North Jackson Pharmacy Inc v. McKesson Corporation et al

Filing 32

MEMORANDUM OPINION. Signed by Magistrate Judge Staci G Cornelius on 8/24/15. (MRR )

FILED
2015 Aug-24 AM 11:07
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
NORTH
INC.,

JACKSON

PHARMACY, )
)
)
Plaintiff,
)
)
v.
)
)
MCKESSON CORPORATION, et al., )
)
Defendants.
)

Case No.: 5:14-cv-02371-SGC

MEMORANDUM OPINION
Presently pending is the motion to remand filed by plaintiff, North Jackson
Pharmacy, Inc.

(Doc. 12).1

The parties have consented to magistrate judge

jurisdiction pursuant to 28 U.S.C. § 636(c). (Docs. 19, 19-1). As explained below,
the motion to remand is due to be denied and Tom Smith is due to be dismissed as
fraudulently joined.
I.

FACTS AND PROCEDURAL HISTORY2
North Jackson Pharmacy initiated this lawsuit in the Circuit Court of

Jackson County, Alabama. (Doc. 1-1).

North Jackson Pharmacy is a locally

1

Defendant, Tom Smith, has also filed a motion to dismiss under Rule 12(b)(6). (Doc. 13). The
court stayed briefing on the motion to dismiss until the motion to remand was adjudicated. (Doc.
14). Given the conclusions reached in this memorandum opinion, the motion to dismiss is moot.
2

As required when considering a motion to remand, the court has considered the complaint's
factual allegations in the light most favorable to the plaintiff. Crowe v. Coleman, 113 F.3d 1536,
1538 (11th Cir.1997).

owned and operated community pharmacy located in Stevenson, Alabama. (Id. at
4). Defendant, McKesson Corporation, is a pharmaceutical distribution supplier
incorporated in Delaware with a principal place of business in San Francisco,
California. (Id. at 5). Defendant, Tom Smith, is an Alabama resident and "a
facilitator for McKesson in Alabama." (Id. at 5).
McKesson supplied prescription drugs to North Jackson Pharmacy for
approximately ten years prior to December 2014. (Doc. 1-1 at 5). The complaint
alleges McKesson breached the supply contract on December 2, 2014, when it
suddenly ceased filling North Jackson Pharmacy's orders. (Id. at 6). On these
facts, the complaint asserts claims for breach of contract and tortious interference
with business relations against McKesson and Tom Smith. (Id. at 6-8).
On December 9, 2014, McKesson removed on the basis of diversity,
asserting that Tom Smith was fraudulently joined and attaching affidavits and other
documents in support of this assertion. (Doc. 1). Among the evidence attached to
McKesson's notice of removal are the contract at issue, an internal report produced
by McKesson regarding an investigation of North Jackson Pharmacy's practices,
and the affidavit of Tom Smith. (Docs. 1-2, 1-3, 1-5, 1-7).
The contract in question is a vendor agreement ("Agreement") between
McKesson and the American Pharmacy Cooperative, Inc. ("APCI"), of which
North Jackson Pharmacy is a member. (Doc. 1-7 at 2, 4; Doc. 15 at 5; see Doc. 1-2
2

at 1). The version of the Agreement governing at the time McKesson refused to
fulfill North Jackson Pharmacy's orders was executed by McKesson and APCI in
May 2013, and chronicled prior agreements superseded by the 2013 Agreement.
(Doc. 1-7 at 2). Under the Agreement, McKesson was the exclusive supplier of
products for APCI members. (Id. at 4). McKesson retained the sole discretion to
limit the delivery of controlled substances to any APCI member in the event a
member's conduct "would cause McKesson to be noncompliant with or in jeopardy
of being noncompliant with any Laws," guidelines, or regulations governing
controlled substances. (Id. at 32). Tom Smith is not a party to this agreement. (Id.
at 2; Doc. 1-2 at 1).
In October 2014, Chris Sanderson, a manager in McKesson's regulatory
affairs department, visited North Jackson Pharmacy and later prepared a report
regarding North Jackson Pharmacy's pharmacists and its disbursement of
controlled substances. (See Doc. 1-3 at 2-10). After reviewing the report, Jerry
Carmack, also in McKesson's regulatory affairs department, noted: (1) the high
percentage of controlled substances disbursed; (2) the high volume of controlled
diet prescriptions disbursed; (3) the high volume of prescriptions purchased with
cash; (4) the disciplinary records of the pharmacists; and (5) North Jackson
Pharmacy's failure to utilize the prescription drug monitoring database. (Doc. 1-3
at 3). Based on these findings, Carmack recommended terminating delivery of
3

