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Amerisource Corp. v. RX USA International Inc.

May 26, 2010

AMERISOURCE CORPORATION, PLAINTIFF,
v.
RX USA INTERNATIONAL INC., PARSONS MEDICAL CENTER PHARMACY INC., AND PARSONS MEDICAL CENTER PHARMACY INC. (II)
DEFENDANTS.



The opinion of the court was delivered by: Azrack, J., United States Magistrate Judge

MEMORANDUM OF DECISION

In this action for breach of contract, plaintiff Amerisource Corporation ("plaintiff" or "Amerisource") alleges that defendants Rx USA International Inc., Parsons Medical Center Pharmacy Inc., and Parsons Medical Center Pharmacy Inc. (II) (collectively "defendants" or "RxUSA") failed to pay Amerisource for goods delivered to and accepted by RxUSA pursuant to the parties' 1999 agreement for the sale and purchase of pharmaceutical products. RxUSA counterclaimed for breach of contract alleging that Amerisource overcharged RxUSA and failed to honor various price discounts that an Amerisource sales representative verbally promised to RxUSA.*fn1 On March 25, 2008, the parties consented to my jurisdiction over all matters. The Court held a bench trial with an advisory jury between January 26 and February 4, 2009. After approximately ninety minutes of deliberation, the jury rendered an advisory verdict in favor of Amerisource in the amount of $275,427.27. Amerisource then moved for contractual interest and attorneys' fees.

Having considered the relevant evidence and testimony, the Court adopts the jury's advisory verdict and orders judgment in favor of Amerisource on the reciprocal contract claims. In accordance with Federal Rule of Civil Procedure 52(a)(1), the Court issues the following findings of fact and conclusions of law.*fn2

I. FINDINGS OF FACT

The material facts are largely undisputed. Plaintiff Amerisource is a Fortune 500 pharmaceutical distributor that sells prescription and over-the-counter drugs to wholesale and retail pharmacies. Amerisource buys product from manufacturers at the wholesale acquisition cost ("WAC") and generally sells the product at some percentage above or below WAC. The sale price varies from buyer to buyer and depends on a variety of factors including volume, payment terms, credit assessments, and the nature of the buyer's pharmacy business. Amerisource also offers some buyers a "Hot List" discount for products purchased from a predetermined list of eligible products. Price is further affected by manufacturer discount and rebate programs that are implemented through Amerisource. The manufacturers establish the eligibility criteria and approve the discounts.

Defendants were licensed New York pharmacies owned and operated by Robert Drucker ("Drucker"), their sole executive and majority shareholder during the relevant period. Rx USA International, Inc. engaged in both wholesale and retail sales and included an online pharmacy. Parsons Medical Center Pharmacy Inc. and Parsons Medical Center Pharmacy Inc. (II) operated as a single retail pharmacy under the name Parsons Medical Center. Drucker operated the RxUSA pharmacies out of his dry cleaning business in Queens, New York with the assistance of a handful of employees.

In March 1999, Amerisource sales representative Wilfredo LaFontaine ("LaFontaine") made an unsolicited sales call to RxUSA's Queens headquarters. Thereafter, RxUSA agreed to purchase pharmaceuticals from Amerisource at WAC-0% under three separate accounts. RxUSA also signed up for manufacturer discounts that were to be applied at the time of invoicing if approved by the manufacturer. Amerisource later granted one of the RxUSA accounts a WAC-.5% Top 40 Hot List discount, which was to be applied to a predetermined list of forty eligible products. However, RxUSA failed to submit a valid Top 40 list to Amerisource and this discount was never triggered.

The negotiated price terms were memorialized on Amerisource "customer load sheets," which were used to open each of the three RxUSA accounts. Upon opening the accounts, Drucker also signed a "Terms of Sale" agreement, which includes provisions governing Amerisource's rights to prejudgment interest, attorneys' fees, and costs in the event that RxUSA's accounts became overdue.*fn3 No other price adjustments were negotiated at any point.*fn4

RxUSA began purchasing pharmaceuticals from Amerisource immediately after opening its three accounts and ordered several hundred thousand dollars worth of product each month over the course of the next year. To facilitate ordering and shipping, Amerisource supplied RxUSA with a computer and ordering software that was programmed to reflect the prices specific to the terms negotiated for each of the three RxUSA accounts. At one point, Amerisource uploaded the wrong prices to the software. Drucker saw the incorrect, lower prices for a brief period before Amerisource discovered and rectified the error. RxUSA subsequently continued to order product from Amerisource and Amerisource regularly delivered and invoiced the orders at WAC-0%. Upon delivery of each shipment, an RxUSA employee signed an invoice reflecting WAC-0% prices and RxUSA paid the majority of the invoices accordingly each time it exceeded its credit limit.

