United States District Court, S.D. Indiana, Indianapolis Division
ROCHE DIAGNOSTICS CORP., and ROCHE DIABETES CARE, INC., Plaintiffs,
BINSON'S HOSPITAL SUPPLIES, INC., NORTHWOOD, INC., OLYMPUS GLOBAL, LLC, DELTA GLOBAL, LLC, ALPHA XE LLC, J&B MEDICAL SUPPLY CO., INC., KENNETH G. FASSE, DONNIE E. DICKSTEIN, JAMES E. BINSON, JAMES E. BINSON II, NICHOLAS B. BINSON, ROBERT A. BINSON, CHRISTOPHER F. SHAYA, FAWZI B. SHAYA, MARY E. SHAYA, DANIEL GLADYS, JEREMIAH MANKOPF, and PHARMACY JOHN DOES 1-50, Defendants.
ORDER ON MOTIONS TO DISMISS
J. McKinney, Judge United States District Court Southern
District of Indiana
matter comes before the Court on four distinct Motions to
Dismiss filed by the defendants in this action. In their
motions, Defendants Binson's Hospital Supplies, Inc.
(“Binson's”), Northwood, Inc.
(“Northwood”), Kenneth G. Fasse
(“Fasse”), Donnie E. Dickstein
(“Dickstein”), James E. Binson, James E. Binson
II, Nicholas B. Binson, and Robert Binson (collectively, the
“Binson's Defendants”), and Defendant
Jeremiah Mankopf (“Mankopf”), seek to dismiss
Plaintiffs', Roche Diagnostics Corp. and Roche Diabetes
Care, Inc. (collectively, “Roche's”), Amended
Complaint, pursuant to Federal Rules of Civil Procedure
12(b)(2) (“Rule 12(b)(2)”) and 12(b)(6)
(“Rule 12(b)(6)”). Dkt. No. 61; Dkt. No. 66.
Defendants Olympus Global, LLC (“Olympus”), Delta
Global, LLC (“Delta”), Alpha XE LLC
(“Alpha”), Christopher F. Shaya
(“Christopher”), and Daniel Gladys
(“Gladys, ” and together with Olympus, Delta,
Alpha, and Christopher, the “Olympus-Delta
Defendants”), however, move to dismiss Roche's
Amended Complaint as it relates to them only under Rule
12(b)(2) by asserting that this Court lacks personal
jurisdiction over them. Dkt. No. 57. Furthermore,
Defendants', J&B Medical Supply Co.
(“J&B”), Fawzi B. Shaya, and Mary E. Shaya
(collectively, the “J&B Defendants”), motion
to dismiss only seeks to dismiss Roche's Amended
Complaint as it relates to them pursuant to Rule 12(b)(6), by
arguing that Roche has not pleaded with sufficient
particularity to state a claim against them. Dkt. No. 64.
reasons stated herein, the Court GRANTS in part and DENIES in
part the Binson's Defendants' and the J&B
Defendants' motions to dismiss. The Court also GRANTS the
Olympus-Delta Defendants' and Mankopf's motions to
is a leading manufacturer of blood glucose test strips used
by diabetes patients. Dkt. No. 12 (“Am. Compl.”),
¶ 37. Roche sells its test strips in two ways to provide
them to patients with different kinds of insurance plans: (1)
for sale at retail pharmacies (“Retail Strips”);
and (2) for sale by durable medical equipment (DME) providers
(“DME Strips”). Id. at ¶ 38.
Whenever patients purchase any of Roche's test strips
through their insurance providers, the sellers of those test
strips obtain payment from the insurers, rather than the
individual patients, and must submit reimbursement claims to
the insurers to receive payment. Id. at ¶ 44.
Retail Strips may be sold to anyone at retail pharmacies;
however, more than 90% of Retail Strips are purchased by
patients with insurance plans that reimburse the pharmacies.
Id. at ¶ 38. Roche sells its Retail Strips
directly to wholesalers for about $71 per 50-strip vial, who
then sell the Retail Strips to retail pharmacies for about
$75 per 50-strip vial. Id. at ¶ 39. When Retail
Strips are purchased by a patient with a Pharmacy Plan
insurance policy, the patient's insurer reimburses the
retail pharmacy at a rate of about $78 per 50-strip vial.
Id. at ¶ 39. After the insurer reimburses the
retail pharmacy, Roche then pays the insurer rebates of about
$50 per 50-strip vial. Id.; Dkt. No. 83 at 4. As a
result, Roche obtains a net revenue of about $21 per 50-strip
vial for the sale of its Retail Strips. Am. Compl., ¶
contrast, Roche sells its DME Strips directly and exclusively
to mail-order DME distributors (“DME
Distributors”) for less than $20 per 50-strip vial.