controlled pharmaceuticals to North Jackson Pharmacy. (Id.). McKesson's senior
director of regulatory affairs, Gary Boggs, suspended further supply of controlled
substances to North Jackson Pharmacy. (See Doc. 1-5 at 2).
Tom Smith's affidavit avers he is a McKesson employee working in the
distribution center in Birmingham, Alabama, where he is a Vice President and
General Manager responsible for overseeing sales and operations for McKesson's
distribution of pharmaceuticals.

(Doc. 1-5 at 2).

Tom Smith avers that his

responsibilities do not include investigating whether McKesson's customers are
complying with federal laws and/or regulations concerning the sale and
distribution of controlled substances; that responsibility lies with McKesson's
regulatory affairs department. (Id.). Tom Smith also avers he had no role in the
decision to terminate the Agreement with North Jackson Pharmacy.

(Id.).

Although already evident from review of the Agreement itself, Tom Smith avers he
was not a party to the Agreement between APCI and McKesson. (Id.). Likewise,
Tom Smith is not a party to any other contract with North Jackson Pharmacy.
(Id.).
II.

DISCUSSION
That this lawsuit seeks damages in excess of the $75,000 jurisdictional

threshold is not in dispute. The only issue is the existence of complete diversity
among the parties. Whether Tom Smith was fraudulently joined will resolve this
4

question because, in determining whether complete diversity exists, courts should
disregard the citizenship of a fraudulently joined defendant.

Henderson v.

Washington Nat'l Ins. Co., 454 F.3d 1278, 1281 (11th Cir. 2006).
"In a removal case alleging fraudulent joinder, the removing party has the
burden of proving that either: (1) there is no possibility the plaintiff can establish a
cause of action against the resident defendant; or (2) the plaintiff has fraudulently
pled jurisdictional facts to bring the resident defendant into state court." Crowe,
113 F.3d at 1538 (citing Cabalceta v. Standard Fruit Co., 883 F.2d 1553, 1561
(11th Cir.1989)). Where, as here, a defendant argues there is no possibility the
plaintiff can sustain a claim against a defendant, "[t]he plaintiff need not have a
winning case against the allegedly fraudulent defendant; he need only have a
possibility of stating a valid cause of action in order for the joinder to be
legitimate." Triggs v. John Crump Toyota, Inc., 154 F.3d 1284, 1287 (11th Cir.
1998) (emphasis in original); see Pacheco de Perez v. AT & T Co., 139 F.3d 1368,
1380 (11th Cir. 1998). The removing party bears a "heavy" burden of establishing
federal diversity jurisdiction via fraudulent joinder. Crowe, 113 F.3d at 1538.
"The determination of whether a resident defendant has been fraudulently
joined must be based upon the plaintiff's pleadings at the time of removal,
supplemented by any affidavits and deposition transcripts submitted by the
parties.” Pacheco de Perez, 139 F.3d at 1380. The "proceeding appropriate for
5

resolving a claim of fraudulent joinder is similar to that used for ruling on a motion
for summary judgment under Fed. R. Civ. P. 56(b).” Crowe, 113 F.3d at 1538
(quoting B, Inc. v. Miller Brewing Co., 663 F.2d 545, 549 n. 9 (5th Cir. Unit A
1981)). In such a proceeding, the district court must “resolve all questions of fact .
. . in favor of the plaintiff.” Cabalceta, 883 F.2d at 1561. However, "there must
be some question of fact before the district court can resolve that fact in the
plaintiff's favor." Legg v. Wyeth, 428 F.3d 1317, 1322 (11th Cir. 2005) (plaintiff's
failure to rebut affidavits submitted with notice of removal left "no question of fact
for the court to resolve").
In this case, Defendants attached to their notice of removal affidavits and
other evidence to support their contention that Tom Smith was fraudulently joined.
In response, North Jackson Pharmacy has submitted the affidavit of Michael E.
Gurley, Jr., one of its attorneys in this matter, as well as other evidence. (Doc. 121).

