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Acheron Medical Supply, LLC v. Cook Inc.

United States District Court, S.D. Indiana, Indianapolis Division

September 28, 2017

ACHERON MEDICAL SUPPLY, LLC, Plaintiff,
v.
COOK INCORPORATED, et al., Defendants.

          ENTRY ON MOTIONS FOR SUMMARY JUDGMENT AND RELATED MOTIONS

          Hon. William T. Lawrence, United States District Court Judge

         This cause is before the Court on the Plaintiff's Motion for Partial Summary Judgment on the Complaint and for Summary Judgment on the Counterclaim (Dkt. No. 53) and the Defendants' motion for partial summary judgment (Dkt. No. 56). The motions are fully briefed and the Court, being duly advised, GRANTS the Defendants' motion and DENIES the Plaintiff's motion for the reasons set forth below. In addition, the Court GRANTS the Plaintiff's Motion for Leave to Amend Its Appendix of Evidence in Support of Its Motion for Partial Summary Judgment (Dkt. No. 73) and DENIES the Defendants' motion to file a surreply (Dkt. No. 79), as the issues addressed therein ultimately are not material to the Court's ruling.

         I. SUMMARY JUDGMENT STANDARD

         Federal Rule of Civil Procedure 56(a) provides that summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” In ruling on a motion for summary judgment, the admissible evidence presented by the non-moving party must be believed, and all reasonable inferences must be drawn in the non-movant's favor. Zerante v. DeLuca, 555 F.3d 582, 584 (7th Cir. 2009) (“We view the record in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor.”). When the Court reviews cross-motions for summary judgment, as is the case here with regard to the Plaintiff's claims, “we construe all inferences in favor of the party against whom the motion under consideration is made.” Speciale v. Blue Cross & Blue Shield Ass'n, 538 F.3d 615, 621 (7th Cir. 2008) (quotation omitted). “‘[W]e look to the burden of proof that each party would bear on an issue of trial.'” Diaz v. Prudential Ins. Co. of Am., 499 F.3d 640, 643 (7th Cir. 2007) (quoting Santaella v. Metro. Life Ins. Co., 123 F.3d 456, 461 (7th Cir. 1997)). A party who bears the burden of proof on a particular issue may not rest on its pleadings, but must show what evidence it has that there is a genuine issue of material fact that requires trial. Johnson v. Cambridge Indus., Inc., 325 F.3d 892, 901 (7th Cir. 2003). Finally, the non-moving party bears the burden of specifically identifying the relevant evidence of record, and “the court is not required to scour the record in search of evidence to defeat a motion for summary judgment.” Ritchie v. Glidden Co., 242 F.3d 713, 723 (7th Cir. 2001).

         II. FACTS OF RECORD[1]

         On July 24, 2014, Defendant Cook Medical LLC (“Cook”) and Plaintiff Acheron Medical Supply, LLC (“Acheron”) entered into a five-year Distribution Agreement (the “Agreement”). Pursuant to the terms of the Agreement, Acheron was to serve as a distributor (or reseller) of designated medical devices and products to the Department of Defense Medical Centers (“DOD”) and the Veterans Administration (“VA”). Specifically, the Agreement stated that Acheron was appointed as Cook's exclusive distributor to the DOD and VA for the products and devices of Cook's Endoscopy business unit and a non-exclusive distributor for the products of its other business units. The Agreement provides that:

This Agreement and any instrument, document, plan or procedure incorporated into this Agreement by reference shall constitute the entire Agreement between the parties as to the subject matter hereof and supersedes all prior oral or written agreements as to such subject matter. No representations other than those contained herein are made by either party to the other.

Dkt. No. 1-1 at 11-12. It further provides that “[n]o amendment, modification, or addition to this Agreement shall be binding on the parties unless reduced to writing and duly executed by [Cook] and [Acheron].” Id. at 9.