Id. at 40. Based on their contractual agreements
with Roche, the DME Distributors purchasing the DME Strips
may only sell the DME Strips to patients benefitting from DME
insurance plans, including Medicare and other commercial
insurers, or to other DME Distributors. Id. DME
Distributors are contractually prohibited from selling their
DME Strips to any patients benefitting from Pharmacy Plans or
those without insurance, which allows Roche to sell the DME
Strips to DME Distributors at a substantially lower price
than its Retail Strips. Id. at ¶ 41. If a
patient with a commercial DME insurance plan purchases DME
Strips from a DME Distributor, the commercial DME insurer
reimburses the DME Distributor at a rate of about $30 per
50-strip vial. Id. at ¶ 40. However, Roche does
not pay any rebates to any insurers following the sale of DME
ROCHE'S AGREEMENTS WITH BINSON'S AND
February 10, 2011, Roche entered into an agreement (the
“Agreement”) with Binson's and its
subsidiary, Northwood, whereby Roche would sell its DME
Strips to Binson's, and Binson's and Northwood would
distribute Roche's DME Strips to DME insurance plan
beneficiaries. Id. at ¶ 51. Binson's and
Northwood are both Michigan corporations with principal
places of business in Michigan. Id. at ¶¶
14-15. In the Agreement, Roche agreed to sell DME Strips to
Binson's and Northwood at net rates between $5 and $17
per 50-strip vial, based on Binson's and Northwood's
prospective volume commitments and Roche's market share
of DME Distributors' total sales. Id. at
¶¶ 52-53. However, the Agreement required that
Binson's and Northwood sell the DME Strips exclusively to
patients benefitting from DME insurance plans. Id.
at ¶ 52. Binson's and Northwood were also required
to provide Roche with quarterly or monthly Market Share
Reports and Utilization Reports in order to receive their
rebates. Id. at ¶ 54. Market Share Reports
indicate Roche's market share of the total sales made by
Binson's and Northwood over a given period of time.
Id. In contrast, Utilization Reports track the
prescription numbers and sale dates for each individual sale
of DME Strips made by Binson's and Northwood to ensure
that sales of DME Strips are made only to DME insurance plan
beneficiaries or other appropriate DME Distributors.
21, 2014, Binson's and Northwood negotiated with Roche to
amend the Agreement (the “Amended Agreement”),
through which Roche agreed to sell its DME Strips directly to
Northwood, rather than Binson's, at a flat, discounted
rate of $10.67 per 50-strip vial and without any need to make
rebate claims. Id. at ¶¶ 57, 61-62. While
negotiating the Amended Agreement, Fasse, the Executive Vice
President and Chief Operating Officer for Binson's and
Northwood, and Dickstein, the Director of Northwood, told
Roche that Northwood had a large number of customers that
were covered by commercial DME insurance plans, in addition
to its customer base covered by Medicare. Id. at
¶¶ 58-60. Fasse and Dickstein further assured Roche
that Northwood would only sell Roche's DME Strips to
individual DME insurance plan beneficiaries. Id. at
¶ 98. Dickstein also provided Roche a list of DME
insurance plans that would be covered when selling the DME
Strips. Id. at ¶ 99.
the Amended Agreement went into effect, Northwood saw a
dramatic spike in its sales of Roche's DME Strips.
Id. at ¶ 63. However, despite this intense
sales increase, Northwood stopped providing its Utilization
Reports to Roche after the Amended Agreement went into
effect. Id. at ¶ 64. Fasse and Dickstein
explained Northwood's rapidly growing sales by telling
Roche that Northwood was selling Roche's DME Strips to
its large base of patients benefitting from commercial DME
insurance plans who had previously used different test strip
brands. Id. at ¶¶ 65-66.
light of Northwood's uncharacteristic and dramatic
increase in sales, Roche grew suspicious. Id. at
¶ 68. In the spring of 2015, Roche hired private
investigators to go to Binson's brick-and-mortar
locations in Michigan and Florida and attempt to purchase
Roche's DME Strips with cash, rather than through a DME
insurance plan. Id. at ¶ 69. Upon their arrival
to Binson's stores, the private investigators easily
purchased DME Strips in cash without insurance. Id.
at ¶¶ 70-71. Based on the private
investigators' findings, Roche repeatedly requested that
Binson's and Northwood provide Roche with Utilization
Reports between June and September 2015. Id. at
¶ 71. Although Binson's provided its Utilization
Report to Roche on September 11, 2015, Northwood failed to
provide any such report before September 24, 2015.
