s “structuring of the data collection program in a manner that raised suspicion 24 and created a false appearance that reimbursement claims to healthcare agencies were false 25 or overstated.” (FAC ¶¶ 35, 36.) 26 Priority asserts the following claims against Serono: (1) negligence; (2) tort of another; 27 (3) indemnity; and (4) declaratory relief. Priority seeks damages in excess of $300,000 for 28 the costs of defending and obtaining a dismissal of the qui tam action. 3 09cv1867 BTM(POR) 1 II. PROCEDURAL BACKGROUND 2 On May 29, 2009, Plaintiff commenced this action. In its original complaint, Priority 3 asserted claims for (1) equitable indemnification; (2) negligence; and (3) declaratory relief. 4 In an order filed on January 5, 2010, the Court denied Serono’s motion to transfer 5 venue and granted Serono’s motion to dismiss the complaint for failure to state a claim. The 6 Court held that Priority had failed to allege facts establishing a right to equitable 7 indemnification under California or Massachusetts law. However, the Court granted Priority 8 leave to file an amended complaint. 9 On January 25, 2010, Priority filed its FAC. 10 11 III. STANDARD 12 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be granted 13 only where a plaintiff's complaint lacks a "cognizable legal theory" or sufficient facts to 14 support a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th 15 Cir. 1988). When reviewing a motion to dismiss, the allegations of material fact in plaintiff’s 16 complaint are taken as true and construed in the light most favorable to the plaintiff. See 17 Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Although detailed 18 factual allegations are not required, factual allegations “must be enough to raise a right to 19 relief above the speculative level.” Bell Atlantic v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 20 1965 (2007). 21 requires more than labels and conclusions, and a formulaic recitation of the elements of a 22 cause of action will not do.” Id. “[W]here the well-pleaded facts do not permit the court to 23 infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 24 show[n] that the pleader is entitled to relief.” Ashcroft v. Iqbal, __ U.S. __, 129 S,Ct. 1937, 25 1950 (2009) (internal quotation marks omitted). “A plaintiff’s obligation to prove the ‘grounds’ of his ‘entitle[ment] to relief’ 26 27 28 4 09cv1867 BTM(POR) 1 III. DISCUSSION 2 Serono moves to dismiss the FAC for failure to state a claim. As discussed below, 3 the Court agrees that the FAC fails to state a claim that would allow Priority to recover the 4 attorney’s fees it incurred in defending against the qui tam action. 5 Priority’s theory of recovery on the FAC is grounded in the “tort of another” doctrine. 6 Under this doctrine, “A person who through the tort of another has been required to act in the 7 protection of his interests by bringing or defending an action against a third person is entitled 8 to recover compensation for the reasonably necessary loss of time, attorney’s fees, and other 9 expenditures thereby suffered or incurred.” Prentice v. North Amer. Title Guar. Corp., 59 Cal. 10 2d 618, 620 (1963). See also Restatement (Second) of Torts § 914(2) (One who through 11 the tort of another has been required to act in the protection of his interests by bringing or 12 defending an action against a third person is entitled to recover reasonable compensation 13 for loss of time, attorney fees and other expenditures thereby suffered or incurred in the 14 earlier action.) Under the “tort of another” doctrine, there is no recovery of “attorney’s fees 15 qua attorney’s fees.” Brandt v. Superior Court, 37 Cal.3d 813, 818 (1985). Instead, any 16 attorney’s fees recovered under the doctrine constitute damages caused by the defendant’s 17 wrongful actions. Id. 18 Priority alleges that because of Serono’s negligent actions – i.e., structuring the data 19 collection program to provide for “price reductions” in the form of reimbursement payments 20 and not disclosing Serono’s other fraudulent activities that would subject the data collection 21 program to intense governmental scrutiny and investigation – Priority was forced to defend 22 itself in the qui tam action. Priority alleges, “As a direct result of Serono’s . . . improper acts, 23 and not due to any wrongdoing by Priority, Priority was required to act in the protection of its 24 interests and was forced to expend substantial amounts of attorney’s fees and costs in 25 defending and obtaining a dismissal of the qui tam action.” (FAC ¶ 47.) 26 Priority makes it clear that it is not seeking indemnification from Serono as a joint 27 tortfeasor. (FAC ¶ 46.) However, Priority does assert an indemnification claim as an 28 alternate cause of action. The indemnification claim fails to state a claim because Priority 5 09cv1867 BTM(POR) 1 has not alleged that it satisfies the requirements of Cal. Civ. Proc. Code § 1021.6, which 2 provides: 3 8 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. 