However, none of the evidence submitted by North Jackson Pharmacy is

pertinent to the question of fraudulent joinder. Instead, the affidavit and other
evidence demonstrate McKesson's contacts within the Northern District of
Alabama.

While this evidence would be germane to the question of personal

jurisdiction, personal jurisdiction is not at issue here. Additionally, it is undisputed
that, for purposes of diversity jurisdiction, McKesson is a citizen of Delaware and
California. Accordingly, the evidence submitted by McKesson in support of its
6

argument regarding fraudulent joinder is effectively undisputed. See Legg, 428
F.3d at 1322. The two claims asserted against Tom Smith are addressed in turn.
A. Breach of Contract
Under Alabama law, a plaintiff asserting breach of contract must establish
"(1) the existence of a valid contract binding the parties in the action, (2) his own
performance under the contract, (3) the defendant's nonperformance, and (4)
damages." Campbell v. Naman's Catering, Inc., 842 So. 2d 654, 658 (Ala. 2002)
(quoting S. Med. Health, Inc. v. Vaughn, 669 So. 2d 98, 99 (Ala. 1995)). Because
the Agreement was executed solely by APCI and McKesson, Defendants contend
Tom Smith cannot be held liable for its breach. (Doc. 15 at 16-19). Likewise,
Defendants contend the undisputed evidence shows that Tom Smith had no
involvement in the decision to cease supplying controlled pharmaceuticals to North
Jackson Pharmacy. (Id. at 19).3 While North Jackson Pharmacy replied in support
of its motion to remand, it did not address these arguments. (See generally Doc.
16).
Based on the undisputed evidence that Tom Smith was not a party to the
Agreement, North Jackson Pharmacy cannot demonstrate the "possibility of stating
3

In concluding there is no possibility that North Jackson Pharmacy can state a valid claim for
breach of contract against Tom Smith, the court has not relied on the affidavit's statements
regarding Tom Smith's lack of involvement in McKesson's decision to terminate the Agreement.
See Crowe, 113 F.3d at 1538 (the jurisdictional inquiry necessary to resolve a claim of fraudulent
joinder "must not subsume substantive determination" and "federal courts are not to weigh the
merits of a plaintiff's claim beyond determining whether it is an arguable one under state law")
(quoting B, Inc., 663 F.2d at 548-50).
7

a valid cause of action" for breach of contract against Tom Smith. Triggs, 154
F.3d at 1287; see Pate v. Rollison Logging Equip., 628 So. 2d 337, 343 (Ala. 1993)
(affirming summary judgment for insurance broker who could not "be liable for
breach of contract because he . . . was not a party"); Ligon Furniture Co., Inc. v.
O.M. Hughes Ins., Inc., 551 So. 2d 283, 285 (Ala. 1989) (affirming summary
judgment for defendants on claim for breach of contract because defendants "were
not parties"); Holderfield v. Allstate Ins. Co., No. 13-074-RBP, 2014 WL 1600309,
*2 (N.D. Ala. April 21, 2014) (finding plaintiff had no possibility of stating a valid
claim for breach of contract against non-party to the contract); see also Legg, 428
F.3d at 1322 (plaintiff's failure to rebut affidavits submitted with notice of removal
left "no question of fact for the court to resolve" in favor of the plaintiff).
B. Tortious Interference With Business Relations
Next, the complaint alleges Defendants (including Tom Smith) have
interfered with North Jackson Pharmacy's relations with its patients and "have
caused North Jackson Pharmacy to lose business and income by forcing North
Jackson Pharmacy patients to do business with other distant pharmacies not
encumbered by" the Agreement. (Doc. 1-1 at 8). Defendants contend there is no
possibility that North Jackson Pharmacy can state a valid cause of action for
tortious interference against Tom Smith because he is not a stranger to the business
relationship between North Jackson Pharmacy and its patients. (Doc. 15 at 20-24).
8

