Ameritox, Ltd. v. Millennium Labs., Inc.

• Decision Date: 03 September 2015
• Docket Number: No. 14–14281.,14–14281.
• Citation: 803 F.3d 518
• Parties: AMERITOX, LTD., a Texas limited partnership, Plaintiff–Counter, Defendant–Appellee, v. MILLENNIUM LABORATORIES, INC., a California corporation, Defendant–Counter, Claimant–Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

803 F.3d 518

AMERITOX, LTD., a Texas limited partnership, Plaintiff–Counter, Defendant–Appellee

v.MILLENNIUM LABORATORIES, INC., a California corporation, Defendant–Counter, Claimant–Appellant.

No. 14–14281.

United States Court of Appeals, Eleventh Circuit.

Sept. 3, 2015.

Margaret Diane Mathews, Richard H. Martin, Akerman, LLP, Tampa, FL, Dan L. Bagatell, Perkins Coie, LLP, Phoenix, AZ, Heather Ann Boice, Adam Marchuk, Michael R. Osterhoff, Mark T. Smith, Jade R. Lambert, Patrick M. Collins, Perkins Coie, LLP, Chicago, IL, Eric D. Miller, Perkins Coie, LLP, Seattle, WA, for Plaintiff–Counter, Defendant–Appellee.

Paul D. Clement, H. Christopher Bartolomucci, David Zachary Hudson, Bancroft, PLLC, Washington, DC, James R. Carroll, Christopher A. Lisy, Peter Simshauser, Skadden Arps Slate Meagher & Flom, LLP, Boston, MA, Lance A. Etcheverry, Michael K. Loucks, Nili T. Moghaddam, Skadden Arps Slate Meagher & Flom, LLP, Los Angeles, CA, Christopher M. Sacco, Carlton Fields Jorden Burt, PA, Kevin Napper, Tampa, FL, for Defendant–Counter, Claimant–Appellant.

Appeal from the United States District Court for the Middle District of Florida. D.C. Docket No. 8:11–cv–00775–SCB–TBM.

Before TJOFLAT, COX and SENTELLE,^* Circuit Judges.

Opinion

TJOFLAT, Circuit Judge:

In this three-year high-stakes litigation—a case that “[t]he [medical] industry is watching,” Ameritox assured the jury—the parties tried various state statutory and common law unfair competition claims predicated upon the alleged violation of two federal statutes that provide no private right of action. The parties, however, did not realize that it was an open question whether or not any of the nine states involved would permit the commandeering of state law to create a right of action where none existed. A district court sitting in diversity and faced with such a situation would have had no choice but to use whatever tools it had available to correctly divine and apply state law. See, e.g., Moreno v. Nationwide Ins. Co., 114 F.3d 168, 169 (11th Cir.1997) (answering a question of first impression under Alabama law only after certifying that question to the Alabama Supreme Court and having that court decline to answer the question). The court below, however, did not sit in diversity—or under any other circumstance that would have required it to answer the state-law questions. See, e.g., Price v. Time, Inc., 416 F.3d 1327, 1335 (11th Cir.2005) (answering a potentially dispositive state-law question before reaching a federal constitutional question). Rather, the District Court took supplemental jurisdiction over the state-law claims, see 28 U.S.C. § 1367(a), and accordingly could have dismissed those claims once their novel nature became apparent, see id. § 1367(c)(1). We hold that the District Court's decision to retain jurisdiction over novel and complex state-law claims hailing from nine different states—claims that the parties either did know or should have known were novel and complex—constituted an abuse of discretion.

I.

This litigation was extraordinarily complex. We recount only those facts relevant to our disposition.

A.

Ameritox and Millennium are competitors in the drug-testing industry. Both sell physicians a variety of products and services that enable timely and accurate analysis of a patient's drug use. One such product is the point-of-care testing (“POCT”) cup. Appellant's Br. 2; Appellee's Br. 8. POCT cups perform the same primary function as standard urine specimen cups: enabling the safe and sanitary collection, storage, and transport of urine samples. Appellant's Br. 2–3; Appellee's Br. 8. POCT cups, however, provide an additional advantage. POCT cups contain chemically activated strips that indicate the presence of certain drugs in a patient's urine. Appellant's Br. 3; Appellee's Br. 8. Physicians can therefore use POCT cups to perform in-office (or “point-of-care”) “qualitative testing” to learn about their patient's drug use (or misuse). Appellant's Br. 3; Appellee's Br. 8. Though the POCT cups provide only limited information—they cannot, for example, reveal the exact quantity of a drug in a patient's system—some clinical information is better than no clinical information.

To verify the qualitative testing results and acquire more detailed patient information, physicians send patients' POCT cups to clinical laboratories for “confirmatory testing.” Appellant's Br. 3–4. Ameritox and Millennium compete for confirmatory-testing business. And, despite the need for this additional confirmatory testing, the timely information qualitative testing yields is sufficiently valuable that physicians have widely replaced standard specimen cups with pricier POCT cups. See Appellant's Br. 3; Appellee's Br. 8. It also does not hurt that physicians can bill Medicare and other insurers for conducting qualitative testing, such as for using a POCT cup instead of a specimen cup.

