Pittsburg SNF LLC et al v. PharMerica East, Inc.

Filing 147

MEMORANDUM ORDER - denying motion to transfer a case under 28 U.S.C. § 1404(a), the Court finds that the District of Delaware is. Signed by Magistrate Judge Roy S Payne on 6/28/12. (ehs, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
PITTSBURG SNF LLC, et al.,
Plaintiffs,
v.
PHARMERICA EAST, INC.,
Defendant and Third-Party Plaintiff,
v.
PHARMASTER, L.P., et al.,
Third-Party Defendants.

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Case No. 2:10-CV-363-JRG-RSP

MEMORANDUM ORDER
Before the Court is Third Party Defendants’ motion to transfer venue to the District of
Delaware (Dkt. No. 66, filed November 22, 2011). The Court finds that District of Delaware is
not a clearly more convenient venue for the third party action.

Accordingly, Third Party

Defendants’ motion is DENIED.
BACKGROUND
This recitation of facts is drawn from Plaintiffs’ Third Amended Complaint and
PharMerica’s Third Party Complaint. The plaintiffs in this case are the owners and operators of
37 nursing homes in Texas. Third Am. Compl. ¶ 1, Dkt. No. 117. Plaintiffs acquired the nursing
homes from Complete Healthcare Resources in 2008. Prior to the sale of the nursing homes in
2008, Complete Healthcare Resources (and the nursing homes) were owned by Peter Licari and
Michael D’Arcangelo. Id. at ¶ 28. In 2005, Licari and D’Arcangelo formed the institutional
pharmacy PharMaster, L.P. to serve the pharmacy needs of the nursing homes’ residents. Id. at ¶

11 and 12.

Each of the nursing homes entered into a pharmacy services agreement with

PharMaster. Id.
Shortly after forming PharMaster, Licari and D’Arcangelo attempted to sell the
PharMaster pharmacy business separately from the nursing homes. Id. at ¶ 13. However, no
buyer was found. In order to make PharMaster more attractive to potential buyers, Licari and
D’Arcangelo directed the nursing homes to enter into new pharmacy services agreements on
terms that were much more favorable to PharMaster. Id. at ¶ 13-17. With the new pharmacy
services agreements in hand, Licari and D’Arcangelo successfully sold the assets of PharMaster
to PharMerica. Id. at ¶ 18. As part of the sale, PharMerica assumed the pharmacy services
agreements with the nursing homes. Id. One of the requirements of the PharMerica transaction
was that Licari and D’Arcangelo could not sell the nursing homes without requiring the buyers to
assume the pharmacy service agreements. Id. at 13. Accordingly, Plaintiffs were required to
assume the pharmacy services agreements with PharMerica when they acquired the nursing
homes in 2008. Id. at ¶¶ 19 and 20.
In 2010, Plaintiffs filed suit against PharMerica as the successor in interest of
PharMaster. Plaintiffs seek a declaratory judgment that the pharmacy services agreements are
void on the grounds of illegality. Id. at ¶¶ 33-39. The agreements allegedly violate the AntiKickback Statute (42 U.S.C. § 1320a-7b(b)), the False Claims Act (31 U.S.C. § 3729(a)), Texas
Penal Code § 32.43, and public policy. Second, Plaintiffs seek to recover for PharMerica’s
breach of warranties and representations in the pharmacy services agreements. Id. at ¶¶ 40-42.
Finally, Plaintiffs allege breach of the pharmacy service agreements on the grounds that
PharMerica has failed to fully perform. Id. at ¶¶ 43-46.

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In 2011, PharMerica filed a third party complaint against PharMaster, L.P., PharMaster
GP, LLC, Peter Licari, Michael D’Arcangelo, William D. Jacobson, and David C. Milling.
Third Party Compl., Dkt. No. 56. PharMerica seeks contribution and indemnification from the
Third Party Defendants for any damages awarded against PharMerica.

Id. at ¶¶ 34-40.

PharMerica also brings claims for breach of contract, breach of warranty, negligent
misrepresentation, intentional misrepresentation, and fraud arising from Third Party Defendants’
involvement in the sale of PharMaster’s assets and the pharmacy services agreements to
PharMerica. Id. at ¶¶ 41-67.
APPLICABLE LAW
Section 1404(a) provides that “[f]or the convenience of parties and witnesses, in the
interest of justice, a district court may transfer any civil action to any other district or division
where it might have been brought.” 28 U.S.C. § 1404(a). The first inquiry when analyzing a
case’s eligibility for 1404(a) transfer is “whether the judicial district to which transfer is sought
would have been a district in which the claim could have been filed.” In re Volkswagen AG, 371
F.3d 201, 203 (5th Cir. 2004) (“In re Volkswagen I”).
Once that threshold is met, courts analyze both public and private factors relating to the
convenience of parties and witnesses as well as the interests of particular venues in hearing the
case. See Humble Oil & Ref. Co. v. Bell Marine Serv., Inc., 321 F.2d 53, 56 (5th Cir. 1963). The
private factors are: 1) the relative ease of access to sources of proof; 2) the availability of
compulsory process to secure the attendance of witnesses; 3) the cost of attendance for willing
witnesses; and 4) all other practical problems that make trial of a case easy, expeditious, and
inexpensive. In re Volkswagen I, 371 F.3d at 203. The public factors are: 1) the administrative
difficulties flowing from court congestion; 2) the local interest in having localized interests

