Roche Diagnostics Corp. v. Priority Healthcare Corp.

• Decision Date: 27 September 2019
• Docket Number: Case No. 2:18-CV-01479-KOB
• Citation: 407 F.Supp.3d 1216
• Parties: ROCHE DIAGNOSTICS CORP., et al., Plaintiffs, v. PRIORITY HEALTHCARE CORP., et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

407 F.Supp.3d 1216

ROCHE DIAGNOSTICS CORP., et al., Plaintiffs,

v.PRIORITY HEALTHCARE CORP., et al., Defendants.

Case No. 2:18-CV-01479-KOB

United States District Court, N.D. Alabama, Southern Division.

Signed September 27, 2019

Aron Fischer, Geoffrey Potter, Timothy Gray, Pro Hac Vice, Patterson Belknap Webb & Tyler LLP, New York, NY, David J. Canupp, James Bradley Emmons, Lanier Ford Shaver & Payne PC, Huntsville, AL, for Plaintiffs.

James P. Wilson, Jr., Mitchell McNutt & Sams PA, Columbus, MS, Albert G. Delgadillo, H. Richmond Culp, Stephen K. Otey, Pro Hac Vice, Mitchell, McNutt & Sams PA, Tupelo, MS, Amie Adelia Vague, Christine E. Gwinn-Ross, Harlan Irby Prater, IV, Jackson R. Sharman, III, Jeffrey P. Doss, Wesley B. Gilchrist, Lightfoot Franklin & White LLC, John W. Scott, Joshua S. Thompson, Scott Dukes & Geisler PC, John W. Clark, IV, Clark Law Firm PC, Leigh Anne Hodge, Hillary Chinigo Campbell, Bradley Arant Boult Cummings LLP, Helen Lynne Eckinger, William C. Athanas, Waller Lansden Dortch & Davis LLP, Birmingham, AL, Annie Friedman, Derrelle M. Janey, Gottlieb & Janey LLP, New York, NY, for Defendants.

Christopher Daniel Knotts, Amory, MS, pro se.

MEMORANDUM OPINION

KARON OWEN BOWDRE, CHIEF UNITED STATES DISTRICT JUDGE

"Oh! what a tangled web we weave, when first we practice to deceive." SIR WALTER SCOTT, MARMION: A TALE OF FLODDEN FIELD , canto VI, XVII (1808).

In this case, Plaintiffs attempt to untangle a deceptive web of pharmacies woven by a Mississippi family that allegedly spun its gossamer threads throughout Mississippi, Alabama, and Arkansas. Plaintiffs contend that this web of inter-related but inscrutable entities, including 29 corporations and 11 individuals, operates an insurance fraud enterprise involving Plaintiffs' diabetes test strips. (Doc. 90.) Specifically, Plaintiffs allege that Defendants bill insurance companies for millions of dollars in claims for blood-glucose test strips that have different product codes, different price structures, and different eligibilities for insurance reimbursement than the products Defendants actually sell to patients.

Plaintiffs Roche Diagnostics Corporation and Roche Diabetes Care Inc. (collectively "Roche") filed an Amended Complaint that includes eight counts: (1) violation of the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962(c) ; (2) conspiracy to violate RICO, 18 U.S.C. § 1962(d) ; (3) common law fraud; (4) statutory fraud and deceit under Ala. Codes §§ 6-5-101, 6-5-104; (5) civil conspiracy to commit fraud; (6) negligent misrepresentation; (7) unjust enrichment; and (8) money had and received.

This matter now comes before the court on Defendants' twelve motions to dismiss. (Docs. 103–114.) The Corporate Defendants¹ seek dismissal of the Amended Complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted. Defendants contend that (1) Roche failed to plead with plausibility or particularity that Defendants violated § 1962(c) ; (2) Roche failed to plead sufficient facts suggesting that anyone identified in the complaint unlawfully conspired with anyone else; (3) Roche's claims for common law fraud, statutory fraud and deceit, civil conspiracy to commit fraud, and negligent misrepresentation fail as a matter of law; (4) Roche's claim for negligent misrepresentation fails because no underlying claim exists and the intracorporate conspiracy doctrine negates the multiplicity-of-actors requirement; (5) Defendants do not have possession of Roche's money, so the claims for unjust enrichment and money had and received fail; and (6) the complaint is a shotgun pleading that violates Federal Rule of Civil Procedure 8.

The Individual Defendants² incorporate the Corporate Defendants' motion to dismiss and seek dismissal of the Amended Complaint under largely the same arguments: failure to state a claim pursuant to Rule 12(b)(6) or plead with particularity under Rule 9(b). Several of the Individual Defendants add an additional ground for dismissal: lack of personal jurisdiction pursuant to Rule 12(b)(2). In the interest of efficiency, the court addresses all twelve motions to dismiss in this single Memorandum Opinion.

