Pharmacare v. Caremark

Decision Date12 December 1996
Docket NumberCivil No. 96-00474 ACK.
Citation965 F.Supp. 1411
PartiesPHARMACARE, et al., Plaintiffs, v. CAREMARK, et al., Defendants.
CourtHawaii Supreme Court

Michael K. Livingston, Davis & Levin, Sharon R. Himeno, Price, Okamoto, Himeno & Lum, Honolulu, HI, Bonny E. Sweeney, Leonard B. Simon, Kevin P. Roddy, Stephen H. Swartz, Dennis Stewart, Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, CA, for plaintiffs.

Robert J. Hackman, Goodsill, Anderson, Quinn & Stifel, Alii Place, Honolulu, HI, Howard M. Pearl, Winston & Strawn, Chicago, IL, for defendants.


KAY, Chief Judge.


This case concerns the alternate site infusion therapy industry. Alternate site infusion therapies consist of services involving the administration of medication, nutritional solutions and fluids to a patient outside of a hospital. The most common therapies include total parental nutrition, enternal nutrition, antibiotic, antiviral and antifungal therapies, chemotherapy, pain management therapy, human growth therapy and treatments for hemophilia and HIV AIDS. Due to their medical nature, alternative site infusion therapies are typically prescribed by a patient's doctor. From February 1986 until April 1995, when it sold its alternate site infusion therapy business, Caremark, Inc. ("Caremark") was the largest company in this industry.

During this time, Caremark underwent certain corporate transformations. Prior to 1987, Caremark was known as Home Health Care of America. From approximately August 1987 to about November 1992, Caremark was owned by Baxter Healthcare Corporation ("Baxter Healthcare"), a Delaware Corporation with its principal place of business in Illinois. Baxter Healthcare is a subsidiary of Baxter International, Inc ("Baxter"), a Delaware corporation with its headquarters in Illinois. In November, 1992, Caremark became a subsidiary of Caremark International, Inc. (collectively Caremark, Caremark International, Inc., Baxter Healthcare and Baxter referred to as "Defendants").

This case came about because of two plea agreements entered into by Caremark in the District of Minnesota ("Minnesota plea") and the Southern District of Ohio ("Ohio plea"). In the Minnesota plea, entered into on June 20, 1995, Caremark pled guilty to one count of mail fraud in violation of 18 U.S.C. § 1341 and agreed to pay a fine of $9,000,000. Two days later on June 22, 1995, Caremark entered into the Ohio plea where it pled guilty to mail fraud and paid a $20,000,000 fine. The basis for these agreements was Caremark's improper payments to physicians in exchange for the physicians' referrals of patients.

The significance and scope of these agreements constitute the gist of this action. The Defendants argue that the agreements merely establish wrongdoing with regard to two doctors1 in the Minneapolis and Columbus area concerning the Federal Employees Health Benefit Program ("FEHBP") and the Civilian Health and Medical Program of the Uniformed Services ("CHAMPUS"), two federal programs.

Caremark's competitors disagree. They argue that these agreements evidence a nationwide scheme of commercial bribery. In fact, three competitors2 ("Plaintiffs") filed a nationwide class action on May 20, 1996 against the Defendants. The complaint asserts that Defendants' scheme violated four different statutes: (1) Clayton Act § 2(c) as amended by the Robinson-Patman Act, 15 U.S.C. § 13(c) (" § 2(c)"); (2) RICO 18 U.S.C. § 1962(a) and (d) (" § 1962(a)"); (3) RICO 18 U.S.C. § 1962(c) and (d) (" § 1962(c)"); and (4) the California Business & Professions Code § 17200 concerning unfair and fraudulent business practices ("pendent claim"). For these violations, Plaintiffs seek general damages (trebled as provided by law), attorney's fees, an injunction prohibiting the Defendants from continuing their actions, restitution of Defendants' ill-gotten gains, and the imposition of a constructive trust.

On August 26, 1996, the Defendants filed a motion to dismiss. With regard to the RICO claims, Defendants argue that Plaintiffs' complaint fails to: (1) adequately establish the predicate acts of racketeering; (2) satisfy RICO's proximate cause and standing requirement; (3) establish the existence of an enterprise necessary for § 1962(c); and (4) establish that Plaintiffs were injured by Defendants' use of income derived from racketeering activity as required by § 1962(a). As to Plaintiffs' § 2(c) claim, Defendants argue that dismissal is appropriate because: (1) Plaintiffs lack the requisite standing; (2) Doctors do not owe their patients a commercial duty; and (3) Plaintiffs failed to plead that doctors provided no services in return for the alleged payments. Finally, with regard to the pendent claim, Defendants sought dismissal on the grounds that: (1) the injunction sought is unnecessary; (2) the Plaintiffs lack standing; and (3) the relief sought would violate the Commerce Clause of the Federal Constitution.

