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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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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JAJCO, INC. dba ANCHOR DRUGS
PHARMACY,

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Plaintiff,

No. C 12-05703 PJH

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v.

ORDER GRANTING MOTION TO
DISMISS WITH LEAVE TO AMEND

LEADER DRUG STORES, INC., et al.,
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For the Northern District of California

United States District Court

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Defendants.
_______________________________/
The motion to dismiss filed by defendants InformedRx, SXC Health Solutions, Inc.,

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Catamaran PBM of Illinois, Inc., Catamaran Corporation and Catamaran, Inc., came on for

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hearing before the court on March 6, 2013. Defendants appeared by their counsel, James

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Higgins; plaintiff Jajco, Inc. dba Anchor Drugs Pharmacy (Anchor) did not make an

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appearance and did not explain its absence from the motion hearing. Having read the

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parties’ papers and carefully considered their arguments and the relevant legal authority,

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the court GRANTS the motion to dismiss with leave to amend. Upon further considering

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the briefs, the court has determined that leave to amend beyond that granted at the hearing

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is warranted.

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InformedRx, SXC and the Catamaran defendants move to dismiss the second cause

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of action for breach of contract alleged in the second amended complaint (SAC). The SAC

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alleges that InformedRx, acting as the agent of former defendant HPSM, breached the

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Leader-HPSM contract. SAC ¶ 67. InformedRx moves to dismiss the breach of contract

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claim based on this alleged agency, citing authority that “under California law it is settled

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that a personal judgment for damages for breach of contract may not be obtained against a

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known agent of a disclosed principal.” Reply at 3 (citing Sackett v. Wyatt, 32 Cal. App. 3d

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592, 597 (1973)). Anchor does not address or distinguish this authority at all, and seems to

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have abandoned its agency theory from its breach of contract claim. The court therefore

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dismisses with prejudice the breach of contract claim based on an agency theory.

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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

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law, “‘[a] contract, made expressly for the benefit of a third person, may be enforced by him

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at any time before the parties thereto rescind it.’” Arata v. Bank of Am. Nat. Trust & Sav.

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Ass'n, 223 Cal. App. 2d 199, 205 (1963) (quoting Cal. Civ. Code § 1559.) “‘The test for

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determining whether a contract was made for the benefit of a third person is whether an

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For the Northern District of California

against defendants on the ground that Anchor is a third party beneficiary of the Leader-

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United States District Court

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intent to benefit a third person appears from the terms of the contract.’” Id. (quoting

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Johnson v. Holmes Tuttle Lincoln-Mercury, Inc., 160 Cal. App. 2d 290, 297 (1958) (internal

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citation omitted)). The operative complaint does not include allegations that Anchor is an

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intended third party beneficiary of the InformedRx contracts or facts supporting this theory,

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and therefore fails to state a plausible claim for relief against InformedRx, SXC and/or the

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Catamaran defendants for breach of contract. Because amendment does not appear to be

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futile, the breach of contract claim (the second cause of action) is dismissed with leave to

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amend to allege a third party beneficiary claim against InformedRx, and against SXC

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and/or the Catamaran defendants if Anchor can allege a basis for alter ego or successor

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liability, as discussed further below. To satisfy federal pleading standards, Anchor must

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amend its complaint to allege that the terms of the contracts express an intent to benefit

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third parties such as Anchor, rather than only incidentally or remotely benefitting Anchor.

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Kaiser Engineers v. Grinnell Fire Prot. Sys. Co., 173 Cal. App. 3d 1050, 1055 (1985)

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(internal citations omitted); Le Ballister v. Redwood Theatres, 1 Cal. App. 2d 447, 449

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(1934) (“From a reading of the agreement before us, we believe that the intent to benefit

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appellant clearly appears from its terms.”). Anchor must also identify what relevant

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contractual provisions were allegedly breached.

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SXC and the Catamaran defendants also move to dismiss the claims against them

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on the ground that the SAC fails to plead facts to support a basis for liability against them,

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whether as successors in interest to InformedRx, or under an alter ego or agency theory.

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The SAC has no allegations about the role of SXC or the Catamaran defendants in the

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alleged transactions or breaches by InformedRx, and makes only conclusory agency and

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alter ego allegations that “defendants, and each of them, were an owner, co-owner, agent,

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representative, partner, and/or alter ego of its co-defendants, or otherwise acting on behalf

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of each and every remaining defendant. . . .” SAC ¶ 17. These allegations do not satisfy

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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

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For the Northern District of California

United States District Court

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more than an unadorned, the-defendant-unlawfully-harmed-me accusation”) (quoting Bell

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Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)).

