Krueger Invs., LLC v. Cardinal Health 110, Inc.
| Decision Date | 24 July 2012 |
| Docket Number | CV 12-618-PHX-JAT |
| Parties | Krueger Investments, LLC, Plaintiffs, v. Cardinal Health 110, Inc., Defendants. |
| Court | U.S. District Court — District of Arizona |
Plaintiffs Krueger Investments, LLC and Eagle Pharmacy, LLC ("Plaintiffs") have moved for a preliminary injunction (Doc. 28) against Cardinal Health 110, Inc., and Cardinal Health 411, Inc. (collectively "Defendants"), requesting this Court to enjoin Defendants and order them to perform under the parties' distribution contract for Plaintiffs' two pharmacy locations. After holding a hearing on July 17, 2012, the Court enters the following Findings of Fact and Conclusions of Law and denies Plaintiffs' request for preliminary injunctive relief.
On March 2, 2012, Plaintiffs filed suit against Defendants in the Superior Court of Arizona, Maricopa County. In their Complaint, Plaintiffs allege breach of contract, breach of the covenant of good faith and fair dealing, and tortious interference with contractual relations and business expectancy. Doc. 1-1 at 4-11. As relief, Plaintiffs seek: (1) a declaratory judgment that Defendants' refusal to sell pharmaceutical products to Plaintiffsis a breach of the agreement; (2) specific performance and injunctive relief requiring Defendants to reinstate and fully perform under the parties' distribution contract for Eagle Pharmacy's two pharmacy locations; (3) attorneys' fees and costs pursuant to A.R.S. §§ 12-341 and 12-341.01; and (4) compensatory, consequential, and incidental damages in an amount to be proven at trial. Id.
The case (No. CV 2012-004620) was assigned to Superior Court Judge Arthur T. Anderson, who issued a Temporary Restraining Order in favor of Plaintiffs. All parties agreed that the Temporary Restraining Order would remain in effect until the Superior Court conducted an evidentiary hearing on Plaintiffs' preliminary injunction request. Prior to the Superior Court's hearing, however, Defendants removed the action to this Court. As a result, the Superior Court's Temporary Restraining Order remained in effect until this Court's hearing and decision on a motion for preliminary injunction.
On May 23, 2012, Plaintiffs moved for a Preliminary Injunction against Defendants pursuant to Rule 65 of the Federal Rules of Civil Procedure. The Court now rules on Plaintiffs' motion.
Plaintiffs Krueger Investments, LLC and Eagle Pharmacy, LLC are Arizona limited liability companies with their principle places of business in Phoenix, Arizona. Plaintiffs are duly authorized to transact and are actually transacting business in the State of Arizona.
Defendant Cardinal Health 110, Inc. is a Delaware corporation with its principle place of business in Dublin, Ohio. Cardinal Health 110, Inc. is duly authorized to transact and is actually transacting business in the State of Arizona as a foreign corporation.
Defendant Cardinal Health 411, Inc. is an Ohio corporation with its principle place of business in Dublin, Ohio. Cardinal Health 411 is duly authorized to transact and is actually transacting business in the State of Arizona as a foreign corporation.
The parties' relationship is governed by two kinds of contracts: a Prime Vendor Agreement ("PVA") between Defendants and American Associated Pharmacies, Inc. (a group purchasing organization of which Plaintiffs are members) and two MemberCertification Agreements ("MCA") between Defendants and Plaintiffs. Doc. 11at 10-13.
On or about September 9, 2009, Plaintiffs' Eagle Pharmacy #2, a retail pharmacy located at 38th Street and Bell Road, entered into an MCA with Defendants to purchase pharmaceutical products, including controlled substances. Defendants later entered into a second MCA with Plaintiffs' Eagle Pharmacy #1, a retail pharmacy located at 59th Avenue and Bell Road, with the same purchase terms.
In the MCAs (collectively, the "Agreement"), Plaintiffs agreed to purchase pharmaceuticals from Defendants pursuant to the terms of the PVA. The PVA's terms require Plaintiffs to comply with any applicable rules, regulations, ordinances, and guidance of the Drug Enforcement Administration ("DEA") related to the purchase, receipt, possession, storage, use, dispensation, and distribution of pharmaceutical products, including controlled substances. The terms of the Agreement also stipulate that Cardinal Health may terminate the Agreement immediately in the event it reasonably determines that Plaintiffs are in breach of the PVA.
