Southern Pharmacy Consultants, LLC v. Smart Fill Management Group, Inc.

Filing 132

MEMORANDUM OPINION OF THE COURT. Signed by District Judge Todd J. Campbell on 9/9/2015. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(eh)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
SOUTHERN PHARMACY
CONSULTANTS, LLC,
Plaintiff/Counterdefendant,
v.
SMART FILL MANAGEMENT
GROUP, INC,
Defendant/Counterplaintiff.

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NO. 3:13-cv-1100
JUDGE CAMPBELL

MEMORANDUM OPINION
Pending before the Court are Defendant’s Motion for Partial Summary Judgment as to
Plaintiff’s Commissions Statute Claim, Docket No. 95, and Plaintiff’s Motion for Partial Summary
Judgment on the liability portions of its breach of contract claim, its claim under the Tennessee
Commission Statute, Tenn. Code Ann, § 47-50-114, et seq., and Defendant’s counterclaims, Docket
No. 108. For the reasons stated herein, the Court will grant Defendant’s motion and deny Plaintiff’s
motion.
I.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Before the parties entered into the contract at issue in this case, Plaintiff’s principal, Mr.

Hatfield, was the president of a non-profit organization made up of independent pharmacies in
Tennessee whose function was to negotiate prices from drug wholesalers as a group to provide
leverage in price negotiations with pharmaceutical distributors comparable to that enjoyed by larger
pharmacy chains. Defendant is a company that provides a variety of business services to independent
pharmacies, including facilitating this type of group purchasing with drug wholesalers. Defendant
wanted to expand into Tennessee and approached Mr. Hatfield to discuss the possibility of working

together. At that time, Plaintiff’s organization had nineteen member pharmacies. Based on
Defendant’s proposal, Mr. Hatfield’s organization decided to dissolve and have its members become
members of Defendant, such that Defendant would take over negotiating with pharmaceutical
distributors on their behalf.
Mr. Hatfield and Defendant’s executives met sometime between January and March 2011
and reached an oral agreement about the future working relationship between the parties. The terms
of that oral agreement are disputed. Docket No. 123 at 8–17 (Defendant’s Response to Plaintiff’s
Statement of Undisputed Material Fact “SUMF”). After the meeting, Mr. Hatfield drafted a written
contract called the Group Purchasing Organization Agreement, which he presented to Defendant on
April 1, 2011. An executive with Defendant signed the written contract soon thereafter. The entire
substance of the written contract is contained on one page, and the parties’ signatures are on the
second page. Docket No. 109-1 (Written Contract). The written contract left many terms undefined
and details unspecified. It provided that Defendant was to pay Plaintiff “an administrative fee of .2%
of Brand purchases of product purchased by qualified members in addition to a 1% fee of all
generics purchased by qualified members.” Id. at 1. The written contract did not define the term
“qualified members” or “Brand purchases.” The written contract also specifies additional amounts
Defendant would pay Plaintiff based on purchases made by pharmacies that involved certain
discounts and savings. Defendant maintains that the written contract inaccurately stated that Plaintiff
would receive the entirety of these savings amounts, while the parties’ prior verbal agreement had
been that the parties would split these savings.
Defendant agrees that it did not pay Plaintiff in accordance with the written contract, but
asserts that the parties verbally agreed to amend the written contract soon after it was signed to

