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North Jackson Pharmacy, Inc. v. Mckesson Corp.

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

October 12, 2017




         This matter was removed from the Circuit Court of Jackson County, Alabama, on December 9, 2014. (Doc. 1). On August 24, 2015, the court denied the motion to remand filed by the plaintiff, North Jackson Pharmacy, Inc. ("NJP"), and ordered that Tom Smith be dismissed from this action as fraudulently joined. (See Doc. 33). This matter is now before the court on the motion for summary judgment filed by the remaining defendant, McKesson Corporation ("McKesson"). (Doc. 52). The motion is fully briefed and ripe for review. (Docs. 53, 57, 60). As explained below, the motion is due to be granted.

         I. FACTS

         NJP is an independent pharmacy located in Stevenson, Alabama, owned and operated by Bryan Hicks. (Doc. 57 at 4). McKesson is a pharmaceutical supplier. (See id.). McKesson supplied prescription drugs to NJP for approximately ten years prior to December 2014. (See id.). NJP asserts claims for breach of contract and tortious interference with business relations against McKesson arising from McKesson's December 3, 2014 termination of its relationship with NJP. (Doc. 1-1 at 6-8).

         The contract in question is a vendor agreement (the "Agreement") between McKesson and the American Pharmacy Cooperative, Inc. ("APCI"), of which NJP is a member. (See generally Doc. 57-1). The version of the Agreement governing at the time of McKesson's termination was executed by McKesson and APCI in May 2013, and is governed by Alabama law. (Id. at 2, 26). Under the Agreement, McKesson was the exclusive supplier of products for APCI's members. (Doc. 57-1 at 4). Paragraph 40 of the Agreement, entitled "Controlled Substance Requirements, " provides:

Nothing in this Agreement shall be construed as requiring McKesson to perform any obligations hereunder or engage in any action or omission that McKesson reasonably determines as violating any applicable federal, state or local law, rule, regulation or government requirement ("Laws") or putting McKesson in jeopardy of violating any such Laws. . . . In the event that performance of the terms of this Agreement would cause McKesson to be noncompliant with or in jeopardy of being noncompliant with any Laws or any governmental guideline or pronouncement involving Controlled Substances . . . including the Drug Enforcement Administration's regulatory requirements for verifying its customers and reporting suspicious or excessive orders, McKesson shall have the right, within its sole and absolute discretion, to do any of the following with respect to any APCI Member: (A) limit or deny any order for Controlled Substances or other regulated products as warranted by any established diversion monitoring program of McKesson; and/or (B) immediately terminate this Agreement, in whole or in part, as to an APCI Member without liability if: (i) continued performance of any part of this Agreement with respect to an APCI Member would . . . put McKesson in jeopardy of violating any Laws regarding Controlled Substances or any other regulated products or activities . . . .

(Id. at 32).

         On October 15, 2014, Chris Sanderson, a manager in McKesson's regulatory affairs department, visited NJP and later prepared a report regarding its pharmacists and disbursement of controlled substances. (See Doc. 1-3 at 4-10). After reviewing the report, Jerry Carmack, also in McKesson's regulatory affairs department, prepared a report recommending termination of McKesson's relationship with NJP. (Id. at 1-3). After citing aspects of NJP's practices, discussed in more detail below, Carmack's report concluded NJP was not performing its duties under federal law regarding disbursement of controlled substances. (Id.).

         Gary Boggs, McKesson's senior director of regulatory compliance, was employed as a Special Agent with the Drug Enforcement Administration ("DEA") from 1985 to 2012, and was assigned to the Office of Diversion Control for the last six years of his employment by the DEA. (Doc. 54-3 at 2-3). Boggs reviewed Sanderson's and Carmack's reports, as well as NJP's purchasing data, and-based on numerous "red flags"-made the decision to "suspend any further supply" of controlled substances to NJP. (Id. at 4-6). Sanderson's and Carmack's reports noted: (1) the disciplinary record of three NJP pharmacists, one of which "was caught taking and consuming pain pills while working as a pharmacist"; (2) approximately 30% of NJP's total prescription sales were paid in cash; (3) NJP's failure to utilize the state's voluntary prescription drug monitoring program; and (4) over 45% of the prescriptions dispensed by NJP during the previous six months were for controlled substances. (Id. at 4). The reports also noted the relatively high volume of controlled substances dispensed by NJP, including: (1) two standard deviations above the mean for morphine and oxycodone doses: (2) three standard deviations above the mean for alprazolam; (3) more than four standard deviations above the mean for hydrocodone, 76.3% of which was dispensed in the higher 10 mg dosage; and (4) NJP's purchase of 1, 268, 000 doses of phendimetrazine in 2014, which was more than 1000 times the threshold established by McKesson. (Id. at 4-5). Finally, the reports noted red flags regarding NJP's filling of phendimetrazine prescriptions written by the Cumberland Center, a weight loss clinic located next door to NJP. In particular, the reports noted the Cumberland Center employed physicians that had been disciplined by licensing boards in Alabama or Tennessee for "improper prescribing of controlled substances." (Id. at 4). The reports also noted the suspicion that the Cumberland Center was prescribing phendimetrazine-which is illegal in Tennessee-to Tennessee residents who filled their prescriptions at NJP and paid in cash. (Id.).

         Based on the red flags revealed by NJP's purchasing data and identified in Carmack's and Sanderson's reports, Boggs decided to suspend any further delivery of controlled substances to NJP. (Doc. 54-3 at 5-6). Boggs made this decision "because of a concern that a continued performance of the Agreement as to NJP would violate laws regarding controlled substances, or could put McKesson in jeopardy of violating laws regarding controlled substances." (Id. at 6). During his deposition, Boggs testified that NJP's "inability to appropriately exercise" its responsibility under 21 C.F.R. § 1306.04 put McKesson at risk of violating its requirement to maintain effective controls against diversion under 21 U.S.C. § 823. (Doc. 56-4 at 42).

         McKesson's Dale Harris relayed the termination to NJP via a telephone call to Bryan Hicks on December 3, 2014. (See Doc. 57 at 5). Harris stated McKesson was terminating the Agreement due to the ratio of controlled to non-controlled pharmaceutical orders, the amount of cash sales, and concerns about the number of prescriptions written by the Cumberland Center. (See id.). During his deposition, Hicks testified that NJP was never in violation of any law, rule, or regulation governing pharmacy practices. (Id. at 36). Hicks further testified that McKesson never warned NJP that it could be in possible violation of any rule, regulation, or law prior to termination. (Id.). Finally, Hicks testified there was a "linked" business relationship between NJP, its customers, and McKesson. (See Doc. 53 at 17).


         "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). To demonstrate there is a genuine dispute as to a material fact that precludes summary judgment, a party opposing a motion for summary judgment must cite "to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed.R.Civ.P. 56(c)(1)(A). When considering a summary judgment motion, the court must view the evidence in the record in the light most favorable to the non-moving party. Hill v. Wal-Mart Stores, Inc., 510 Fed.Appx. 810, 813 (11th Cir. 2013). "The court need consider only the cited materials, but it may consider other materials in the record." Fed.R.Civ.P. 56(c)(3).


         NJP's claims for breach of contract and tortious interference with ...

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