Plaintiffs responded to all these arguments in their October 31, 1996 opposition. The Defendants filed a reply on November 7, 1996.


1. Motion to Dismiss

Under Fed.R.Civ.P. 12(b)(6), in determining whether a motion to dismiss for failure to state a claim upon which relief can be granted, this Court must accept as true the plaintiff's allegations contained in the complaint and view them in a light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Wileman Bros. & Elliott, Inc. v. Giannini, 909 F.2d 332, 334 (9th Cir.1990); Shah v. County of Los Angeles, 797 F.2d 743, 745 (9th Cir.1986). Thus, the complaint must stand unless it appears beyond doubt that the plaintiff has alleged no facts that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1990). A complaint may be dismissed as a matter of law for two reasons: (1) lack of a cognizable legal theory or (2) insufficient facts under a cognizable legal theory. Balistreri, 901 F.2d at 699; Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir.1984).

In essence, as the Ninth Circuit has stated, "[t]he issue is not whether a plaintiff's success on the merits is likely but rather whether the claimant is entitled to proceed beyond the threshold in attempting to establish his claims." De La Cruz v. Tormey, 582 F.2d 45, 48 (9th Cir.), cert. denied, 441 U.S. 965, 99 S.Ct. 2416, 60 L.Ed.2d 1072 (1979). The Court must determine whether or not it appears to a certainty under existing law that no relief can be granted under any set of facts that might be proved in support of plaintiffs' claims. Id.


Although the Plaintiffs' class has not been certified, the Court will decide the issues presented in this motion. See Wright v. Schock, 742 F.2d 541 (9th Cir.1984) (citing cases which have allowed a court to decide a motion to dismiss before certification.) The Court, however, will assume that the suit is a class action for purposes of this motion.3 See City Of Inglewood v. City of Los Angeles, 451 F.2d 948 (9th Cir.1972) (holding that the district court was proper in assuming that suit was class action for purposes of deciding a Fed.R.Civ.P. § 12(b)(1) motion.) With that said, the Court will discuss the claims in the order the Defendants attacked them in their motion to dismiss.4

I. Plaintiffs' have established all the elements required for their 1962(c) claim

To establish its RICO § 1962(c) claim, the Plaintiffs must establish: (1) conduct,5 (2) of an enterprise, (3) through a pattern, (4) of racketeering activity. Sedima v. Imrex Co. Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 3285, 87 L.Ed.2d 346 (1985). Defendants first argue that Plaintiffs have failed to plead the third and fourth elements, i.e. a pattern of racketeering activity.

A. Plaintiffs' Have Adequately Established a Pattern of Racketeering Activity

RICO defines the term "pattern of racketeering activity" as requiring "at least two acts of racketeering activity ... the last of which occurred within ten years after the commission of a prior act of racketeering activity." RICO, 18 U.S.C. § 1961(5). Aside from the minimal requirement of showing two predicate acts existed, RICO nowhere addresses the meaning of the term "pattern" as used throughout the statute. In H.J. Inc. v. Northwestern Bell Telephone Company, the United States Supreme Court sought to develop a meaningful concept of that term. 492 U.S. 229, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989). Drawing on dicta from a previous opinion in which the issue was considered, Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n. 14, 105 S.Ct. 3275, 3285 n. 14, 87 L.Ed.2d 346 (1985), the Supreme Court divined from RICO's legislative history a two-pronged framework for analysis: "[T]o prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." Northwestern Bell, 492 U.S. at 239, 109 S.Ct. at 2900. Thus, the determination of whether a RICO plaintiff is able to establish a pattern of racketeering activity necessarily entails an initial determination of whether the defendants committed two or more predicate acts within the meaning of the RICO statute. See 18 U.S.C. § 1965(c). And if so, whether the predicate acts were related in manner such that they created a threat of continued unlawful activity. Northwestern Bell, 492 U.S. at 239-43, 109 S.Ct. at 2900-2903.

1. Predicate Acts

Congress has enumerated the predicate...

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