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clarify that the savings were to be split between the parties. Defendant contends that the verbal
modification of the contract also provided Plaintiff with less administrative fees for some types of
sales and higher administrative fees for other types of sales, such that if Plaintiff is correct that the
written contract governs, Defendant overpaid Plaintiff for some types of sales.
The parties disagree about when, if, and how many times the written agreement was orally
modified, but no new written contract was signed. Instead, Defendant presents the Court with the
original written contract with a handwritten note on it, which says “split the difference,” apparently
referring to the savings amounts that Defendant asserts were to be split between the parties pursuant
to the verbal agreements before and after the written contract was signed. Docket No. 122-10. The
written contract containing this handwritten note has no additional signatures, initials, or dates that
might indicate Plaintiff’s agreement with this modification. Defendant also argues that Plaintiff
indicated its agreement to the verbal modification of the written contract in an e-mail sent from
Plaintiff to Defendant in July 2011 which contained a spreadsheet with the fee calculation that was
consistent with the verbal modification. Defendant states that it paid Plaintiff in conformity with the
verbal modification from June 2011 to April 2014 without any objection from Plaintiff. Defendant
argues that Plaintiff first asserted that Defendant was obligated to pay it in accordance with the
written agreement, as opposed to the later verbal modification, in the course of this litigation.
Plaintiff counters that the July spreadsheet was erroneous and that the written contract governs this
relationship. Plaintiff also argues that the alleged verbal agreement to reduce the payments to which
it was entitled under the written contract, were not supported by consideration to Plaintiff and so are
not legally enforceable.

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The parties also dispute what was required of Plaintiff in order to receive the administrative
fees. Plaintiff alleges that although it was not contractually obligated to service existing customers,
it did so anyway, answering their questions and acting as an intermediary between the members and
Defendant. Defendant maintains that the verbal agreements between the parties before and after the
written contract was signed required Plaintiff to service existing members. Defendant argues that
although Plaintiff did, in fact, service existing members consistent with its agreement to do so, it did
so poorly and stopped doing so entirely in September 2013, before the end of the contract term.
Defendant states that it stopped paying administrative fees in April 2014 at the end of the 3-year
term of the contract, only after Plaintiff had stopped performing its administrative responsibilities.
On October 7, 2013, Plaintiff filed this action against Defendant. Docket No. 1. On
December 30, 2014, Plaintiff filed an Amended Complaint raising the following claims: (1)
declaratory judgment; (2) breach of contract; (3) violation of the Tennessee unpaid commissions
statute; (4) violation of the Tennessee Consumer Protection Act; and (5) intentional
misrepresentation. Docket No. 74. In short, Plaintiff alleges that Defendant failed to pay it all the
administrative fees due under the contract, which Defendant denies. Docket Nos. 74 at ¶ 15; 82 at
¶ 15. Defendant has asserted counterclaims which include, inter alia, breach of contract and unjust
enrichment based on Plaintiff’s alleged failure to provide maintenance and support to the
pharmacies. It alleges that Plaintiff’s alleged breach justifies its early termination of the agreement.
On March 27, 2015, the Court granted Defendant’s motion for partial summary judgment
and entered judgment in Defendant’s favor on Plaintiff’s Tennessee Consumer Protection Act claim.
Docket No. 94. Defendant had filed that motion before the Court granted Plaintiff’s motion to amend

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its complaint. Defendant now seeks judgment on a Plaintiff’s claim under the Tennessee
Commissions Statute, which Plaintiff first raised in its Amended Complaint.
Plaintiff Southern Pharmacy Consultants is a Tennessee limited liability company. Defendant
Smart Fill Management Group is a Minnesota corporation with its principal office located in Austin,
Minnesota. Plaintiff alleges that Defendant conducts substantial business in the State of Tennessee,
that the contract between the parties was executed in Davidson County, Tennessee, and that the
contract has been substantially performed in the State of Tennessee. Federal court jurisdiction is
based on diversity of the parties, pursuant to 28 U.S.C. § 1332.
II. Standard of Review
Summary judgment is appropriate where there is no genuine issue as to any material fact and
the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Pennington v. State
Farm Mut. Automobile Ins. Co., 553 F.3d 447, 450 (6th Cir. 2009). The party bringing the summary
judgment motion has the initial burden of informing the Court of the basis for its motion and
identifying portions of the record that demonstrate the absence of a genuine dispute over material
facts. Rodgers v. Banks, 344 F.3d 587, 595 (6th Cir. 2003). “The moving party may satisfy this
burden by presenting affirmative evidence that negates an element of the non-moving party’s claim
or by demonstrating ‘an absence of evidence to support the nonmoving party’s case.’” Id. (citing
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). If the moving party is able to meet this initial
burden, the non-moving party must then “set forth the specific facts showing that there is a genuine
issue for trial.” Id. (quoting Fed. R. Civ. P. 56(e)).
In deciding a motion for summary judgment, the Court must review all the evidence, facts
and inferences in the light most favorable to the nonmoving party. Tolan v. Cotton, 572 U.S. ----

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(2014), 134 S.Ct. 1861, 1866 (2014); Van Gorder v. Grand Trunk W. R.R., Inc., 509 F.3d 265, 268
(6th Cir. 2007).

