Jajco, Inc. v. Leader Drug Stores, Inc. et al

Filing 33

Order by Hon. Phyllis J. Hamilton granting 26 Motion to Dismiss with leave to amend.(hlkS, COURT STAFF) (Filed on 3/7/2013)

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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 6 7 JAJCO, INC. dba ANCHOR DRUGS PHARMACY, 8 Plaintiff, No. C 12-05703 PJH 9 v. ORDER GRANTING MOTION TO DISMISS WITH LEAVE TO AMEND LEADER DRUG STORES, INC., et al., 11 For the Northern District of California United States District Court 10 12 13 Defendants. _______________________________/ The motion to dismiss filed by defendants InformedRx, SXC Health Solutions, Inc., 14 Catamaran PBM of Illinois, Inc., Catamaran Corporation and Catamaran, Inc., came on for 15 hearing before the court on March 6, 2013. Defendants appeared by their counsel, James 16 Higgins; plaintiff Jajco, Inc. dba Anchor Drugs Pharmacy (Anchor) did not make an 17 appearance and did not explain its absence from the motion hearing. Having read the 18 parties’ papers and carefully considered their arguments and the relevant legal authority, 19 the court GRANTS the motion to dismiss with leave to amend. Upon further considering 20 the briefs, the court has determined that leave to amend beyond that granted at the hearing 21 is warranted. 22 InformedRx, SXC and the Catamaran defendants move to dismiss the second cause 23 of action for breach of contract alleged in the second amended complaint (SAC). The SAC 24 alleges that InformedRx, acting as the agent of former defendant HPSM, breached the 25 Leader-HPSM contract. SAC ¶ 67. InformedRx moves to dismiss the breach of contract 26 claim based on this alleged agency, citing authority that “under California law it is settled 27 that a personal judgment for damages for breach of contract may not be obtained against a 28 known agent of a disclosed principal.” Reply at 3 (citing Sackett v. Wyatt, 32 Cal. App. 3d 1 592, 597 (1973)). Anchor does not address or distinguish this authority at all, and seems to 2 have abandoned its agency theory from its breach of contract claim. The court therefore 3 dismisses with prejudice the breach of contract claim based on an agency theory. 4 In its opposition brief, Anchor asserts a third party beneficiary theory of liability InformedRx contract and the InformedRx-HPSM contract. Opp. at 3-4. Under California 7 law, “‘[a] contract, made expressly for the benefit of a third person, may be enforced by him 8 at any time before the parties thereto rescind it.’” Arata v. Bank of Am. Nat. Trust & Sav. 9 Ass'n, 223 Cal. App. 2d 199, 205 (1963) (quoting Cal. Civ. Code § 1559.) “‘The test for 10 determining whether a contract was made for the benefit of a third person is whether an 11 For the Northern District of California against defendants on the ground that Anchor is a third party beneficiary of the Leader- 6 United States District Court 5 intent to benefit a third person appears from the terms of the contract.’” Id. (quoting 12 Johnson v. Holmes Tuttle Lincoln-Mercury, Inc., 160 Cal. App. 2d 290, 297 (1958) (internal 13 citation omitted)). The operative complaint does not include allegations that Anchor is an 14 intended third party beneficiary of the InformedRx contracts or facts supporting this theory, 15 and therefore fails to state a plausible claim for relief against InformedRx, SXC and/or the 16 Catamaran defendants for breach of contract. Because amendment does not appear to be 17 futile, the breach of contract claim (the second cause of action) is dismissed with leave to 18 amend to allege a third party beneficiary claim against InformedRx, and against SXC 19 and/or the Catamaran defendants if Anchor can allege a basis for alter ego or successor 20 liability, as discussed further below. To satisfy federal pleading standards, Anchor must 21 amend its complaint to allege that the terms of the contracts express an intent to benefit 22 third parties such as Anchor, rather than only incidentally or remotely benefitting Anchor. 23 Kaiser Engineers v. Grinnell Fire Prot. Sys. Co., 173 Cal. App. 3d 1050, 1055 (1985) 24 (internal citations omitted); Le Ballister v. Redwood Theatres, 1 Cal. App. 2d 447, 449 25 (1934) (“From a reading of the agreement before us, we believe that the intent to benefit 26 appellant clearly appears from its terms.”). Anchor must also identify what relevant 27 contractual provisions were allegedly breached. 28 2 1 SXC and the Catamaran defendants also move to dismiss the claims against them 2 on the ground that the SAC fails to plead facts to support a basis for liability against them, 3 whether as successors in interest to InformedRx, or under an alter ego or agency theory. 4 The SAC has no allegations about the role of SXC or the Catamaran defendants in the 5 alleged transactions or breaches by InformedRx, and makes only conclusory agency and 6 alter ego allegations that “defendants, and each of them, were an owner, co-owner, agent, 7 representative, partner, and/or alter ego of its co-defendants, or otherwise acting on behalf 8 of each and every remaining defendant. . . .” SAC ¶ 17. These allegations do not satisfy 9 the pleading standards under Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (“the pleading standard Rule 8 announces does not require ‘detailed factual allegations,’ but it demands 11 For the Northern District of California United States District Court 10 more than an unadorned, the-defendant-unlawfully-harmed-me accusation”) (quoting Bell 12 Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). 