Richelson v. Yost

• Decision Date: 09 September 2010
• Docket Number: Civil Action No. 10-1342
• Citation: 738 F.Supp.2d 589
• Parties: Maurice RICHELSON, Plaintiff, v. R. David YOST, et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

738 F.Supp.2d 589

Maurice RICHELSON, Plaintiff,

v.R. David YOST, et al., Defendants.

Civil Action No. 10-1342.

United States District Court,

E.D. Pennsylvania.

Sept. 9, 2010.

Steven E. Bizar, Landon Y. Jones, Thomas P. Manning, Buchanan Ingersoll& Rooney P.C., Philadelphia, PA, for Defendants.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge.

I. INTRODUCTION

Amidst allegations of corporate misconduct and associated qui tam litigation, Plaintiff Maurice Richelson ("Plaintiff") filed this derivative suit on behalf of nominal-defendant AmerisourceBergen Corporation ("AmerisourceBergen"). Plaintiff names as defendants several current and former directors and officers of AmerisourceBergen ("Defendants"), who move to dismiss the complaint under Rules 12(b)(6) and 23.1 of the Federal Rules of Civil Procedure. Defendants also seek monetary sanctions under Rule 11 in the form of an award of attorneys' fees. For the reasons set forth below, Defendants' motion to dismiss will be granted without prejudice and Defendants' motion for sanctions will be denied.¹

II. BACKGROUND

A. Plaintiff's Allegations of Corporate Misconduct

Plaintiff alleges that Defendants breached their fiduciary duties by knowingly engaging or allowing AmerisourceBergen to engage in illegal conduct. More specifically, Plaintiff's derivative suit relates to damages AmerisourceBergen has allegedly sustained in the course of defending itself in a qui tam suit filed in the U.S. District Court for the District of Massachusetts. The complaint in that case (" Qui Tam Complaint") was filed on October 30, 2009, and averred violations of the False Claims Act, Medicaid Anti-Kickback Statute, unjust enrichment and fraud. (Compl. ¶ 3.) The U.S. government and several states ultimately intervened in the suit, which was dismissed without prejudice on April 26, 2010. See United States ex rel. Westmoreland v. Amgen, 707 F.Supp.2d 123, 140-41 (D.Mass.2010). Currently, an amended complaint has been filed and several of the intervening states have filed a Notice of Appeal.

According to Plaintiff, the qui tam suit arose because AmerisourceBergen, through its subsidiaries,² (1) entered into an agreement with Amgen, Inc. ("Amgen") ³ whereby medical providers were offered "kickbacks" to increase drug sales; and (2) encouraged physicians to bill Medicaid and third-party payers for drugs provided to the physicians for free. (Compl. ¶ 4.) This was allegedly accomplished via two contracts entered into by INN and Amgen in 2003 providing INN was to plan "advisory board" meetings for physicians. ( Id. ¶ 45.) Under the contracts, the physicians who participated in these meetingswould be "reimbursed for travel expenses" and be "paid an honorarium ... just to attend." ( Id. ¶ 42.) The Qui Tam Complaint alleges these agreements were a "conduit" to " 'provide kickbacks, including sham consultancy fee payments and all expense paid 'weekend retreats,' to Aranesp nephrology-specialty customers.' " ( Id. ¶ 45.) And, at these meetings, physicians were induced to purchase Aranesp by advocating and encouraging the physicians to bill for "extra product in excess of the labeled fill volume dosage" known as "overfill" that the physicians received for free. ( Id. ¶ 40.)

Plaintiff's complaint additionally alleges that INN and Amgen entered into a Group Purchasing Organization Agreement on September 15, 2003 that was followed by a second agreement in 2006 whereby Amgen would pay INN a "volume-based performance administrative fee of up to two percent, plus an ... administrative fee of up to one percent." ( Id. ¶ 43.) The Qui Tam Complaint alleges these fees fail to comply with the safe-harbor provisions of the federal Anti-Kickback Statute for group purchasers. ( Id. ¶ 47.)

B. Plaintiff's Demand on the Board of Directors

On December 17, 2009, Plaintiff's attorney sent a letter to Richard C. Gozon, Chairman of AmerisourceBergen's Board, describing the allegations set forth in the Qui Tam Complaint. ( See id. ¶ 55 (describing the December 17, 2009 letter as a demand on the Board of Directors).) Plaintiff's letter stated:

This firm represents Maurice Richelson, (the "Stockholder") a holder of shares of common stock of AmerisourceBergen Corporation ("AmerisourceBergen" or the "Company"). I write on behalf of the Stockholder to demand that the Board of Directors of AmerisourceBergen (the "Board") take action to remedy breaches of fiduciary duties by the directors and certain executive officers of the Company ....