         Acheron asserts that its sales to the DOD were to be made primarily through a federal Multi Award Schedule known as a Distribution and Pricing Agreement (“DAPA”).[2] DAPAs are awarded by the DOD's Defense Logistics Agency (“DLA”) and are one of the DOD's preferred means of procurement.[3] Under a DAPA, product prices negotiated by a medical manufacturer or supplier will be honored by the DOD's prime vendors to supply those products to the DOD.

         Both Cook and Acheron were DAPA holders. Prior to entering into the Agreement, Acheron had downloaded the Endoscopy products listed on Cook's DAPA onto Acheron's DAPA, and Acheron's DAPA was approved by the DOD's Defense Logistics Agency (“DLA”). Since a manufacturer's products can be listed on only one DAPA, in order for Acheron to make sales through its own DAPA as distributor of Cook's products, Cook would have had to deactivate its own DAPA. Cook did not do so. The Agreement makes no reference to Cook transferring its DAPA sales to Acheron. Cook continued to make its own sales directly to the DOD.

         The Agreement provided that Acheron was to obtain a Federal Supply Schedule contract (“FSS”) and use it to sell Cook's products. An FSS is a type of Multi-Award Schedule contract, not unlike a DAPA, that the VA enters into with suppliers covering the sale of goods and services to the VA. An FSS is a preferred method of procurement by the VA and benefits the FSS holder because, once it is negotiated and executed, the VA lists the FSS holder's products in a national schedule at pre-set prices, which is available to all regional or local VA purchasers.

         The Agreement contained the following provision:

Cook will pay [Acheron] a commission of 3 percent (3%) of the purchase price on all Endoscopy Products sold by [Cook] in the Territory [defined in the Agreement as being the VA and the DOD] between March 1, 2014 and the date [Acheron] obtains its Federal Supply Schedule contract, [4] provided such Federal Supply Schedule is obtained by the end of the 2014 calendar year.”[5]

Dkt. No. 1-1 at 5. The Agreement further set forth a commission schedule that would govern the commission paid to Acheron after it received its FSS “on products that are approved on its [FSS] contract at the time of the sale.” Id. The commission schedule included commissions to be paid after an FSS contract was obtained by Acheron on any direct sales by Cook in the Territory, i.e., to the VA or the DOD.

         Prior to execution of the Agreement, Acheron submitted its FSS solicitation (application) to the VA proposing 1, 384 Cook Endoscopy products for placement on an FSS. The FSS procurement process is governed by various rules and regulations, including Title 48 of the Code of Federal Regulations (CFR) and the Federal Acquisition Regulations (FAR), specifically FAR Subpart 8.4 and FAR Part 38. The regulations state that they are designed to ensure that the VA receives a “fair and reasonable” price for the products to be purchased off the FSS. A person applying for an FSS therefore must follow a Commercial Sales Practices (“CSP”) format as prescribed by federal regulation. See 48 CFR § 515.408 (“Solicitation provisions and contract clauses”). That format is designed to obtain appropriate and sufficient data so that the assigned government contracting officer can perform a price analysis, determine price reasonableness, and develop objectives for negotiations with respect to the FSS offeror's proposed pricing.

         Pursuant to the applicable regulations:

If you are a dealer/reseller without significant sales to the general public, you should provide manufacturers' information required by paragraphs (1) through (4) above for each item/SIN offered, if the manufacturer's sales under any resulting contract are expected to exceed $500, 000. You must also obtain written authorization from the manufacturer(s) for Government access, at any time before award or before agreeing to a modification, to the manufacturer's sales records for the purpose of verifying the information submitted by the manufacturer. The information is required in order to enable the Government to make a determination that the offered price is fair and reasonable. To expedite the review and processing of offers, you should advise the manufacturer(s) of this requirement.

48 CFR § 515.408(b)(5). As a recently formed company, Acheron did not as yet have significant sales to the general public. Also, sales under the proposed FSS were anticipated to be well over $500, 000. Therefore, the only way Acheron could obtain an FSS was if Cook allowed the VA access to its sales records. Cook executed a release that read as follows:

Cook Medical, LLC agrees to provide access to the Veterans Administration those sales records between Cook and Acheron Medical Supply, our contracted vendor for medical devices purchased by VA Medical Centers, and all other needed records to support this contract award. The sole purpose of providing access to this information will be to verify information submitted by the Dealer/Reseller (Acheron Medical Supply) to the Veterans Administration.