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decided at home; 3) the familiarity of the forum with the law that will govern the case; and 4) the
avoidance of unnecessary problems of conflict of laws or in the application of foreign law. Id.
The plaintiff’s choice of venue is not a factor in this analysis. In re Volkswagen of Am.,
Inc., 545 F.3d 304, 314-15 (5th Cir. 2008) (“In re Volkswagen II”). Rather, the plaintiff’s choice
of venue contributes to the defendant’s burden in proving that the transferee venue is “clearly
more convenient” than the transferor venue. Id. at 315.
DISCUSSION
Third Party Defendants seek to transfer this third party action to the District of Delaware
on the grounds that it is clearly the more convenient forum, and the asset sale agreement between
the parties contains a forum selection clause requiring the parties to bring their claims in
Delaware.
A.

Whether the Claims Could be Brought in the Transferee Forum
Although Third Party Defendants have not demonstrated to the Court that PharMerica’s

claims could have been brought in the District of Delaware, the parties do not dispute it. See
Dkt. No. 75 at 4 n. 2. Therefore, the Court assumes that the claims could have been brought in
the District of Delaware.
B.

Private Interest Factors
1.

Relative Ease of Access to Sources of Proof

Third Party Defendants argue that most of the relevant documents are located at the
offices of PharMaster and PharMaster GP in Dresher, Pennsylvania, or at the offices of their
counsel in Philadelphia, Pennsylvania. Dkt. No. 66 at 10-11. PharMerica argues that most of the
documents relevant to the third party action have already been produced in the original action.
Dkt. No. 75 at 10. Therefore, transferring the third party action would result in the need to
produce the documents not only in Texas in connection with the original action, but also in

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Delaware. Id. Given the factual overlap between the original action and the third party action,
the Court finds that it is likely that many of the same documents will have to be produced in two
different forums if transfer is granted. Therefore, this factor weighs against transfer.
2.

Availability of Compulsory Process to Secure the Attendance of Witnesses

Third Party Defendants argue that they are not aware of any potential non-party witnesses
that reside in the Eastern District of Texas or within 100 miles of Marshall, and the District of
Delaware holds subpoena power over more potential fact-witnesses than the Eastern District of
Texas. Dkt. No. 55 at 11. PharMerica notes that Third Party Defendants have not identified a
single third-party witness whose attendance at trial may be secured by the subpoena power of the
Delaware court but not this Court. Dkt. No. 75 at 10-11. As for the remaining witnesses,
PharMerica argues that to the extent they are officers, employees or agents of the parties, it is
presumed that they will appear voluntarily. Id. Given that the parties have not identified any
third-party witnesses for whom one court but not the other holds subpoena power, the Court
finds that this factor is neutral.
3.

Cost of Attendance for Willing Witnesses

Third Party Defendants argue that Delaware is clearly the more convenient forum for the
witnesses. Individual defendants Peter Licari and Michael D’Arcangelo live within sixty miles
of the District of Delaware, as does the lawyer that handled the sale of PharMaster’s assets to
PharMerica. Dkt. No. 66 at 8. The brokers that arranged the sale are based in Chicago, Illinois.
Id. at 9. The lawyer that represented PharMerica in the PharMaster transaction is based in
Boston, Massachusetts. Id. Finally, two lawyers that worked on the nursing home agreements
are located in New York. Id. at 10.
PharMerica argues that Third Party Defendants fail to account for the fact that all but one
of the identified witnesses are likely to testify in the original action, which will be held in Texas
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no matter the outcome of this transfer motion. Dkt. No. 75 at 8-10. Therefore, it is certainly
more inconvenient to have witnesses testify twice in two separate venues. Id. Third Party
Defendants respond that PharMerica fails to account for the fact that the parties agreed, by
including a forum selection clause in the asset purchase agreement, that Delaware is the only
convenient forum to litigate this dispute, and that the witnesses’ inconveniences “can be negated
through time and money saving measures such as: the use of depositions rather than live
testimony, entering stipulations, and handling pre-trial matters via telephone, email, or mail.”
Dkt. No. 83 at 4.
Given that the original action will proceed in Texas and there is substantial factual
overlap between the original action and the third party action, transferring the third party action
will likely require witnesses to travel to, and testify at, two different proceedings. The Court
finds that this factor weighs against transfer.
4.