( Id., Ex. A.) Naming the individual defendants in Plaintiff's complaint as the responsible parties, the letter went on to describe the factual allegations relating to Plaintiff's demand:

The Stockholder contends that AmerisourceBergen and its subsidiaries AmerisourceBergen Specialty Group, International Nephrology Network d/b/a Integrated Nephrology Network ("INN") and ASD Healthcare, with the knowledge and approval of the Directors and Officers, engaged in illicit practices and activities in collusion with Amgen, Inc. ("Amgen") that caused the United States Government, several state governments and the District of Columbia to bring an action to recover losses from false claims and fraudulent certifications submitted to Medicare/Medicaid programs.

As you know, on or about October 30, 2009, a lawsuit was filed in Massachusetts federal court by the United States of America, the states of California, Delaware, Florida, Hawaii, Illinois, Indiana, Louisiana, Michigan, Nevada, New Hampshire, New York, and Tennessee, the commonwealths of Massachusetts and Virginia, and the District of Columbia ... against AmerisourceBergen, INN, AmerisourceBergen Specialty Group, ASD Healthcare and Amgen. The lawsuit alleges that these defendants were involved in a scheme to offer kickbacks to medical providers in order to increase sales of Aranesp, an anemia drug made by Amgen.

The ... complaint alleges that since as far back as 2003, AmerisourceBergen and the other defendants encouraged physicians to bill Medicaid and other third party payers for what amounted to free dosages of Aranesp that had beenprovided at no cost to the physicians. Moreover, the complaint alleges that INN and ASD Healthcare conspired with Amgen to offer illegal kickbacks to physicians, including, but not limited to, consultancy agreements and weekend trips, in order to persuade the physicians to purchase Aranesp. The complaint further alleges that the defendants then caused physicians to submit false certifications of compliance to Medicaid and Medicare programs falsely stating that they were in compliance with state and federal anti-kickback statutes....

The Stockholder maintains that each of the Directors and Officers breached their fiduciary duties by knowingly causing or allowing AmerisourceBergen, INN, AmerisourceBergen Specialty Group, and ASD Healthcare to engage in the foregoing misconduct.

( Id.) The letter went on to affirmatively demand that the board of directors take action against the culpable parties to recover damages for the corporation:

I hereby demand that the Board take action against each of the Directors and Officers to recover the damages described herein for the benefit of the Company and to correct the deficiencies in the Company's internal controls that allowed the misconduct to occur.

If within a reasonable period after receipt of this letter, the Board has not commenced an action as demanded herein, or in the event that the Board refuses to commence an action as demanded herein, the Stockholder will commence a shareholder derivative action on behalf of AmerisourceBergen seeking appropriate relief.

( Id.)

Upon receiving Plaintiff's letter, AmerisourceBergen checked the corporation's books and records to ensure Plaintiff had standing to make the demand. It was unable to confirm Plaintiff was, in fact, a shareholder of the corporation. (8/23/2010 Hrg. Tr. 10:12-24.) Thus, on December 28, 2009, AmerisourceBergen responded to acknowledge receipt of Plaintiff's December 17 letter and request additional information:

This will acknowledge receipt of your letter dated December 17, 2009 ....

Your letter purports to be sent on behalf of a shareholder of AmerisourceBergen with standing to request action by AmerisourceBergen's Board of Directors. Before your letter is referred to the Board of Directors for consideration, we ask that you confirm Maurice Richelson's status as a shareholder of AmerisourceBergen given that Mr. Richelson is not listed as a current record owner of any shares of AmerisourceBergen common stock ("ABC Stock"). Please provide us with evidence of Mr. Richelson's status as a shareholder, including the account or nominee through which he holds shares and the number of shares of ABC Stock he holds. Please also advise us of the date Mr. Richelson first became an owner of the ABC Stock, whether he has been an owner continuously since that time and whether there have been any changes in his level of ownership during that time. Finally, please provide us with any other information that you believe may be pertinent to our ability to determine whether or not Mr. Richelson is entitled to request action by AmerisourceBergen's Board of Directors.

The next regularly scheduled meeting of AmerisourceBergen's Board of Director [sic] will be held on March 4, 2010. We would appreciate your response well in advance of that date so that the Board of Directors has appropriate time to put Mr. Richelson's demand on the meeting agenda forconsideration of next steps, if such consideration is warranted.

(Def's Mot. to Dismiss, Ex. A.) ⁴

Plaintiff did not respond to AmerisourceBergen's December 28 letter requesting additional information. Instead, Plaintiff brought this derivative suit alleging he was a "shareholder of AmerisourceBergen at the time of the wrongdoing ... and ... continuously since that time," (Compl. ¶ 53), who is therefore entitled to sue derivatively because the Board did not properly act on Plaintiff's demand. ( See id. ¶ 55 ("The...