Roche Diagnostics Corp. v. Priority Healthcare Corp.

          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 Defendants^[1] 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 Defendants^[2] 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 a “negligible number of blood-glucose test strips.” (Doc. 90 at 21.)

         According to the Amended Complaint, the Priority Care pharmacies’ business expanded greatly once the pharmacies became part of the Priority Care network. For example, Vincent Pharmacy, Inc., when it was an independent pharmacy in 2014, purchased 28 boxes of Roche’s retail test strips and adjudicated claims for 20 of those boxes (a box contains 50 test strips). In 2015, after its acquisition by Priority Care, that same pharmacy adjudicated claims for 28, 000 boxes of Roche’s retail test strips. As Roche noted, the number of claims Vincent Pharmacy adjudicated in 2015 was “14 times the population of Vincent, Alabama.” (Doc. 90 at 22.)

         In depositions, three Alabama-based Priority Care pharmacists explained that they use a legal, “central filling” practice regarding the test strips. (Doc. 140 at 12.) Specifically, “Amory-based PHC pharmacy technicians upload digitized copies of test-strip prescriptions to a centralized database. These employees then transmit by e-mail or fax a list of mail-order prescriptions to Priority Care pharmacists for each pharmacist to ‘check’ by accessing the database.” (Doc. 90 at 22.) The pharmacists allegedly do not verify: (1) the identity of the patients; (2) the identity of the doctors; and/or (3) what product is shipped to the patients. After the pharmacist checks the prescription, workers at the central filling location in Amory, Mississippi affix a return-address label with the name and address of the checking pharmacist’s location. They then ship the test strips to patients around the country. (Doc. 90 at 23.)

         Beyond purchasing and incorporating existing pharmacies into the Priority Care system, PHC establishes new LLCs and registers them as healthcare providers with the Center for Medicare and Medicaid Services, as well as the National Council for Prescription Drug Programs. These registrations provide each new entity with its own taxonomic code, which PBMs and insurers can use to keep track of adjudications. Many of these entities appear to exist nominally, possessing only an LLC registration and a set of identifying codes. Four unique Priority Health entities, for example, allegedly share a single building, located at 1600 Highland Drive in Amory, Mississippi. (Doc. 90 at 24–25.)

         Between 2013 and 2018, this combination of storefront and shell entities adjudicated approximately 750, 000 boxes of Roche’s test strips to insurance companies and PBMs across the United States. Every claim included a statement that the pharmacy had shipped a box or boxes of Roche retail test strips. In each case, the insurance company or PBM reimbursed the pharmacy, and then Roche would pay a rebate back to the insurance company or PBM. Although records show that Priority Care pharmacies submitted claims for 750, 000 retail boxes, their own purchase orders reveal that they procured only 322, 000 boxes of retail strips while buying 410, 000 boxes of NFR test strips. (Doc. 90 at 29–34.)

         Priority Care begrudgingly gave these records to Roche in 2018, following a lengthy series of attempts that included several rounds of unresponsive letters, subpoenas, orders to show cause, and court-ordered sanctions. (Id.). Roche also procured adjudication numbers from insurance companies and PBMs. These data showed Priority Care pharmacies shifted the bulk of their adjudications away from their established entities and toward the newly created ones as the PBMs and insurance companies stopped working with Priority Care pharmacies one by one over concerns of fraud. (Doc. 90 at 39–43.)

         Although Priority Care apparently purchased most of Roche’s test strips on the secondary market, Roche directly sold Priority Care about 158, 000 NFR boxes in 2016. The sale included a contractual provision that Priority Care could not sell the strips to pharmacies or dispense them to patients whose insurance paid for the test strips with a pharmacy benefit and would be eligible for a rebate. Of these 158, 000 NFR boxes, Priority Care’s records indicate that its pharmacies processed only 182 as NFR boxes. The rest, presumably, Priority Care falsely adjudicated as retail test strips to insurers under pharmacy benefit. (Doc. 90 at 37.)

