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Priority Pharmacy, Inc. v. Serono

May 20, 2010

PRIORITY PHARMACY, INC., A CALIFORNIA CORPORATION, PLAINTIFF,
v.
SERONO, INC., A DELAWARE CORPORATION; SERONO LABORATORIES, INC., A DELAWARE CORPORATION, AND DOES 1 THROUGH 20, INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge

ORDER GRANTING MOTION TO DISMISS

Defendants Serono, Inc. and Serono Laboratories, Inc. (collectively "Serono" or Defendants") have filed a motion to dismiss Plaintiff's First Amended Complaint. For the reasons discussed below, Defendants' motion to dismiss is GRANTED.

I. BACKGROUND

In this action, Plaintiff Priority Pharmacy, Inc. ("Priority"), sues Serono for attorney's fees and costs in excess of $300,000 that it incurred in defending itself in United States ex. Rel. Driscoll, et al. v. Serono, Inc., et al., Case No. 00-11680, a qui tam action filed in the United States District Court of Massachusetts. The qui tam action concerned the alleged violation of federal and state law by Serono and certain pharmacies, including Priority, in connection with the sale/purchase of Serono's AIDS treatment drug, Serostim.

Since the mid-1990s, Serono has manufactured and sold the drug Serostim, which is approved for the treatment of "wasting" associated with AIDS. Priority is a California San Diego-based pharmacy.

Serono devised a promotional program called the "data collection program" under which participating pharmacies collected data and provided information to Serono regarding the sale and dispensation of Serostim. (FAC ¶ 16.) Such data allowed Serono to track sales of Serostim and establish a quota and bonus structure for its sales representatives in order to further increase sales of Serostim. (Id.) To reimburse the pharmacies for the costs associated with performing the services requested by Serono under the data collection program, Serono provided the pharmacies with a so-called "price reduction" for Serostim. (Id.) The "price reduction" was not in the form of a discounted purchase price, but, rather, took the form of reimbursement payments that Serono made periodically. (Id.) The reimbursement paid to Priority under the Serostim Pharmacy Data Collection Administrative Fee Agreement (Defs.' RJN filed on 9/30/09, Ex. B, ¶ 2.1) was $2 per mg of Serostim sold.

Priority participated in the data collection program from 1997 through January 2000. (FAC ¶ 20.)

On August 17, 2000, the qui tam action was filed against Serono, alleging that Serono knowingly accepted payment or reimbursement from public and private health insurers that exceeded the reimbursement price for Serostim established by agreement between Serono and the FDA. (FAC ¶ 27.) Subsequently, the complaint was amended several times, adding claims against Serono for violations of federal law and the false claim acts of various states, adding as defendants pharmacies which participated in the data collection program, and adding claims that the pharmacy defendants violated the federal False Claim Act and state false claims acts.

The United States eventually elected to intervene as to the federal claims against Serono, and Serono engaged in settlement negotiations with the federal government and the relators. (FAC ¶ 32.) In October, 2005, Serono, the government, and the relators entered into a settlement agreement under which Serono agreed to plead guilty to criminal charges and pay an amount exceeding $700 million to resolve all of the pending matters. (FAC ¶ 31.)

The United States elected not to intervene as to the federal claims against the pharmacy defendants. (FAC ¶ 34.) On August 19, 2007, Priority brought a motion to dismiss the Fourth Amended Complaint upon various grounds. In an order dated March 18, 2008, the Massachusetts district court dismissed the Fourth Amended Complaint as against the pharmacy defendants on the ground that the relators had failed to plead fraud with particularity. (Pl.'s RJN filed on 10/23/09, Ex. 5.) The court explained: "These paragraphs outline a fraudulent scheme, but they fail to identify a single particular false claim submitted for payment by any of the pharmacy defendants to any governmental agency at any time. There are no details concerning such matters as the specific dates, content, identification numbers, or dollar amounts of false claims actually submitted." (Id.)

In the FAC, Priority alleges that Serono induced Priority into entering into the data collection program by (1) failing to disclose to Priority that the data collection program would be susceptible to government investigation and litigation because of Serono's structuring of the program with so-called "price reductions" in the cost of Serostim; and (2) failing to disclose that Serono's activities to promote Serostim would be subject to intense governmental scrutiny and investigation because Serono was engaged in fraudulent activities such as inducing physicians to prescribe Serostim with improper financial incentives and developing medical devices which were improperly altered in a manner to support increasing the dosages of Serostim prescribed to AIDS patients. (FAC ¶¶ 21-22.) Priority claims that it did not ever knowingly submit any false or overstated claims for reimbursement for Sersotim to any healthcare agency and that it was forced to defend the qui tam action solely due to Serono's "structuring of the data collection program in a manner that raised suspicion and created a false appearance that reimbursement claims to healthcare agencies were false or overstated." (FAC ¶¶ 35, 36.)

Priority asserts the following claims against Serono: (1) negligence; (2) tort of another; (3) indemnity; and (4) declaratory relief. Priority seeks damages in excess of $300,000 for the costs of defending and obtaining a dismissal of the qui tam action.

II. PROCEDURAL BACKGROUND

On May 29, 2009, Plaintiff commenced this action. In its original complaint, Priority asserted claims for (1) equitable indemnification; (2) ...


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