Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_09-cv-01867/USCOURTS-casd-3_09-cv-01867-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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1 09cv1867 BTM(POR)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

PRIORITY PHARMACY, INC., a

California corporation,

Plaintiff,

CASE NO. 09cv1867 BTM(POR)

ORDER GRANTING MOTION TO

DISMISS

v.

SERONO, INC., a Delaware corporation;

SERONO LABORATORIES, INC., a

Delaware corporation, and DOES 1

through 20, inclusive,

Defendants.

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.

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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

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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.

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II. PROCEDURAL BACKGROUND

On May 29, 2009, Plaintiff commenced this action. In its original complaint, Priority

asserted claims for (1) equitable indemnification; (2) negligence; and (3) declaratory relief.

In an order filed on January 5, 2010, the Court denied Serono’s motion to transfer

venue and granted Serono’s motion to dismiss the complaint for failure to state a claim. The

Court held that Priority had failed to allege facts establishing a right to equitable

indemnification under California or Massachusetts law. However, the Court granted Priority

leave to file an amended complaint. 

On January 25, 2010, Priority filed its FAC.

III. STANDARD

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be granted

only where a plaintiff's complaint lacks a "cognizable legal theory" or sufficient facts to

support a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th

Cir. 1988). When reviewing a motion to dismiss, the allegations of material fact in plaintiff’s

complaint are taken as true and construed in the light most favorable to the plaintiff. See

Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Although detailed

factual allegations are not required, factual allegations “must be enough to raise a right to

relief above the speculative level.” Bell Atlantic v. Twombly, 550 U.S. 544, 127 S.Ct. 1955,

1965 (2007). “A plaintiff’s obligation to prove the ‘grounds’ of his ‘entitle[ment] to relief’

requires more than labels and conclusions, and a formulaic recitation of the elements of a

cause of action will not do.” Id. “[W]here the well-pleaded facts do not permit the court to

infer more than the mere possibility of misconduct, the complaint has alleged - but it has not

show[n] that the pleader is entitled to relief.” Ashcroft v. Iqbal, __ U.S. __, 129 S,Ct. 1937,

1950 (2009) (internal quotation marks omitted). 

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III. DISCUSSION

Serono moves to dismiss the FAC for failure to state a claim. As discussed below,

the Court agrees that the FAC fails to state a claim that would allow Priority to recover the

attorney’s fees it incurred in defending against the qui tam action.

Priority’s theory of recovery on the FAC is grounded in the “tort of another” doctrine.

Under this doctrine, “A person who through the tort of another has been required to act in the

protection of his interests by bringing or defending an action against a third person is entitled

to recover compensation for the reasonably necessary loss of time, attorney’s fees, and other

expenditures thereby suffered or incurred.” Prentice v. North Amer. Title Guar. Corp., 59 Cal.

2d 618, 620 (1963). See also Restatement (Second) of Torts § 914(2) (One who through

the tort of another has been required to act in the protection of his interests by bringing or

defending an action against a third person is entitled to recover reasonable compensation

for loss of time, attorney fees and other expenditures thereby suffered or incurred in the

earlier action.) Under the “tort of another” doctrine, there is no recovery of “attorney’s fees

qua attorney’s fees.” Brandt v. Superior Court, 37 Cal.3d 813, 818 (1985). Instead, any

attorney’s fees recovered under the doctrine constitute damages caused by the defendant’s

wrongful actions. Id. 

Priority alleges that because of Serono’s negligent actions – i.e., structuring the data

collection program to provide for “price reductions” in the form of reimbursement payments

and not disclosing Serono’s other fraudulent activities that would subject the data collection

program to intense governmental scrutiny and investigation – Priority was forced to defend

itself in the qui tam action. Priority alleges, “As a direct result of Serono’s . . . improper acts,

and not due to any wrongdoing by Priority, Priority was required to act in the protection of its

interests and was forced to expend substantial amounts of attorney’s fees and costs in

defending and obtaining a dismissal of the qui tam action.” (FAC ¶ 47.) 

Priority makes it clear that it is not seeking indemnification from Serono as a joint

tortfeasor. (FAC ¶ 46.) However, Priority does assert an indemnification claim as an

alternate cause of action. The indemnification claim fails to state a claim because Priority

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6 09cv1867 BTM(POR)

has not alleged that it satisfies the requirements of Cal. Civ. Proc. Code § 1021.6, which

provides:

Upon motion, a court after reviewing the evidence in the principal case may

award attorney's fees to a person who prevails on a claim for implied indemnity

if the court finds (a) that the indemnitee through the tort of the indemnitor has

been required to act in the protection of the indemnitee's interest by bringing

an action against or defending an action by a third person and (b) if that

indemnitor was properly notified of the demand to bring the action or provide

the defense and did not avail itself of the opportunity to do so, and (c) that the

trier of fact determined that the indemnitee was without fault in the principal

case which is the basis for the action in indemnity or that the indemnitee had

a final judgment entered in his or her favor granting a summary judgment, a

nonsuit, or a directed verdict.