         The result, Roche contends, is that Priority Care-through its corporate entities and the eleven Defendants who manage and direct it-bilked Roche out of tens of millions of dollars. Some of the ill-gotten gain derives from the difference between the prices at which Roche sells its retail versus NFR strips, and the rest from the unwarranted rebates Roche paid to insurance companies and PBMs; if Priority Care entities processed the NFR strips properly (through medical benefit rather than pharmacy benefit), then insurers and PBMs would neither pay the pharmacies the higher, pharmacy-benefit rate nor submit rebate requests to Roche to subsidize the price differential.

         Simply stated, Roche alleges an indirect-benefit scheme in which it paid rebates to the PBMs and insurers that had paid Defendants’ fraudulent pharmacy benefit claims.

         II. Standards of Review

         Rule 12(b)(2)

         A Rule 12(b)(2) motion attacks the court’s jurisdiction over the defendant’s person. In determining whether personal jurisdiction exists, a federal court sitting in diversity undertakes a two-step inquiry: “the exercise of jurisdiction must (1) be appropriate under the state long-arm statute and (2) not violate the Due Process Clause of the Fourteenth Amendment to the United States Constitution.” United Techs. Corp. v. Mazer, 556 F.3d 1260, 1274 (11th Cir. 2009). “The plaintiff bears the burden of establishing personal jurisdiction over the defendant [but] ‘need only make a prima facie showing.’” S & Davis Intern., Inc. v. The Republic of Yemen, 218 F.3d 1292, 1303 (11th Cir. 2000) (quoting Taylor v. Phelan, 912 F.2d 429, 431 (10th Cir. 1990)). The court must accept the allegations in the complaint as true. Id.

         Rule 12(b)(6)

         A Rule 12(b)(6) motion to dismiss attacks the legal sufficiency of the complaint. Generally, the Federal Rules of Civil Procedure require only that the complaint provide “‘a short and plain statement of the claim’ that will give the defendant fair notice of what the plaintiff’s claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957) (quoting Fed.R.Civ.P. 8(a)). A plaintiff must provide the grounds of his entitlement, but Rule 8 generally does not require “detailed factual allegations.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley, 355 U.S. at 47). It does, however, “demand[] more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Pleadings that contain nothing more than “a formulaic recitation of the elements of a cause of action” do not meet Rule 8 standards nor do pleadings suffice that are based merely upon “labels or conclusions” or “naked assertions” without supporting factual allegations. Twombly, 550 U.S. at 555, 557.

         The Supreme Court explained that “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting and explaining its decision in Twombly, 550 U.S. at 570). To be plausible on its face, the claim must contain enough facts that “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Although “[t]he plausibility standard is not akin to a ‘probability requirement, ’” the complaint must demonstrate “more than a sheer possibility that a defendant has acted unlawfully.” Id. “Where a complaint pleads facts that are merely consistent with a defendant’s liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’” Id. (quoting Twombly, 550 U.S. at 557).

         The Supreme Court has identified two working principles for the district court to use in applying the facial plausibility standard. The first principle is that, in evaluating motions to dismiss, the court must assume the veracity of well-pled factual allegations; however, the court does not have to accept as true legal conclusions even when “couched as [] factual allegation[s]” or “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements.” Iqbal, 556 U.S. at 678. The second principle is that “only a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at 679. Thus, under prong one, the court determines the factual allegations that are well-pled and assumes their veracity, and then proceeds, under prong two, to determine the claim’s plausibility given the well-pled facts. That task is “context-specific” and, to survive the motion, the allegations must permit the court based on its “judicial experience and common sense . . . to infer more than the mere possibility of misconduct.” Id. If the court determines that well-pled facts, accepted as true, do not state a claim that is plausible, the claim must be dismissed. Id.

         Shotgun Pleading

         A “shotgun” style complaint exists when “each count . . . adopts the allegations of all preceding counts. Consequently, allegations of fact that may be material to a determination of count one, but not count four, are nonetheless made a part of count four. . . . [I]t is virtually impossible to know which allegations of fact are intended to support which claim(s) for relief.” Paylor v. Hartford Fire Ins., 748 F.3d 1117, 1126 (11th Cir. 2014) (quoting Anderson v. Dist. Bd. of Trs. of Cent. Fla. Cmty. Coll., 77 F.3d 364, 366 (11th Cir. 1996)).