Dkt. No. 68-4 at 2. The release is signed by Ronald Walters on behalf of Cook and dated June 10, 2014. Acheron asserts that a version of it was originally signed on that date, but language was inserted and the new version, set forth above, was signed by Walters after the Agreement was executed.

         An FSS offer is reviewed by a contracting officer in the VA's Office of Acquisition, Logistics and Construction. The contracting officer may request the VA Office of Inspector General's (OIG) involvement in pre-award, post-award, and other requested reviews of FSS proposals and contracts. The VA OIG's involvement is standard where, as here, a new solicitation proposal with an estimated value of $500, 000 or more is made by a reseller that does not have significant commercial sales and who will be representing the manufacturer's information.

         On August 14, 2014, the VA OIG sent a letter to Cook asking Cook to submit certain preliminary information as part of its pre-award review of the proposal submitted by Acheron. The letter stated that its objective was to determine: (i) if the CSP and supporting data were accurate and complete; (ii) whether offered prices were equal to or better than those offered to the manufacturer's most favored customers; (iii) those customers who received discounts better than those offered to the Government and the yearly volume or other consideration upon which those discounts were based; (iv) the accuracy of information provided by Cook and Acheron related to any rebate or incentive-type programs; and (v) the identity of those customers who could serve as an appropriate tracking customer under the Price Reduction Clause. A list of eleven items of preliminary information requested to start the review (hereinafter referred to as the “OIG audit”) was attached as Enclosure A to the letter. The VA OIG gave Cook until September 5, 2014, to submit the requested information.[6]

         Cook refused to supply the information requested by the OIG. Acheron attempted to determine if it could circumvent Cook's refusal to cooperate with the OIG audit, such as by sharing selected pricing information with the contracting officer. However, on December 28, 2014, the VA sent Acheron a letter that stated, in relevant part:

Per the solicitation's instructions and Procedural Guideline #22 the offeror and the manufacturer must provide dated June 30, 2008, when a dealer/reseller does not have significant commercial sales, the Commercial Sales Practices (CSP) and other data.[7] The dealer/reseller must also provide written authorization from the manufacturer for Government access to its sales records, in order for the Government to make a fair and reasonable price determination. In your case, Acheron did provide the signed authorization letter from Cook on June 2014, stating that the manufacturer would provide Government access to its confidential sales data.
Accordingly, the entire proposal package was forwarded to the Office of Inspector General (OIG) for pre-award review. On August 14, 2014, the OIG forwarded a request for preliminary review materials to both Acheron and Cook with a suspense date of September 5, 2014. The OIG did receive some of the originally requested information from both parties prior to the suspense due date. On September 10, 2014, Acheron spoke with the contracting officer and indicated their desire to provide independent information outside of the OIG request. Acheron indicated that they were compiling that information for both Cook and themselves and would be sending it on for review. After reviewing this provided information from both Cook and Acheron contracting does not feel comfortable that this information is enough to go outside of the OIG initial request.
Acheron and Cook have been unwilling to provide a complete response to the information that was requested by the OIG. The requested data is required to review sales data, discounts, evaluate business practices, establish a basis of negotiations, and facilitate a (subsequent) fair and reasonable pricing determination. It is noted that, to date, Acheron and/or Cook have not provided their complete, requested information to the OIG for review. Therefore, due to lack of information and non-receipt of required information in accordance with CSP-1 Commercial Sales Practices Format, Point (5), this proposal package is a “no award” this proposal is being returned until that information can be provided for review of this award.
Please submit the required information in a timely manner for review of this contract award .....
If you do not wish to continue with this package please let us know at your earliest convenience. In the future, if a manufacturer's CSP is required for review, please ensure the manufacturer's cooperation in advance and ensure both parties ...

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