Defendants also rely on Tom Smith's affidavit to show that he did not participate in
or contribute to the decision to terminate the Agreement. (Id. at 24-25).4
Under Alabama law, a plaintiff claiming tortious interference with business
relations must show: "(1) the existence of a protectible business relationship; (2) of
which the defendant knew; (3) to which the defendant was a stranger; (4) with
which the defendant intentionally interfered; and (5) damage."

White Sands

Group, LLC v. PRS II, LLC, 32 So. 3d 5, 14 (Ala. 2009).5 As relevant here, "a
plaintiff asserting a tortious-interference claim bears the burden of proving that the
defendant is a 'third party' or 'stranger' to the contract or business relationship with
which the defendant allegedly interfered."

Waddell & Reed, Inc. v. United

Investors Life Ins. Co., 875 So. 2d 1143, 1154 (Ala. 2003). An entity is not a
stranger if it is a "participant" in a relationship. Id. at 1157. A participant is one
involved "in a business relationship arising from interwoven contractual
arrangements that include the contract."

Id.

A plaintiff claiming tortious

interference must show not only a defendant's distance from the contract, but also
4

As with the claim for breach of contract, the court has not relied Tom Smith's averments
regarding his lack of involvement with McKesson's decision to terminate the Agreement. See
note 3, supra.
5

The tort of tortious interference with business relations substantially overlaps with tortious
interference with contractual relations. Glenn Const. Co., LLC v. Bell Aerospace Servs., Inc.,
785 F. Supp. 2d 1258, 1279 (M.D. Ala. 2011); Hope for Families & Cmty. Serv. v. Warren, 721
F. Supp. 2d 1079, 1177 (M.D. Ala. 2010) (explaining that tortious interference with a business
relationship is a separate tort from tortious interference with a contractual relationship because
the latter “presupposes the existence of an enforceable contract but that otherwise, the elements
of both torts overlap”) (quotations and alterations omitted).
9

distance from "the business relationship giving rise to and underpinning the
contract." Id. at 1154-55 (emphasis omitted) (quoting Atlanta Mkt. Ctr. Mgmt. Co.
v. McLane, 503 S.E.2d 278, 283 (Ga. 1998).
The Alabama Supreme Court has stated that "[a] defendant is a party in
interest to a business or contractual relationship if the defendant has any beneficial
or economic interest in, or control over, that relationship." Tom's Foods, Inc. v.
Carn, 896 So. 2d 443, 454 (Ala. 2004)). Additionally, "[p]arties to an interwoven
contractual arrangement are not liable for tortious interference with any of the
contracts or business relationships."

Waddell, 875 So. 2d at 1157 (emphasis

omitted) (quoting LaSonde v Chase Mortg. Co., 777 S.E. 2d 822, 824 (Ga. App.
Ct. 2003). Furthermore, a third-party "involved in creating th[e] relationship"
between two other parties is not a stranger to that relationship. Tom's Foods, 896
So. 2d at 455.
The Eleventh Circuit has recognized the Alabama Supreme Court's
enumeration of several circumstances in which a party is not a stranger for
purposes of tortious interference. MAC East, LLC v. Shoney's, 535 F.3d 1293, 1297
(11th Cir. 2008).