As discussed in the Court’s prior order, Priority does not satisfy the requirements of section

1021.6 because there was no determination that Plaintiff was without fault. The claims were

dismissed against Priority for failure to state fraud with particularity. No judgment was

entered in Priority’s favor. In addition, there are no allegations that Priority demanded that

Serono provide the defense in the qui tam action. 

 Priority’s “tort of another” claim does not rest upon the principles of equitable

indemnification, that is, apportionment of liability on a comparative negligence basis. See

American Motorcycle Assn. v. Superior Court, 20 Cal. 3d 578, 583 (1978). Although

equitable indemnification appears to be a subset of the “tort of another” doctrine, the doctrine

also encompasses cases that do not involve equitable indemnification. For instance, the

doctrine extends to cases where the plaintiff was forced to bring a lawsuit as the result of the

defendants’ wrongdoing. See e.g., Prentice, 59 Cal. 2d at 620-621 (plaintiffs were required

to bring quiet title action because the defendant, who acted as an escrow holder, acted

negligently in closing the sale of the property); Gray v. Don Miller & Assoc., Inc., 35 Cal. 3d

498 (1984) (defendant broker’s misrepresentation to potential buyer of real property that the

sellers had agreed to sell the property was the direct cause of plaintiff’s lawsuit for specific

performance against the sellers who had decided not to sell the property.) The doctrine also

extends to cases where the “tort of another” claimant was forced to defend a suit that was

the direct result of the tortfeasor’s negligence or other wrongdoing toward the claimant, but

there is no claim that the tortfeasor was at fault vis-à-vis the plaintiff in the underlying suit.

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1

 In its prior order, the Court cited Davis v. Air Techinical Indus., Inc., 22 Cal. 3d 1,

6 (1978) for the proposition that the “tort of another” doctrine applies only in “exceptional

circumstances.” However, as pointed out by Priority, Davis’s holding in this regard was

subsequently limited to products liability cases. Gray v. Don Miller Assoc., 35 Cal. 3d 498,

508 (1984). For purposes of clarity, the Court emphasizes that it is not applying the

“exceptional circumstances” requirement to Priority’s “tort of another” claim. As discussed

infra, Priority’s “tort of another claim” fails as a result of Priority’s failure to establish

causation.

2

 To the extent Massachusetts recognizes the “tort of another” doctrine, the same

requirements of legal causation would undoubtedly apply. See e.g., Mutual Fire, Marine and

Inland Ins. Co. v. Costa, 789 F.2d 83, 88 (1st Cir. 1986) (“[W]hen the natural consequence

of a defendant’s tortious conduct or a defendant’s breach of contract is to cause the plaintiff

to become involved in litigation with a third party, the attorney’s fees associated with that

litigation are recoverable from the defendant.”).

7 09cv1867 BTM(POR)

See, e.g., Sindell v. Gibson, Dunn & Crutcher, 54 Cal. App. 4th 1457 (1997) (defendant

attorneys, who prepared decedent’s estate plan, were liable to decedent’s children under

the”tort of another” doctrine because the children were sued by decedent’s second wife over

what property was included in the decedent’s estate solely as a result of the attorneys’ failure

to obtain a written consent from the second wife regarding certain gift and sale transfers).

Cal. Civ. Proc. Code § 1021.6 codifies the “tort of another” doctrine only for claims of

implied indemnity. Burger v. Kuimelis, 325 F. Supp. 2d 1026, 1043 (N.D. Cal. 2004).

Therefore, section 1021.6 is not applicable to Priority’s “tort of another” claim and does not

bar the claim.

Priority’s “tort of another” claim fails for a different reason - specifically, because the

facts alleged do not establish a plausible claim.1

 Under the “tort of another” doctrine, the

filing of the lawsuit against or by the party seeking recovery of its attorney’s fees must have

been the “natural and proximate consequence” of the defendant’s wrongdoing. Prentice, 59

Cal. 2d at 621. See also Gray, 35 Cal. 3d at 507 (broker’s misrepresentation was the “direct

cause” of plaintiff’s action for specific performance against the sellers); Sindell, 54 Cal. App.

