Roche Diagnostics Corp. v. Priority Healthcare Corp.

• Decision Date: 08 May 2020
• Docket Number: Case No. 2:18-CV-01479-KOB
• Parties: ROCHE DIAGNOSTICS CORP., et al., Plaintiffs, v. PRIORITY HEALTHCARE CORP., et al., Defendants.
• Court: U.S. District Court — Northern District of Alabama

ROCHE DIAGNOSTICS CORP., et al., Plaintiffs, v. PRIORITY HEALTHCARE CORP., et al., Defendants.

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

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION

May 8, 2020

MEMORANDUM OPINION

This matter comes before the court on seven motions to dismiss filed by Defendants Phil Minga (Doc. 371); Konie Minga and 34 Corporate Defendants¹ (Doc. 372); William Austin(Doc. 373); Capital Asset Management, LLC (Doc. 374); KJM Holdings, LLC (Doc. 375); Minga Investments, LLC (Doc. 376)²; and Daniel Baker, Heather Baker, Kristen Knotts, Wesley Minga, Geneva Oswalt, Melissa Sheffield, and Ashley Tigrett (Doc. 377). The motions ask the court to dismiss the Second Amended Complaint filed by Plaintiffs Roche Diagnostics Corporation and Roche Diabetes Care, Inc. (collectively "Roche"), which are divisions of a multi-national healthcare and medical products business that manufactures, among other things, the blood-glucose test strips that are at issue in this case.

The essence of Roche's Second Amended Complaint remains unchanged from its first two complaints. Roche contends that for about five years, thirteen people based in Amory, Mississippi, along with three asset-holding LLCs and more than 30 pharmacies and pharmacy-related entities located in Mississippi, Alabama, and Arkansas, ran a complex and fraudulent scheme. Roche alleges that Defendants billed insurance companies and pharmacy benefit managers (PBMs) for millions of dollars in claims for Roche's test strips that had different product codes, different price structures, and different eligibilities for insurance reimbursement than the test strips Defendants actually sold to patients. Roche contends that Defendants' fraud cost Roche more than $30 million in rebates that it paid to insurers and PBMs that, in turn, reimbursed the Defendants pursuant to their deceitful reimbursement claims. To recover its losses, Roche initially brought eight fraud- and conspiracy-related claims against Defendants.

When ruling on 12 motions to dismiss Roche's First Amended Complaint, the court found that Roche plausibly alleged all eight of its claims, but the court also found that Roche had not sufficiently demonstrated that the court had personal jurisdiction over seven of the Individual Defendants. (Doc. 212.) The court dismissed those seven Defendants from the suit. After Roche filed its Second Amended Complaint to properly plead personal jurisdiction, Defendants filed the seven instant motions to dismiss. The seven motions present similar—and in some cases identical—arguments to those the court already rejected in its previous Memorandum Opinion. (Doc. 212.) For this reason—and other reasons explained in more detail below—the court will DENY all motions to dismiss.

Background

Although the court extensively addressed Roche's business model in a previous Memorandum Opinion (Doc. 212), a partial restatement of the relevant facts is necessary here. Roche's Second Amended Complaint explains that in the United States, most diabetic test strips, such as those that Roche makes, are covered by health insurance or government programs. As discussed in a prior opinion,

[t]wo 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 . . . PBM. To receive the reimbursement, the pharmacy must submit the insurance claim; this process is known as "adjudication." The insurance claimincludes 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. . . .

[T]he 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. 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.

(Sept. 27, 2019 Memorandum Opinion, Doc. 212 at 4-5 (internal citations omitted)).

Roche alleges that between 2013 and 2018, Defendants adjudicated approximately 750,000 boxes of Roche's test strips to insurance companies and PBMs across the United States. (Doc. 306 at 41.) Each adjudication claim included a statement that the Defendant pharmacy had shipped Roche's retail test strips. In each case, the insurance company or PBM reimbursed the pharmacy, and Roche paid a rebate back to the insurance company or PBM. But Roche alleges that only a tiny fraction of the 750,000 boxes of Roche's strips that Defendants sold and adjudicated were actually retail test strips, resulting in a net loss for Roche of more than $30 million.

To recover its losses, Roche filed the instant suit on September 11, 2018 and alleged 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.

Importantly for the purposes of the instant motions, Roche's First Amended Complaint provided the following reasons why the court should exercise personal jurisdiction over the Individual Defendants, most of whom are citizens of Mississippi:

The Court has personal jurisdiction over the Defendants because Defendants have their principal place of business in Alabama; own or exercise control over businesses operating in Alabama; perpetrate fraudulent activities in, and through businesses operating in, Alabama; and/or knowingly participate in a fraudulent scheme employing pharmacies and pharmacists operating in Alabama.

(Doc. 90 at 14.) This paragraph composed the First Amended Complaint's entire treatment of the matter of personal jurisdiction.

Roche's response brief expounded on these arguments and contended that this court possesses personal jurisdiction over the Individual Defendants based on either of two theories: (1) the Individual Defendants participated in a conspiracy that included overt acts within Alabama; and/or (2) the Individual Defendants personally participated in torts that occurred in Alabama. (Doc. 141 at 34-38.) Although the RICO statute provides an independent source for personal jurisdiction over defendants anywhere in the United States, nowhere in its First Amended Complaint or briefing did Roche assert the RICO statute as a basis for jurisdiction over the Defendants.

In their motions to dismiss Roche's First Amended Complaint, seven Individual Defendants—William Austin, Ashley Tigrett, Christopher Daniel Knotts, Geneva Oswalt, Wesley Minga, Melissa Sheffield, and Phil Minga—argued that neither of Roche's theories applies and asked the court for dismissal based on lack of personal jurisdiction. The other Individual Defendants—Sammy Phillip Carson, Kimberly Carson, Daniel Baker, and Konie Minga—waived the issue by failing to raise the matter of personal jurisdiction in their motions to dismiss Roche's First Amended Complaint.

When ruling on Defendants' motions to dismiss on September 27, 2019, the court considered both the conspiracy and tortious conduct theories and determined that neither theory subjected the seven Individual Defendants to personal jurisdiction in this court. (Doc. 212 at 12-16.) Although the court found that Roche pled plausible and specific claims pursuant to Federal Rules of Civil Procedure 8(a) and 9(b) as to all other Defendants, the court dismissed the seven Individual Defendants from the case without prejudice but allowed the suit to proceed against all Defendants who failed to challenge personal jurisdiction. (Doc 213.)

Four days after the court dismissed the seven Individual Defendants from the case, Roche filed a motion to reconsider on the issue of personal jurisdiction. (Doc. 215.) Roche argued, for the first time, that the RICO statute provides an independent basis for jurisdiction. The relevant statute states that "[a]ll other process in any action or proceeding under this [RICO] chapter may be served on any person in any judicial district in which such person resides, is found, has an agent, or transacts his affairs." 18 U.S.C. § 1965(d). The court did not address the merits of whether this statute conferred jurisdiction over the Defendants. Instead, on ...