13 In opposition to the motion to dismiss, Anchor does not provide any basis to support 14 an agency theory of liability, and admits that the SAC only vaguely refers to InformedRx’s 15 “successors-in-interest” because Anchor “does not know the exact names.” Opp. at 5. To 16 support its theory of successor liability, Anchor cites deposition testimony to show that 17 InformedRx no longer exists and that SXC bought another Pharmacy Benefit Manager and 18 merged the two companies to create Catamaran Corp. Klein Decl., Ex. A (Feliciani Depo.). 19 Furthermore, defendants concede that InformedRx changed its name to Catamaran PBM 20 of Illinois, Inc., that SXC changed its name to Catamaran Inc., and that Catamaran 21 Corporation is the parent corporation of Catamaran Inc. (f/k/a/ SXC) and Catamaran PBM 22 (f/k/a InformedRx). Reply at 3-4 and n.2; Disclosure Statement, doc. no. 9. To state a 23 plausible claim against SXC and/or the Catamaran defendants, however, Anchor must not 24 only show that InformedRx’s assets were transferred to another corporation, but must also 25 allege a basis for successor liability. To determine whether a corporation purchasing the 26 principal assets of another corporation assumes the other's liabilities, California law 27 ordinarily applies the rule that the purchaser does not assume the seller's liabilities unless 28 (1) there is an express or implied agreement of assumption, (2) the transaction amounts to 3 1 a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere 2 continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent 3 purpose of escaping liability for the seller's debts. Ray v. Alad Corp., 19 Cal. 3d 22, 28 4 (1977). See Allstate Ins. Co. v. Countrywide Fin. Corp., 842 F. Supp. 2d 1216, 1230 (C.D. 5 Cal. 2012) (“An exception to the well-settled rule against successor liability is triggered 6 when the purchaser expressly or implicitly agrees to assume liability.”) (citation and internal 7 quotation marks omitted). Because amendment does not appear futile, the court grants 8 leave to amend the claims against SXC, Catamaran PBM of Illinois, Inc., Catamaran 9 Corporation and Catamaran, Inc. to add factual allegations to support a basis for successor 11 For the Northern District of California United States District Court 10 liability, but not agency. To support its alter ego theory, Anchor argues that the CFO of the Catamaran 12 defendants, Jeff Park, was directly involved with the efforts to withdraw funds from 13 Anchor’s Central Pay accounts. Opp. at 5; SAC 16. The SAC also alleges, in a conclusory 14 fashion, that “[t]here exists . . . a unity of interest in ownership between certain defendants 15 and other certain defendants such that any individuality and separateness between the 16 certain defendants has ceased and these defendants are the alter ego of the other certain 17 defendants and exerted control over those defendants.” SAC ¶ 13. Under California law, 18 alter ego is an extreme remedy which requires that two conditions be met: “First, there 19 must be such a unity of interest and ownership between the corporation and its equitable 20 owner that the separate personalities of the corporation and the shareholder do not in 21 reality exist. Second, there must be an inequitable result if the acts in question are treated 22 as those of the corporation alone.” Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 23 4th 523, 538-39 (2000). The SAC fails to state a plausible basis for alter ego liability to 24 support the claims against SXC or the Catamaran defendants, which claims are dismissed 25 with leave to amend. 26 For the reasons set forth above and stated on the record, defendants’ motion to 27 dismiss the second cause of action for breach of contract in the SAC against all moving 28 defendants is GRANTED WITH LEAVE TO AMEND to allege a third party beneficiary claim 4 1 for breach of contract; the motion to dismiss the second, third, fourth, fifth, sixth and 2 seventh causes of action in the SAC against SXC and the Catamaran defendants is 3 GRANTED WITH LEAVE TO AMEND the successor liability and/or alter ego allegations. 4 The motion to dismiss is GRANTED WITH PREJUDICE with respect to the agency theories 5 of liability against all moving defendants. 6 Anchor shall file any amended complaint within 28 days of the filing date of this 7 order. Defendants shall have 21 days thereafter by which to respond to the amended 8 complaint. Leave to amend is limited to curing the deficiencies identified herein, and 9 Anchor may not add new claims or parties without complying with Federal Rule of Civil 11 For the Northern District of California United States District Court 10 Procedure 15. IT IS SO ORDERED. 12 Dated: March 7, 2013 13 ______________________________ PHYLLIS J. HAMILTON United States District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5

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