The Court does not, however, weigh the evidence, judge the credibility of

witnesses, or determine the truth of the matter. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249
(1986). The Court determines whether sufficient evidence has been presented to make the issue of
fact a proper jury question. Id. The mere existence of a scintilla of evidence in support of the
nonmoving party’s position will be insufficient to survive summary judgment; rather, there must be
evidence on which the jury could reasonably find for the nonmoving party. Rodgers, 344 F.3d at
595 (quoting Anderson, 477 U.S. at 252). “As to materiality, the substantive law will identify which
facts are material. Only disputes over fact that might affect the outcome of the suit under the
governing law will properly preclude the entry of summary judgment. Factual disputes that are
irrelevant or unnecessary will not be counted.” Anderson, 477 U.S. at 248.
III.

Legal Analysis
A.

Plaintiff’s Breach of Contract Claim and Defendant’s Counterclaims

Plaintiff seeks judgment on its breach of contract claim and on Defendant’s counterclaims,
which include, inter alia, claims for breach of contract and unjust enrichment. There are genuine
disputes of material fact related to these claims that must be resolved by a fact finder. For example,
Plaintiff claims that Defendant has no legal or factual basis for asserting that Plaintiff breached the
contract by failing to provide maintenance and support to the member agencies, but Defendant cites
testimony in the record about ways in which Defendant was displeased with the services being
rendered to the pharmacies and details about stores that ended their membership because of
Plaintiff’s lack of adequate maintenance and support. Docket No. 123 at 26–29 (Defendant’s
Response to Plaintiff’s SUMF); 122-5 (Astrup Dep. at 7–10, 17); 122-3 (Cole Depo. at 103–18).

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Plaintiff also claims that Defendant repudiated the contract in its entirety by refusing to pay Plaintiff
in April 2014, a year before the expiration of the contract’s term. Although Defendant does not
dispute that it stopped making payments in April 2014, it presents evidence that Plaintiff had
stopped performing under the contract before that date, such that it was no longer obligated to make
payments. Id. at 35–37. There is a genuine dispute of material fact as to which party first breached
this contract. Plaintiff also alleges Defendant breached the contract by failing to pay fees for certain
“specialty” items when the Agreement requires Defendant to pay administrative fees for all “Brand
purchases of product.” Defendant presents evidence that Mr. Hatfield had discussions with a
pharmacy owner complaining that the percentage of these specialty items had increased, from which
one could infer that Mr. Hatfield understood that he did not get paid for these specialty items under
the contract, but wished the percentage of these items would be lower. Docket No. 122-9 (Logan
Depo.). The meaning of the phrase “Brand purchases” in the written contract is unclear, and there
is a genuine dispute as to what the parties intended and understood that phrase to mean. Plaintiff also
alleges that Defendant breached the contract by not paying it for purchases made by certain
pharmacies, but there are genuine disputes of material facts as to this issue as well. Last, Plaintiff
argues that the verbal amendment Defendant alleges clarified that the parties would split the savings
from certain purchases is unenforceable for lack of consideration. To support this position, Plaintiff
stacks inference on top of inference as to the timing and content of alleged oral amendments to the
written contract. When analyzing a motion for summary judgment, the Court must draw all
reasonable inferences in favor of the non-moving party and construe all evidence in the light most
favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986). Under this standard, there are genuine issues of material fact related to this issue and

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the other issues related to Plaintiff’s breach of contract claim and Defendant’s counterclaims.
Plaintiff’s motion for summary judgment on its breach of contract claim and the Defendant’s
counterclaims will be denied.
B.