         The purpose of Rule 8 is to provide a defendant notice of the claim and the facts supporting it. Grimsley v. Marshalls of MA, Inc., 284 Fed.App’x 604, 610 (11th Cir. 2008) (“The point [of Rule 8] is to give the defendant fair notice of what the claim is and the grounds upon which it rests.”). Rule 10 works in conjunction with Rule 8 by requiring each claim “founded on a separate transaction or occurrence to be stated in separate counts if needed for clarity.” Id. “These rules work together so that [the plaintiff’s] adversary can discern what he is claiming and frame a responsive pleading.” Id.

         III. Discussion

         Among the twelve motions to dismiss, Defendants raise various arguments why the court should dismiss this case. The arguments fall into three general categories: (1) the court lacks personal jurisdiction over some of the Individual Defendants under Rule 12(b)(2); (2) the complaint is a shotgun pleading contrary to Rule 8; and (3) each count fails to state a claim upon which relief can be granted pursuant to Rule 12(b)(6). In the interest of efficiency, the court addresses each category of argument and breaks down the analysis by count and by defendant as appropriate.

         a. Personal Jurisdiction

         Seven of the Individual Defendants-William H. Austin, Ashley Tigrett, Christopher Daniel Knotts, Geneva Oswalt, Wesley Minga, Melissa Sheffield, and Phillip Anthony Minga- contend that the court lacks personal jurisdiction over them and must dismiss them from the case pursuant to Rule 12(b)(2).

         A plaintiff who files a complaint in federal court against a nonresident defendant “bears the initial burden of alleging in the complaint sufficient facts to make out a prima facie case of [personal] jurisdiction.” Mazer, 556 F.3d at 1274. When evaluating a challenge to personal jurisdiction, the court typically undertakes a two-step inquiry: “the exercise of jurisdiction must (1) be appropriate under the state long-arm statute and (2) not violate the Due Process Clause of the Fourteenth Amendment to the United States Constitution.” Id. But in Alabama, “the two inquiries merge, because Alabama’s long-arm statute permits the exercise of personal jurisdiction to the fullest extent constitutionally permissible.” Sloss Indus. Corp. v. Eurisol, 488 F.3d 922, 925 (11th Cir. 2007). So the court considers whether the exercise of personal jurisdiction in this case would violate the Due Process Clause.

         Two forms of personal jurisdiction exist: general and specific. General jurisdiction exists when the defendant is at home in the forum state-i.e., he is domiciled here. See Daimler AG v. Bauman, 571 U.S. 117 (2014); see also Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 924 (2011) (explaining that “[f]or an individual, the paradigm forum for the exercise of general jurisdiction is the individual’s domicile, ” and for a corporation, it is the state of incorporation and principal place of business).

         Roche does not assert facts to support general jurisdiction for any of the Individual Defendants challenging personal jurisdiction. Instead, Roche relies on the individuals’ involvement in the alleged activities to confer specific jurisdiction over them.

         Specific jurisdiction arises “out of a party’s activities in the forum state that are related to the cause of action alleged in the complaint.” Sloss Indus. Corp., 488 F.3d at 925 (quoting McGow v. McCurry, 412 F.3d 1207, 1214 n.3 (11th Cir. 2005)). To satisfy specific jurisdiction, the defendant’s contacts with the forum must meet three criteria. The first is that the contacts must be related to or have given rise to the cause of action. “Second, the contacts must involve some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum. . . . Third, the defendant’s contacts with the forum must be such that the defendant should reasonably anticipate being haled into court there.” U.S. S.E.C. v. Carrillo, 115 F.3d 1540, 1542 (11th Cir. 1997) (quotation and ellipses omitted).

         Roche asserts the same two theories to support the court’s specific personal jurisdiction over these seven individuals: (1) the Individual Defendants participated in a conspiracy that included overt acts within the forum state, and (2) the Individual Defendants personally participated in torts that occurred in Alabama.