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In opposition to the motion to dismiss, Anchor does not provide any basis to support

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an agency theory of liability, and admits that the SAC only vaguely refers to InformedRx’s

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“successors-in-interest” because Anchor “does not know the exact names.” Opp. at 5. To

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support its theory of successor liability, Anchor cites deposition testimony to show that

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InformedRx no longer exists and that SXC bought another Pharmacy Benefit Manager and

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merged the two companies to create Catamaran Corp. Klein Decl., Ex. A (Feliciani Depo.).

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Furthermore, defendants concede that InformedRx changed its name to Catamaran PBM

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of Illinois, Inc., that SXC changed its name to Catamaran Inc., and that Catamaran

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Corporation is the parent corporation of Catamaran Inc. (f/k/a/ SXC) and Catamaran PBM

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(f/k/a InformedRx). Reply at 3-4 and n.2; Disclosure Statement, doc. no. 9. To state a

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plausible claim against SXC and/or the Catamaran defendants, however, Anchor must not

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only show that InformedRx’s assets were transferred to another corporation, but must also

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allege a basis for successor liability. To determine whether a corporation purchasing the

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principal assets of another corporation assumes the other's liabilities, California law

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ordinarily applies the rule that the purchaser does not assume the seller's liabilities unless

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(1) there is an express or implied agreement of assumption, (2) the transaction amounts to
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a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere

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continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent

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purpose of escaping liability for the seller's debts. Ray v. Alad Corp., 19 Cal. 3d 22, 28

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(1977). See Allstate Ins. Co. v. Countrywide Fin. Corp., 842 F. Supp. 2d 1216, 1230 (C.D.

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Cal. 2012) (“An exception to the well-settled rule against successor liability is triggered

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when the purchaser expressly or implicitly agrees to assume liability.”) (citation and internal

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quotation marks omitted). Because amendment does not appear futile, the court grants

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leave to amend the claims against SXC, Catamaran PBM of Illinois, Inc., Catamaran

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Corporation and Catamaran, Inc. to add factual allegations to support a basis for successor

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For the Northern District of California

United States District Court

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liability, but not agency.
To support its alter ego theory, Anchor argues that the CFO of the Catamaran

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defendants, Jeff Park, was directly involved with the efforts to withdraw funds from

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Anchor’s Central Pay accounts. Opp. at 5; SAC 16. The SAC also alleges, in a conclusory

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fashion, that “[t]here exists . . . a unity of interest in ownership between certain defendants

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and other certain defendants such that any individuality and separateness between the

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certain defendants has ceased and these defendants are the alter ego of the other certain

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defendants and exerted control over those defendants.” SAC ¶ 13. Under California law,

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alter ego is an extreme remedy which requires that two conditions be met: “First, there

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must be such a unity of interest and ownership between the corporation and its equitable

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owner that the separate personalities of the corporation and the shareholder do not in

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reality exist. Second, there must be an inequitable result if the acts in question are treated

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as those of the corporation alone.” Sonora Diamond Corp. v. Superior Court, 83 Cal. App.

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4th 523, 538-39 (2000). The SAC fails to state a plausible basis for alter ego liability to

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support the claims against SXC or the Catamaran defendants, which claims are dismissed

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with leave to amend.

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For the reasons set forth above and stated on the record, defendants’ motion to

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dismiss the second cause of action for breach of contract in the SAC against all moving

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defendants is GRANTED WITH LEAVE TO AMEND to allege a third party beneficiary claim
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for breach of contract; the motion to dismiss the second, third, fourth, fifth, sixth and

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seventh causes of action in the SAC against SXC and the Catamaran defendants is

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GRANTED WITH LEAVE TO AMEND the successor liability and/or alter ego allegations.

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The motion to dismiss is GRANTED WITH PREJUDICE with respect to the agency theories

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of liability against all moving defendants.

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Anchor shall file any amended complaint within 28 days of the filing date of this

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order. Defendants shall have 21 days thereafter by which to respond to the amended

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complaint. Leave to amend is limited to curing the deficiencies identified herein, and

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Anchor may not add new claims or parties without complying with Federal Rule of Civil

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For the Northern District of California

United States District Court

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Procedure 15.
IT IS SO ORDERED.

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Dated: March 7, 2013
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______________________________
PHYLLIS J. HAMILTON
United States District Judge

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