On January 4, 2012, Defendants conducted a compliance review of Eagle Pharmacy #2 to determine if diversion of controlled substances might be occurring. Inventory inconsistencies and the disproportionately large quantities of controlled substances sold by Plaintiffs led Defendants to determine that Plaintiffs posed a risk of diversion. Pursuant to the Controlled Substances Act ("CSA"), 21 U.S.C. § 801, and guidance from the DEA, Defendants subsequently terminated all shipments of controlled substances to Plaintiffs in February 2012.
Following Defendants' termination of controlled substance shipments to Plaintiffs, Compliance Officer Ed Hunter of the Arizona State Board of Pharmacy conducted an ordering and dispensation inspection of Eagle Pharmacy #2 on February 29, 2012. As a result of that inspection, Plaintiffs were issued a citation for violating A.R.S. § 36-2523 () and Arizona Administrative Code R4-23-11(B)(a) (); however, Mr. Hunter made no specific findings of diversion and the Arizona State Board of Pharmacy took no adverse action against thelicensing of Eagle Pharmacy or Mr. Bryan Krueger, Pharmacist in Charge at Eagle Pharmacy #2.
To date, the DEA has taken no adverse action against the licensing of Plaintiffs. Nor has any regulatory body, state or federal, found that Plaintiffs are actually diverting controlled substances.
To date, Plaintiffs have been unable to contract with a replacement distributor that is willing to meet Eagle Pharmacy's total demand for pharmaceutical products. Mr. Krueger testified at the hearing that AmerisourceBergen has agreed to contract with Eagle Pharmacy as long as supply restrictions are placed on certain classes of controlled substances and that those restrictions would not allow Plaintiffs to stay in business. Mr. Krueger also testified that McKesson is still considering whether to supply Plaintiffs with controlled substances.
To obtain preliminary injunctive relief, the moving party must show: (1) a likelihood of success on the merits; (2) a likelihood of irreparable harm to the moving party in the absence of preliminary relief; (3) that the balance of equities tips in the favor of the moving party; and (4) that an injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 129 S. Ct. 365, 376 (2008); Am. Trucking Assoc., Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009).
A preliminary injunction is "an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion." Mazurek v. Armstrong, 520 U.S. 968, 972 (1997) (citation omitted); See also Landrigan v. Brewer, 625 F.3d 1132, 1140 (9th Cir. 2010); Stormans, Inc. v. Selecky, 586 F.3d 1109, 1127 (9th Cir. 2009).
"The basic function of a preliminary injunction is to preserve the status quo pending a determination of the action on the merits." Chalk v. U.S. Dist. Court Cent. Dist. of California, 840 F.2d 701, 704 (9th Cir. 1988) (citing Los Angeles Mem'l Coliseum Comm'n, 634 F.2d at 1200 (citations omitted)).
But "[a] mandatory injunction 'goes well beyond simply maintaining the status quopendente lite [and] is particularly disfavored.'" Stanley v. Univ. of S. Calif., 13 F.3d 1313, 1320 (9th Cir. 1994) (citing Anderson v. United States, 612 F.2d 1112, 1114 (9th Cir. 1979) (internal citation omitted)). The status quo means "the last, uncontested status which preceded the pending controversy." Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 879 (9th Cir. 2009).
Because "[a] mandatory injunction orders a responsible party to take action," id., and here Plaintiffs seek an order requiring Defendants to reinstate and fully perform under the parties' distribution agreement, the test for a mandatory preliminary injunction applies.
There is a heightened burden where a plaintiff seeks a mandatory preliminary injunction, which should not be granted "unless the facts and law clearly favor the plaintiff." Comm. of Cent. Am. Refugees v. I.N.S., 795 F.2d 1434, 1441 (9th Cir. 1986) (citation omitted).
Under the general rule, "where the party seeking a preliminary injunction fails to satisfy any one of the Winter factors, the preliminary injunction must be denied." Video Gaming Techs., Inc. v. Bureau of Gambling Control, 356 Fed. Appx. 89, 92 (9th Cir. 2009) (citing Winter, 129 S. Ct at 375-76). Notably, however, the Ninth Circuit does allow the issuance of a preliminary injunction when Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134-35 (9th Cir. 2011) (quoting Lands Council v. McNair, 537 F.3d 981, 987 (9th Cir. 2008) (en banc)).
Under the Ninth Circuit's alternative standard, Plaintiffs have demonstrated serious questions going to the merits of the case. Specifically, the VPA provides that Defendants can terminate the Agreement if Plaintiffs fail to comply with all applicable laws, rules, regulations, ordinances and guidance of the DEA.
Defendants have demonstrated that several of the factors flagged by the DEA as indicative of possible diversion—the ordering of a limited variety of controlled substances in quantities disproportionate to the quantity of...
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