4th at 1470 (“Under California law, it is a well-established principle that attorney fees incurred

through instituting or defending an action as a direct result of the tort of another are

recoverable damages.” (Emphasis added.)).2

Even assuming the factual allegations of the FAC to be true, the Court cannot

conclude that the qui tam claims against Priority were the “natural and proximate

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3

 The Court notes that such an argument might be difficult to make because the Data

Collection Administrative Fee Agreement provided that the reimbursement was to be in the

amount of $2 per mg of Serostim sold. It does not appear that the amount of the

reimbursement was tied to the actual administrative cost of collecting the data and

information requested by Serono. 

8 09cv1867 BTM(POR)

consequence” of Serono’s actions as opposed to the direct result of (1) Priority’s failure to

determine how the reimbursement payments should be characterized under the various laws;

and (2) Priority’s decision to make claims for the full price of Serostim purchased from

Serono. Although the FAC states Priority’s opinion that the so-called “price reductions” in

reality “were not actual price reductions or discounts, but created an appearance of such,”

Priority never alleges that the payments were not price reductions under the applicable laws

and that Priority therefore never made false claims when seeking reimbursement from

healthcare agencies for the full price of Serostim.3 Priority stops short of claiming that it

never made false claims and instead alleges that it did not “knowingly submit any false or

overstated claims for reimbursement.” (Emphasis added.) (FAC ¶¶ 19, 35, 46; Opp. at

13:11-24.)

If, under the applicable laws, the reimbursement payments made by Serono were

price discounts (as they were characterized in the Data Collection Administrative Fee

Agreement), the Court fails to see how Serono is to blame for Priority’s decision to treat the

payments as pure reimbursements of administrative costs and make claims for the full price

of the drug. The FAC does not allege that Serono had any input into how Priority would

make claims for reimbursement to healthcare agencies. As noted in the Court’s prior order,

the Data Collection Administrative Fee Agreement actually provided that it was Plaintiff’s

responsibility to “comply with applicable laws and regulations governing the practice of

pharmacy in Pharmacy’s state and the prevailing standards of practice in Pharmacy’s state.”

(Paragraph 1.4.)

Similarly, if Priority in fact made false claims, although unknowingly, any fraudulent

activities of Serono that might have subjected its promotional activities of Serostim to greater

scrutiny would not be the proximate cause of legal claims being brought against Priority.

Priority’s submission of false claims would be a superceding cause of any resulting legal

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4

 Priority alleges that it was forced to defend itself against all of the allegations in the

fourth amended complaint, including allegations against Serono that did not involve the data

collection program and related solely to Serono’s and Does 1-20's fraudulent conduct in

promoting, marketing, and selling Serostim, of which Priority was ignorant and had no

participation. (FAC ¶¶ 37, 38.) However, Priority does not explain why it would have to

defend against these allegations if they bore no relation to the claims against it. 

5

 Serono also seeks dismissal of the FAC on other grounds that the Court does not

find persuasive. Serono argues that its good faith settlement of the qui tam action bars

Plaintiff’s claim for contribution or indemnity. However, even assuming the settlement was

found to be in “good faith” and all applicable procedures were followed, Plaintiff’s “tort of

another” claim is not one for contribution or indemnity from a concurrent tortfeasor. Serono

also argues that Priority waived its right to attorney’s fees when it withdrew its motion for

attorney’s fees in the qui tam action. Serono has not identified any legal authority in support

of the proposition that the withdrawal of the motion for attorney’s fees, which was filed

against the relator in the qui tam action, somehow waived Priority’s right to seek attorney’s

fees against Serono under the theory of “tort of another.” 

9 09cv1867 BTM(POR)

action against Priority.4 The Court would not hold Serono liable on the theory that Priority’s

false claims may not have been discovered if Serono’s activities had not subjected the data

collection program to greater scrutiny.

Because the FAC does not give rise to a plausible claim that Serono’s alleged

wrongdoing was the proximate cause of the qui tam action against Priority, Priority’s claims

for negligence, “tort of another,” and declaratory relief are dismissed for failure to state a

claim.5 

III. CONCLUSION

For the reasons discussed above, Serono’s motion to dismiss the FAC is GRANTED.

The FAC is DISMISSED for failure to state a claim. The Court will grant Priority one final

chance to amend its complaint. If Priority chooses to do so, Priority must file the Second

Amended Complaint within 20 days of the entry of this Order.

IT IS SO ORDERED.

DATED: May 20, 2010

Honorable Barry Ted Moskowitz

United States District Judge

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