Plaintiffs filed two responses: one to the Corporate Defendants' motion to dismiss, (Doc. 133), and one to the eleven Individual Defendants' motions to dismiss, (Doc. 141). The Corporate Defendants filed a reply brief, (Doc. 140), and most of the Individual Defendants filed a consolidated reply brief, (Doc. 151), with Defendant William H. Austin filing separately, (Doc. 150), and Defendants Kimberly P. Carson and Samuel Phillip Carson filing separately, (Doc. 152). The court also allowed Plaintiffs to file a surreply brief to the Corporate Defendants' reply brief. (Doc. 149.) The motions are now ripe for review.

I. Background

Roche's Business

Roche, as part of its multi-national healthcare and medical products business, manufactures blood-glucose test strips, sold under its Accu-Chek brand. The test strips help diabetic patients monitor their blood sugar. To use an Accu-Chek test strip, a patient places a drop of blood on a strip, then inserts the strip into a meter, which provides a blood glucose reading.

In the United States, most Accu-Chek test strips are covered by health insurance or government programs. Two main insurance payment methods exist: (1) pharmacy benefit insurance, which is the same type of coverage used for prescription drugs; and (2) medical benefit, which is the type of coverage used for products, such as wheelchairs and catheters. Test strips covered by medical benefit insurance are known as not-for-retail (NFR) strips; NFR strips are distributed through providers, normally mail-order distributors, pursuant to specific contracts with Roche, and are not distributed by retail pharmacies. Conversely, retail pharmacies sell retail test strips that feature different markings and product-identifying codes, known as the National Drug Codes, than those on NFR test-strip boxes. Roche typically sells its pharmacy-bound retail test strips to authorized wholesalers—not directly to independent pharmacies—that in turn sell the strips to pharmacies.

When a retail pharmacy dispenses test strips to patients, the strips are almost invariably paid for by health insurance under a pharmacy benefit. The pharmacies then "receive reimbursement directly from the payer, such as a health insurance company or its pharmacy benefit manager (PBM)." (Doc. 90 at 16.) To receive the reimbursement, the pharmacy must submit the insurance claim; this process is known as "adjudication." The insurance claim includes information demonstrating that the patient and the product are covered by the particular insurance policy.

After paying the pharmacies for the adjudicated test strips, the insurers and PBMs recoup some of the cost by submitting rebate requests to Roche—pursuant to contracts Roche maintains with each insurer or PBM. Once Roche gets this information, it pays rebates to the insurance companies and PBMs. Roche receives the information in batches—normally months after the pharmacies submit insurance claims and receive reimbursements—and not in real time.

According to the Amended Complaint, the "prices that wholesalers pay to Roche for retail test strips, and the reimbursement rates that insurance companies pay to the pharmacies under pharmacy-benefit insurance plans, are substantially higher than the net price Roche receives for the test strips." (Doc. 90 at 17.) The comparative profit Roche takes in between retail and NFR test strips roughly equalizes after Roche pays administrative fees and rebates to the insurance companies and PBMs that pay for the strips.

Roche does not pay rebates for NFR test strips.

Priority Care's Business

Priority Care, also known as Corporate Defendants, is an association of pharmacies and entities with overlapping ownership and officers. The Priority Care entities are mainly located in Alabama and Mississippi, with one location in Arkansas. According to Plaintiffs, Priority Care includes both brick-and-mortar pharmacies and shell entities—pharmacies that solely exist on paper or that locate only nominally in a premises.

Priority Healthcare Corporation is a Delaware holding company wholly owned by Konie Minga, founded in 2014 by Ms. Minga and Kimberly Carson. PHC either owns or is affiliated with the other Priority Care pharmacies. Ms. Minga and Ms. Carson allegedly had no prior business experience or relevant background in the healthcare, pharmaceutical, or insurance industries. Phillip Minga and Sammy Phillip Carson, their respective husbands, allegedly did have experience in the relevant industries and actively participated in PHC's management.

The registered address for PHC is 1678 Montgomery Highway, Suite 344, Birmingham, Alabama, 35216. This address is a mailbox in a strip mall UPS Store, rented by Ms. Minga. The bulk of the offices and mail-order storage and fulfillment work is located in Amory, Mississippi.

In 2015, PHC and/or Ms. Minga allegedly began purchasing existing, but unsuccessful, brick-and-mortar pharmacies in Mississippi and Alabama. According to Roche, PHC's office exercised control over the pharmacists and other employees at these pharmacies. These storefront pharmacies appear to be independent, with separate bank accounts, distinct market presences, and placement of their own orders for prescription drugs and retail products. These pharmacies have their own relationships with PBMs and distinct customer bases. The pharmacies also retain the names they had before they were purchased by PHC and/or Ms. Minga. The pharmacies do not note their relation to other pharmacies in the alleged PHC network. According to Roche, these pharmacies individually are "generally unprofitable." (Doc. 90 at 21.)

Roche alleges that pharmacists from the Alabama Priority Care pharmacies estimated that, before Priority Care bought them out, they prescribed only...