         Under the conspiracy theory of personal jurisdiction, “a defendant who otherwise may not be subject to personal jurisdiction might be [brought] into court if the plaintiff ‘plead[s] with particularity the conspiracy as well as the overt acts within the forum taken in furtherance of the conspiracy.’” In re Blue Cross Blue Shield Antitrust Litig., 225 F.Supp.3d 1269, 1302 (N.D. Ala. 2016) (quoting Ex parte McInnis, 820 So.2d 795, 806–07 (Ala. 2001)). But the Alabama Supreme Court noted that the conspiratorial activity must be “aimed at an Alabama plaintiff.” Ex parte Alamo Title Co., 128 So.3d 700, 713 (Ala. 2013) (emphasis added). And neither Roche Diagnostics Corporation nor Roche Diabetes Care, Inc.-the targets of the alleged conspiracy- is a citizen of Alabama. (Doc. 90 at 6.) So the court cannot have personal jurisdiction over these Individual Defendants under a conspiracy theory of jurisdiction because neither Plaintiff is an Alabama plaintiff.

         Alternatively, Roche asserts that this court has personal jurisdiction over the Individual Defendants under the tortious conduct theory. Under Alabama law, “[a] corporate agent who personally participates, albeit in his or her capacity as such agent, in a tort is personally liable for the tort.” Sieber v. Campbell, 810 So.2d 641, 645 (Ala. 2001). The corporate agent who personally participates in the tort is subject to personal jurisdiction in the forum state where that tort is litigated; however, the personal jurisdiction of a corporation does not automatically give the state personal jurisdiction over the corporation’s officers or agents. See Id . (“[C]orporate-agent status does not insulate the agent from the personal jurisdiction of a state court for the litigation of those torts, or any other claims pendent to that lawsuit”); Candy H. v. Redemption Ranch, Inc., 563 F.Supp. 505, 513 (M.D. Ala. 1983) (“[P]ersonal jurisdiction over corporate officers and employees in their individual capacity may not be predicated merely upon personal jurisdiction over the corporation itself; rather, a court must look to the individual and personal contacts, if any, of the officers and employees with the forum state.”).

         In this case, portions of the alleged insurance fraud scheme took place in Alabama. Six of the brick-and-mortar pharmacies purchased by PHC are in Alabama. (Doc. 90 at 20.) And those pharmacies allegedly are filling the prescriptions and communicating with the fulfillment center in Amory, Mississippi to prepare records for adjudication. (Id. at 21.) Without these transmissions of the prescriptions for the test strips back to Mississippi, PHC could not submit adjudication claims to the insurance companies and PBMs that in turn seek rebates from Roche. So the very heart of these insurance claims originates from the pharmacies in Alabama. (Id. at 23.) These actions were not, as the Individual Defendants suggest, “mere untargeted negligence.” See Calder v. Jones, 465 U.S. 783, 789 (1984). PHC sought out Alabama pharmacies to purchase and incorporate into its tangled web of deception. The newly acquired Alabama pharmacies then submitted allegedly fraudulent prescriptions for adjudication via PHC’s filling center in Amory.

         But the Individual Defendants contend that the tortious conduct does not give rise to their personal jurisdiction in Alabama because the harm was not directed at the State of Alabama or its residents and because the “operational nexus” of the allegedly illegal activity was in Mississippi. (Doc. 106 at 11.) The Individual Defendants are correct.

         Just as with the conspiracy theory of personal jurisdiction, tortious conduct must intentionally harm the forum state or its residents before personal jurisdiction attaches. The Eleventh Circuit notes that the Calder effects test of personal jurisdiction by tortious conduct requires “the commission of an intentional tort, expressly aimed at a specific individual in the forum whose effects were suffered in the forum.” Licciardello v. Lovelady, 544 F.3d 1280, 1288 (11th Cir. 2008) (emphasis added). Roche was not in Alabama, and the effects were not suffered in Alabama. The effects were suffered in Indiana-where Roche Diagnostics Corporation is incorporated and has its principal place of business, and where Roche Diabetes Care, Inc. has its ...