Id. at ¶ 73. As a result, Roche contacted
Northwood on the same day and informed Fasse and Dickstein
that Roche was stopping all shipments to Northwood until it
provided Roche with its Utilization Reports and told them
that Roche knew Binson's had been selling the DME Strips
for cash. Id. at ¶ 74. Dickstein claimed that
Northwood was selling Roche's DME Strips to several
companies in Florida, rather than to individual DME insurance
plan beneficiaries as was required by the Amended Agreement.
Id. at ¶ 75.
September 28, 2015, Roche's Senior Counsel, Julie Dilts
(“Dilts”), sent a letter to Fasse, indicating
that Binson's and Northwood were in breach of the Amended
Agreement. Id. at ¶ 78. Dilts' letter
further demanded that Binson's and Northwood provide to
Roche their 2015 Utilization Reports, a list of the
individuals and other entities that purchased Roche's DME
Strips from Binson's and Northwood in breach of the
Amended Agreement, and an explanation for Northwood's
dramatic sales growth. Id.
October 6, 2015, Fasse responded via email to Dilts'
letter by stating that Binson's had sold Roche's DME
Strips for cash at its retail locations but that
“management was unaware of this problem prior to
receiving your letter.” Id. at ¶¶
79, 101-102. Fasse further indicated that such cash sales at
their retail facilities were discontinued. Id. Fasse
also attached a “complete list of all retail cash sales
of [Roche] Products sold for the period of February
2011-present” with his response. Id. at ¶
80. On October 7, 2015, Fasse sent another email to Dilts, in
which Fasse admitted that Northwood had been selling
Roche's DME Strips to third parties since July 2014, and
the third parties then sold the DME Strips to various other
DME Distributors. Id. at ¶ 82. Fasse also
attached Binson's Utilization Reports to this October 7
email but explained that similar Utilization Reports for
Northwood were unavailable. Id. at ¶ 81.
THE DIVERSION SCHEME
2014, Fasse and Dickstein began discussing a plan to divert
the sales of Roche's DME Strips with Christopher and
Mankopf, who were employees of J&B. Id. at
¶¶ 84-85. J&B is a Michigan corporation that is
owned and operated by Fawzi B. Shaya and Mary E. Shaya.
Id. at ¶¶ 19, 120. J&B previously
contracted with Roche in 2008 to sell Roche's DME Strips
exclusively to patients insured by Blue Cross Network of
Michigan until the agreement was terminated in 2010.
Id. at ¶ 86. Roche believes that J&B has
sought ways to purchase Roche's DME Strips ever since the
termination of its agreement with Roche. Id. at
the son of Fawzi B. Shaya and Mary E. Shaya, and Mankopf
formed Olympus as a shell company for J&B. Id.
at ¶¶ 87, 124. Olympus was established as a
Michigan limited liability company on March 12, 2013.
Id. at ¶ 124. Christopher and Mankopf explained
to Fasse and Dickstein that Northwood could sell Roche's
DME Strips to Olympus, and that Olympus could then resell the
DME Strips to a Florida company, Medical Supply Solutions,
Inc. (“MSSI”). Id. at ¶¶ 88,
90. MSSI would then sell the DME Strips to retail pharmacies.
Id. at ¶ 91.
the parties involved recognized that their scheme would work
better if Northwood could purchase the DME Strips at a flat,
discounted rate. Id. at ¶¶ 89-90.
Therefore, based on their discussions with Christopher and
Mankopf, Fasse and Dickstein negotiated with Roche to form
the Amended Agreement so that Roche would make all of its
sales to Northwood. Id. at ¶¶ 89-90, 94.
After the Amended Agreement when into effect, Northwood began
selling Roche's DME Strips to Olympus, with the intention
of Olympus selling the DME Strips to MSSI. Id. at
¶¶ 90, 93-94.
was the sole purchaser of Northwood's DME Strips between
July 2014, and January 2015. Id. at ¶ 124. On
January 16, 2015, Christopher and Gladys, another J&B
employee, formed Delta as a Michigan limited liability company to
replace Olympus as the sole purchaser of Roche's DME
Strips from Northwood. Id. at ¶¶ 119, 125.
Roche believes Olympus was later dissolved in order to cut
Mankopf out of this scheme to divert the sales of Roche's
DME Strips. Id. at ¶126. Between July 21, 2014,
and September 24, 2015, Northwood sold approximately 1, 526,
688, 50-strip vials of Roche's DME Strips to Olympus and
Delta. Id. at ¶¶ 93-94. After either
Olympus or Delta purchased DME Strips from Northwood, Alpha,
a Wyoming limited liability company formed by Christopher,
would then make the sales of those DME Strips directly to
MSSI. Id. at ¶ 94.