Millennium, a relative upstart in the drug-testing industry, saw in POCT cups an opportunity. In 2009, Millennium pioneered a program under which it would provide free POCT cups to physicians in exchange for a promise to send used cups to Millennium for confirmatory testing. Appellant's Br. 4; see Appellee's Br. 9. Interested physicians entered into a Free Cup Agreement (“FCA”) that memorialized this transaction and additionally barred physicians from billing the federal government for in-office, qualitative testing. Appellant's Br. 4; Appellee's Br. 9–10. In Millennium's view, this prohibition was essential to avoid violating two federal laws: the Stark Law (“Stark”), 42 U.S.C. § 1395nn(a), and the federal Anti–Kickback Statute (“AKS”), 42 U.S.C. § 1320a–7b(b). See Appellant's Br. 4; Appellee's Br. 9. Both statutes forbid entities like Millennium from offering any “remuneration” to a physician in exchange for referrals if payment for the referred services can be made under a federal healthcare program.¹ Stark defines “remuneration” as “any remuneration, directly or indirectly, overtly or covertly, in cash or in kind.”See id. § 1395nn(h)(1)(B). The AKS definition is materially indistinguishable and includes “any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind.” See id. § 1320a–7b(b). Millennium reasoned that the provision of free POCT cups in exchange for confirmatory-testing referrals did not constitute prohibited remuneration so long as doctors could not bill for the in-office qualitative testing.² Appellant's Br. 4. If doctors could bill for qualitative testing, then the provision of free POCT cups would effectively be the provision of a paycheck; doctors could simply have a patient use the free POCT cup, qualitatively test the sample (by inspecting the cup's embedded chemically-activated strips), bill the government for the qualitative testing, and then ship the sample to Millennium for confirmatory testing.³

Although neither Stark nor AKS provide private rights of action, see, e.g., U.S. ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 675 F.3d 394, 395 (4th Cir.2012) (“[T]he Stark Law does not create its own right of action....”); U.S. ex rel. Barrett v. Columbia/HCA Healthcare Corp., 251 F.Supp.2d 28, 37 (D.D.C.2003) (“There is no private right of action under the Anti–Kickback Act.”), the threat of civil and criminal sanctions compelled Millennium to seek expert counsel on the FCAs' legality. Appellant's Br. 4–5. Millennium thus presented its FCAs to a “nationally-recognized legal expert on clinical laboratory regulatory issues” and a law firm with “one of the nation's leading health care practices” for their blessing. Appellant's Br. 4. And, having received that blessing—that the provision of free POCT cups was legal so long as physicians entered into FCAs—Millennium rolled out its plan. While the majority of Millennium's customers continued to purchase POCT cups (and presumably continued to bill for qualitative testing), approximately ten percent entered into FCAs. Appellant's Br. 5.

B.

1.

This ten percent was too much for Ameritox. While Millennium grew, Ameritox shrank or stalled. Prior to Millennium's FCAs, Ameritox alleged that it “experienced record sales year after year.” Appellee's Br. 11. With the advent of the FCAs, Ameritox began experiencing losses in the POCT segment of its business. Appellee's Br. 11. Ameritox, however, did not experience corresponding losses in its non-POCT business. Appellee's Br. 11. Accordingly, Ameritox determined that the FCAs were responsible for its POCT segment losses.

Believing that the FCAs were illegal—and that its refusal to violate Stark or AKS simply to compete on a level-field with Millennium was costing it current and future customers—Ameritox filed a complaint (the “Florida complaint”) against Millennium in the District Court for the Middle District of Florida (the “District Court”) on April 8, 2011. Ameritox alleged that Millennium had “formed a business plan to increase its market share, revenue, and profits” by providing financial inducements and other kickbacks, in violation of both federal and state law. Ameritox argued that Millennium's FCAs, two other schemes not relevant here,⁴ and various “false or misleading statements in commercial advertisements for its services” violated the Lanham Act, 15 U.S.C. § 1125, et seq.; violated Florida's Deceptive and Unfair Trade Practices Act (“FDUTPA”), Fla. Stat. § 501.201, et seq.; and constituted unfair competition under Florida common law. The District Court exercised federal-question jurisdiction over the Lanham Act claim, see 28 U.S.C. § 1331, and supplemental jurisdiction over the remaining Florida claims, 28 U.S.C. § 1367(a).⁵

Ameritox's complaint was short-lived. Following Millennium's motion to dismiss, Ameritox filed its First Amended Florida Complaint. And, during an additional year of wrangling between the parties, Ameritox filed a substantially similar complaint against Millennium in the District Court for the Southern...