9 As discussed in the Court’s prior order, Priority does not satisfy the requirements of section 10 1021.6 because there was no determination that Plaintiff was without fault. The claims were 11 dismissed against Priority for failure to state fraud with particularity. No judgment was 12 entered in Priority’s favor. In addition, there are no allegations that Priority demanded that 13 Serono provide the defense in the qui tam action. 4 5 6 7 14 Priority’s “tort of another” claim does not rest upon the principles of equitable 15 indemnification, that is, apportionment of liability on a comparative negligence basis. See 16 American Motorcycle Assn. v. Superior Court, 20 Cal. 3d 578, 583 (1978). Although 17 equitable indemnification appears to be a subset of the “tort of another” doctrine, the doctrine 18 also encompasses cases that do not involve equitable indemnification. For instance, the 19 doctrine extends to cases where the plaintiff was forced to bring a lawsuit as the result of the 20 defendants’ wrongdoing. See e.g., Prentice, 59 Cal. 2d at 620-621 (plaintiffs were required 21 to bring quiet title action because the defendant, who acted as an escrow holder, acted 22 negligently in closing the sale of the property); Gray v. Don Miller & Assoc., Inc., 35 Cal. 3d 23 498 (1984) (defendant broker’s misrepresentation to potential buyer of real property that the 24 sellers had agreed to sell the property was the direct cause of plaintiff’s lawsuit for specific 25 performance against the sellers who had decided not to sell the property.) The doctrine also 26 extends to cases where the “tort of another” claimant was forced to defend a suit that was 27 the direct result of the tortfeasor’s negligence or other wrongdoing toward the claimant, but 28 there is no claim that the tortfeasor was at fault vis-à-vis the plaintiff in the underlying suit. 6 09cv1867 BTM(POR) 1 See, e.g., Sindell v. Gibson, Dunn & Crutcher, 54 Cal. App. 4th 1457 (1997) (defendant 2 attorneys, who prepared decedent’s estate plan, were liable to decedent’s children under 3 the”tort of another” doctrine because the children were sued by decedent’s second wife over 4 what property was included in the decedent’s estate solely as a result of the attorneys’ failure 5 to obtain a written consent from the second wife regarding certain gift and sale transfers). 6 Cal. Civ. Proc. Code § 1021.6 codifies the “tort of another” doctrine only for claims of 7 implied indemnity. Burger v. Kuimelis, 325 F. Supp. 2d 1026, 1043 (N.D. Cal. 2004). 8 Therefore, section 1021.6 is not applicable to Priority’s “tort of another” claim and does not 9 bar the claim. 10 Priority’s “tort of another” claim fails for a different reason - specifically, because the 11 facts alleged do not establish a plausible claim.1 Under the “tort of another” doctrine, the 12 filing of the lawsuit against or by the party seeking recovery of its attorney’s fees must have 13 been the “natural and proximate consequence” of the defendant’s wrongdoing. Prentice, 59 14 Cal. 2d at 621. See also Gray, 35 Cal. 3d at 507 (broker’s misrepresentation was the “direct 15 cause” of plaintiff’s action for specific performance against the sellers); Sindell, 54 Cal. App. 16 4th at 1470 (“Under California law, it is a well-established principle that attorney fees incurred 17 through instituting or defending an action as a direct result of the tort of another are 18 recoverable damages.” (Emphasis added.)).2 19 Even assuming the factual allegations of the FAC to be true, the Court cannot 20 conclude that the qui tam claims against Priority were the “natural and proximate 21 1 22 23 24 25 26 27 28 In its prior order, the Court cited Davis v. Air Techinical Indus., Inc., 22 Cal. 3d 1, 6 (1978) for the proposition that the “tort of another” doctrine applies only in “exceptional circumstances.” However, as pointed out by Priority, Davis’s holding in this regard was subsequently limited to products liability cases. Gray v. Don Miller Assoc., 35 Cal. 3d 498, 508 (1984). For purposes of clarity, the Court emphasizes that it is not applying the “exceptional circumstances” requirement to Priority’s “tort of another” claim. As discussed infra, Priority’s “tort of another claim” fails as a result of Priority’s failure to establish causation. 2 To the extent Massachusetts recognizes the “tort of another” doctrine, the same requirements of legal causation would undoubtedly apply. See e.g., Mutual Fire, Marine and Inland Ins. Co. v. Costa, 789 F.2d 83, 88 (1st Cir. 1986) (“[W]hen the natural consequence of a defendant’s tortious conduct or a defendant’s breach of contract is to cause the plaintiff to become involved in litigation with a third party, the attorney’s fees associated with that litigation are recoverable from the defendant.”). 