All Other Practical Problems That Make Trial of a Case Easy,
Expeditious, and Inexpensive

Third Party Defendants argue that there is no relevant delay or prejudice that would result
from transferring the third party action. Dkt. No. 66 at 12. PharMerica argues that transfer will
result in two trials, which will waste both the resources of the parties and the courts. Dkt. No. 75
at 11-12.
The Court has reviewed the live pleadings related to the original action and the third
party action. It is clear to the Court that substantial overlapping issues of fact and law exist, and
that it would be a waste of judicial resources, as well as the parties’ resources, to maintain
separate proceedings in different courts involving the same subject matter. Accordingly, this
factor weighs against transfer.

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5.

Forum Selection Clause

PharMerica acquired the assets of PharMaster and assumed PharMaster’s interests in the
pharmacy services agreements by way of the asset purchase agreement between PharMerica and
some of the Third Party Defendants. The forum selection cause provides, in part, that:
EACH OF THE PARTIES SUBMITS TO THE EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT
SITTING IN THE STATE OF DELAWARE IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AGREES THAT ALL CLAIMS IN
RESPECT OF THE ACTION OR PROCEEDING MAY BE
HEARD AND DETERMINED IN ANY SUCH COURT AND
AGREES NOT TO BRING ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT IN
ANY OTHER COURT . . . .
Asset Purchase Agreement § 10.15, Dkt. No. 66-1.
Third Party Defendants argue that the forum selection clause requires that the third party
action be transferred to the District of Delaware for a number of reasons addressed in its brief.
See Dkt. No. 66 at 6-7. PharMerica argues that the forum selection clause does not necessitate
transfer, and that transfer is not appropriate given the relationship between the original action
and the third party action. Dkt. No. 75 at 5-8.
The analysis required by section 1404(a) determines whether a federal court sitting in
diversity should transfer a case. Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29-32 (1988). A
forum selection clause is not dispositive to this determination, but is instead “a significant factor
that figures centrally in the district court’s [section 1404(a)] calculus.” Id. at 29. The forum
selection clause indicates to the Court that the parties agreed that Delaware is an
appropriate forum for resolving disputes between them. However, the Court is not persuaded that
the parties intended to put themselves to the additional expense and burden of having to be involved
in two proceedings far apart. Although the Court finds that the forum selection clause would

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ordinarily weigh strongly in favor of transfer, in the unique posture of this case, the forum
selection clause only weighs slightly in favor of transfer in light of the burdens it would impose.
C.

Public Interest Factors
1.

Administrative Difficulties Flowing From Court Congestion

Third Party Defendants argue that congestion resulting from the recent retirements of
several judges in this district would result in a longer time to trial than is available in Delaware.
Dkt. No. 66 at 12. Given the speedy appointment of replacement judges, and the
schedule the Court has set in this case, the Court finds this factor is neutral.
2.

Local Interest in Having Localized Interests Decided at Home

Third Party Defendants argue that Delaware has a stronger local interest in this case
“because the allegations of wrongdoing are brought by a Delaware corporation, and the
transaction on which these claims are based calls for the application of Delaware law by a court
sitting in that state.” Dkt. No. 66 at 12-13. PharMerica responds that the Eastern District of
Texas has a substantial local interest in the dispute. At the center of the dispute is allegedly
illegal conduct that injured the residents of 37 nursing homes in Texas, as well as the Eastern
District of Texas. Dkt. No. 75 at 13-14. Furthermore, several of the Third Party Defendants are
either legal entities formed under Texas law, or are individuals who reside in Texas. Id. The
Court finds that this factor weighs strongly against transfer.
3.

Familiarity of the Forum with the Governing Law

The resolution of this case will potentially involve the application or interpretation of
Delaware contract law, federal law, and Texas criminal law. Because neither Court is more
skilled at applying all three areas of law, this factor is neutral.

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4.

Avoidance of Unnecessary Problems of Conflict of Laws or in the
Application of Foreign Law

Third Party Defendants argue that the asset purchase agreement requires only the
application of Delaware law. Dkt. No. 66 at 14. PharMerica argues that “to the extent any of the
claims in the [third party action] arise out of or relate to the [asset purchase agreement],
.
Delaware law will apply in either forum based on the choice-of-law provision. And to the extent
the claims in the [third party action] exceed the scope of the forum-selection clause, Texas law
will apply regardless of whether this case is transferred.” Dkt. No. 75 at 15. The Court finds
that this factor is neutral.
CONCLUSION
Having considered all of the factors relevant to determining whether to transfer a case
under 28 U.S.C. § 1404(a), the Court finds that the District of Delaware is not clearly the more
convenient forum for the third party action in this case. PharMerica’s motion is DENIED.
SIGNED this 3rd day of January, 2012.
SIGNED this 28th day of June, 2012.

____________________________________
ROY S. PAYNE
UNITED STATES MAGISTRATE JUDGE

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