Tennessee Commission Statute

Tenn. Code Ann. § 47-50-114, et seq. (the “Commission Statute”) provides that “[a]ll
commissions that are due at the time of termination of a contract between a sales representative and
principal shall be paid within fourteen (14) days after the date of termination.” Tenn. Code Ann. §
47-50-114(b)(3). The statute defines a “sales representative” as “a person who contracts with a
principal to solicit wholesale orders and who is compensated, in whole or in part, by commission,
but does not include one who places orders or purchases for such person's own account for resale.”
Tenn. Code Ann. § 47-50-114(a)(3). A “principal,” is a person who, among other things, “[c]ontracts
with a sales representative to solicit orders for the product.” Tenn. Code Ann. § 47-50-114(a)(2)(B).
Plaintiff argues that it is a “sales representative” under this statute applies because the
pharmacies it recruited for membership with Defendant were required to purchase 95% of their
pharmaceuticals from Defendant as a condition of membership. Plaintiff states that although
pharmacies are told they are purchasing pharmaceuticals from a company called AmerisourceBergen
Drug Corporation (“ABDC”), discovery has revealed that Defendant actually purchases the
pharmaceuticals from ABDC and sells them to the member pharmacies for a profit. Plaintiff argues
that Defendant should therefore be characterized as a wholesaler of pharmaceuticals for which
Plaintiff solicited “wholesale orders” by virtue of recruiting pharmacies to join Defendant.
Defendant does not dispute that it sells some pharmaceuticals directly to pharmacies and that
member pharmacies can count these sales in the calculation required to show that they have

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purchased 95% of their pharmaceuticals from Defendant. Nonetheless, Defendant argues that
Plaintiff did not solicit orders from pharmacies as required by the statute.
The Court agrees with Defendant that Plaintiff is not a “sales representative” as defined in
the Tennessee Commission Statute. Although Plaintiff recruited pharmacies to become Defendant’s
members, which entailed a commitment to purchase 95% of its pharmaceuticals from Defendant,
Plaintiff did not itself solicit those wholesale orders. Nor is Defendant a “principal” under the
statute, because it does not “contract[] with a sales representative to solicit orders for the product.”
Tenn. Code Ann. § 47-50-114(a)(2)(B). Defendant contracted with Plaintiff to recruit members, not
to solicit orders for pharmaceuticals.1
The Court also agrees with Defendant that the statute does not apply to intangible items, such
as the services Plaintiff provided. Brock v. Positive Changes Hypnosis, LLC, 534 F. Supp. 2d 793,
795 (W.D. Tenn. 2008) (holding that “the hypnosis service programs that Plaintiff sold . . . on
commission were intangible and therefore not products within the meaning of the Commission
Statute); Bowman v. PHP Companies, Inc., 2005 WL 2993902, at *11 (E.D. Tenn. Nov.8, 2005)
(concluding that the term “product” as used in the Commission Statute does not include intangible
items and holding that the group insurance plans sold by plaintiff were not products within the
meaning of the statute). Plaintiff argues that the pharmaceuticals purchased by member pharmacies
are tangible items, but again, Plaintiff contracted with Defendant to provide its services of recruiting
pharmacies for membership, not to solicit wholesale orders of pharmaceuticals. Plaintiff’s
connection to the member pharmacies’ purchases of pharmaceuticals from Defendant is simply too

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The statute at issue in the Alabama case, Lindy Mfg. Co. v. Twentieth Century Mktg., Inc.,
706 So. 2d 1169 (Ala. 1997), cited by Plaintiff, does not contain the same language as that at issue
in the Tennessee statute in this matter and also focused on legal issues not relevant to this case.
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attenuated to fall within the plain language of the Tennessee Commission Statute. The Court will
enter judgment for Defendant on this claim.
IV.

CONCLUSION
For the foregoing reasons, the Court will deny Plaintiff’s motion for partial summary

judgment, Docket No. 108, and grant Defendant’s motion for partial summary judgment, Docket No.
95. The Court will enter judgment for Defendant on Plaintiff’s Tennessee Commission Statute claim.
An appropriate order is filed herewith.

___________________________________
TODD J. CAMPBELL
UNITED STATES DISTRICT JUDGE

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