"A defendant is not a stranger to a contract or business

relationship when: '(1) the defendant is an essential entity to the purported injured
relations; (2) the allegedly injured relations are inextricably a part of or dependent
upon the defendant's contractual or business relations; (3) the defendant would
10

benefit economically from the alleged injured relations; or (4) both the defendant
and the plaintiff are parties to a comprehensive interwoven set of contract
relations.'" Id. (quoting Waddell, 875 So. 2d at 1156).
Here, the complaint alleges Tom Smith was "a facilitator for McKesson in
Alabama," and the undisputed facts establish that he was a McKesson employee
who oversaw sales and distribution of pharmaceuticals to North Jackson Pharmacy.
(Doc. 1-1 at 5; Doc. 1-5 at 2). In its motion to remand, North Jackson Pharmacy
contends Tom Smith "participated in and was active in all aspects of the sales and
operations in Alabama as to the controlled substances sold to" the pharmacy.
(Doc. 12 at 4). These allegations and undisputed facts establish that: the injured
relations between North Jackson Pharmacy and its patientss "are inextricably a part
of or dependent upon" the business relations with Tom Smith; and (2) both Tom
Smith and North Jackson Pharmacy are parties to "a comprehensive interwoven set
of business relations" involving McKesson, Tom Smith, North Jackson Pharmacy,
and the pharmacy's patients. Waddell, 875 So. 2d at 1156. Accordingly, as a
matter of law, Tom Smith was not a stranger to North Jackson Pharmacy's business
relations with its patients. See Cochran v. Five Points Temporaries, LLC, 907 F.
Supp. 2d 1260, 1272-74 (N.D. Ala. 2012) (dismissing for failure to state a claim
for tortious interference where parties were involved in interwoven set of
contractual relations).
11

North Jackson Pharmacy's reply in support of the motion to remand attempts
to distinguish the cases relied upon by Defendants to show that Tom Smith was not
a stranger for purposes of tortious interference.

In particular, North Jackson

Pharmacy contends that "[i]n each case [relied upon by Defendants] there is a
direct relationship between the parties" and that no such relationship exists
between Tom Smith and North Jackson Pharmacy's patients. (Doc. 16 at 2). Even
accepting North Jackson Pharmacy's interpretation of the cases relied upon by
Defendants, there is no requirement of a "direct relationship" in order to show that
a defendant is not a stranger to a business relationship. See Lynn v. Romar Marina
Club, LLC, No. 07-0173, 2009 WL 4667387, *18 (S.D. Ala. Dec. 1, 2009)
(granting motion for summary judgment to defendant after finding he was not a
stranger to a real estate transaction where his financing was essential to the ability
of the parties to the contract to close on the transaction); Glenn Const., 785 F.
Supp. 2d at 1282 (granting summary judgment for engineer hired by co-defendant
after finding engineer, who was not directly related to plaintiff, was not a stranger
to the contract between the plaintiff and co-defendant).

Accordingly, even

construing the facts in the light most favorable to North Jackson Pharmacy, its
arguments are not sufficient to overcome the conclusion that Tom Smith was not a
stranger to the business relations between North Jackson Pharmacy and its patients.

12

As explained above, North Jackson Pharmacy cannot demonstrate the
"possibility of stating a valid cause of action" for tortious interference against Tom
Smith. Triggs, 154 F.3d at 1287; see also Legg, 428 F.3d at 1322 (plaintiff's
failure to rebut affidavits submitted with notice of removal left "no question of fact
for the court to resolve" in favor of the plaintiff).
III.

CONCLUSION

For all of the foregoing reasons, there is no possibility that North Jackson
Pharmacy can state a valid claim against Tom Smith for either breach of contract
or tortious interference. As such, Tom Smith has been fraudulently joined and his
citizenship will be disregarded for purposes of evaluating diversity jurisdiction.
Henderson, 454 F.3d at 1281. Because the amount in controversy exceeds $75,000
and because complete diversity of citizenship exists between North Jackson
Pharmacy and McKesson, the motion to remand (Doc. 12) is DENIED. The
claims against Tom Smith will be dismissed by separate order.
In light of the foregoing, the Clerk is DIRECTED to TERM as MOOT the
motion to dismiss Tom Smith. (Doc. 13).
DONE this 24th day of August, 2015.

______________________________
STACI G. CORNELIUS
U.S. MAGISTRATE JUDGE
13