7 09cv1867 BTM(POR) 1 consequence” of Serono’s actions as opposed to the direct result of (1) Priority’s failure to 2 determine how the reimbursement payments should be characterized under the various laws; 3 and (2) Priority’s decision to make claims for the full price of Serostim purchased from 4 Serono. Although the FAC states Priority’s opinion that the so-called “price reductions” in 5 reality “were not actual price reductions or discounts, but created an appearance of such,” 6 Priority never alleges that the payments were not price reductions under the applicable laws 7 and that Priority therefore never made false claims when seeking reimbursement from 8 healthcare agencies for the full price of Serostim.3 Priority stops short of claiming that it 9 never made false claims and instead alleges that it did not “knowingly submit any false or 10 overstated claims for reimbursement.” (Emphasis added.) (FAC ¶¶ 19, 35, 46; Opp. at 11 13:11-24.) 12 If, under the applicable laws, the reimbursement payments made by Serono were 13 price discounts (as they were characterized in the Data Collection Administrative Fee 14 Agreement), the Court fails to see how Serono is to blame for Priority’s decision to treat the 15 payments as pure reimbursements of administrative costs and make claims for the full price 16 of the drug. The FAC does not allege that Serono had any input into how Priority would 17 make claims for reimbursement to healthcare agencies. As noted in the Court’s prior order, 18 the Data Collection Administrative Fee Agreement actually provided that it was Plaintiff’s 19 responsibility to “comply with applicable laws and regulations governing the practice of 20 pharmacy in Pharmacy’s state and the prevailing standards of practice in Pharmacy’s state.” 21 (Paragraph 1.4.) 22 Similarly, if Priority in fact made false claims, although unknowingly, any fraudulent 23 activities of Serono that might have subjected its promotional activities of Serostim to greater 24 scrutiny would not be the proximate cause of legal claims being brought against Priority. 25 Priority’s submission of false claims would be a superceding cause of any resulting legal 26 3 27 28 The Court notes that such an argument might be difficult to make because the Data Collection Administrative Fee Agreement provided that the reimbursement was to be in the amount of $2 per mg of Serostim sold. It does not appear that the amount of the reimbursement was tied to the actual administrative cost of collecting the data and information requested by Serono. 8 09cv1867 BTM(POR) 1 action against Priority.4 The Court would not hold Serono liable on the theory that Priority’s 2 false claims may not have been discovered if Serono’s activities had not subjected the data 3 collection program to greater scrutiny. 4 Because the FAC does not give rise to a plausible claim that Serono’s alleged 5 wrongdoing was the proximate cause of the qui tam action against Priority, Priority’s claims 6 for negligence, “tort of another,” and declaratory relief are dismissed for failure to state a 7 claim.5 8 9 III. CONCLUSION 10 For the reasons discussed above, Serono’s motion to dismiss the FAC is GRANTED. 11 The FAC is DISMISSED for failure to state a claim. The Court will grant Priority one final 12 chance to amend its complaint. If Priority chooses to do so, Priority must file the Second 13 Amended Complaint within 20 days of the entry of this Order. 14 IT IS SO ORDERED. 15 DATED: May 20, 2010 16 17 Honorable Barry Ted Moskowitz United States District Judge 18 19 20 21 22 23 24 4 Priority alleges that it was forced to defend itself against all of the allegations in the fourth amended complaint, including allegations against Serono that did not involve the data collection program and related solely to Serono’s and Does 1-20's fraudulent conduct in promoting, marketing, and selling Serostim, of which Priority was ignorant and had no participation. (FAC ¶¶ 37, 38.) However, Priority does not explain why it would have to defend against these allegations if they bore no relation to the claims against it. 5 25 26 27 28 Serono also seeks dismissal of the FAC on other grounds that the Court does not find persuasive. Serono argues that its good faith settlement of the qui tam action bars Plaintiff’s claim for contribution or indemnity. However, even assuming the settlement was found to be in “good faith” and all applicable procedures were followed, Plaintiff’s “tort of another” claim is not one for contribution or indemnity from a concurrent tortfeasor. Serono also argues that Priority waived its right to attorney’s fees when it withdrew its motion for attorney’s fees in the qui tam action. Serono has not identified any legal authority in support of the proposition that the withdrawal of the motion for attorney’s fees, which was filed against the relator in the qui tam action, somehow waived Priority’s right to seek attorney’s fees against Serono under the theory of “tort of another.” 09cv1867 BTM(POR) 9
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