RxUSA continued to order product from Amerisource until April 2000. Throughout this period, Drucker complained to Amerisource managers and executives about shipment shortages, billing errors, and Amerisource's failure to issue credits and rebates in accordance with RxUSA's manufacturer discount elections. He also complained vigorously to LaFontaine, with whom he maintained a close secret relationship, about Amerisource's failure to offer RxUSA the lower prices that he believed were available to other buyers. Drucker repeatedly pressed LaFontaine for help in getting lower prices. Though LaFontaine claimed to Drucker that he was trying, he mainly stalled. Aside from a single letter to his supervisor requesting a WAC-1% volume discount on future orders, there is no evidence that LaFontaine lobbied or received approval for the discounts off the existing RxUSA contract. However, after informing Amerisource executives that RxUSA had the potential to grow its business to millions in sales per month, Amerisource told LaFontaine to draft a formal sales agreement for future high-volume business with RxUSA. Though Amerisource instructed Lafontaine not to show any drafts to Drucker, Lafontaine sent the entire agreement to Drucker via email and modified it according to Drucker's instructions. Drucker and LaFontaine exchanged several drafts but never executed final agreement.

Meanwhile, beginning in January 2000, Drucker began asserting to Amerisource executives that RxUSA was entitled to unspecified insulin credits, a WAC-1.5% volume discount, and a WAC-1% Top 20 Hot List discount. Amerisource permitted RxUSA to return some products and issued some refunds based on Drucker's complaints, but disputed most of his claims. In several instances, Amerisource discovered that RxUSA was not eligible for the manufacturer discounts it claimed and billed RxUSA for the difference.

In April of 2000, RxUSA stopped paying Amerisource, but continued to order and accept products, which Amerisource invoiced in full compliance with the terms of the agreement. By May 2000, RxUSA owed Amerisource $275,427.27 for products from Amerisource. When Amerisource demanded payment, Drucker refused, claiming that Amerisource owed RxUSA over $400,000 in discounts, credits, and rebates that were verbally promised to him by LaFontaine, but not honored by Amerisource. He further asserted that Amerisource failed to invoice the products at the true WAC price.

II. CONCLUSIONS OF LAW

To prevail on a breach of contract claim under New York law, which the parties agree govern this contract, a plaintiff must prove by a preponderance of evidence: (1) that a contract existed between the parties; (2) that the plaintiff performed on the contract; (3) that the defendant breached the contract; and (4) that the plaintiff suffered damages as a result of the defendant's breach. See Rexnord Holdings, Inc. v. Bidermann, 21 F.3d 522, 525 (2d Cir. 1994).

Based on the above facts proven at trial, and in accordance with the jury's advisory verdict, the Court concludes that a contract for the sale and purchase of pharmaceuticals at WAC-0% existed between the parties; that Amerisource adequately performed its material obligations under the contract by delivering goods to and billing RxUSA at the agreed price; that RxUSA breached the contract by failing to pay for accepted goods; and that Amerisource suffered a financial loss as a result of RxUSA's breach. Conversely, the Court concludes that RxUSA failed to prove its breach of contract counterclaim because it established neither its own adequate performance nor breach by Amerisource. Specifically, RxUSA failed to prove that the contract included the discounts it now claims or that Amerisource did not charge true WAC.

III. REMEDIES

For RxUSA's breach, Amerisource seeks $275,427.27 in past due invoices, $748,635.05 in prejudgment interest, and $2,618,657.51 in contractual attorneys' fees, costs, and expert fees. RxUSA challenges the amount of prejudgment interest available under the contract, but does not object to Amerisource's methodology or calculations regarding interest. RxUSA objects to the fees application on the ground that under the contract Amerisource is only entitled to fees incurred in connection with its contract claim and therefore should not be awarded fees expended on defense of the counterclaims. However, RxUSA raised no objections to the Amerisource's hourly rates, number of hours expended, specific cost expenditures, or associated records.

A. Contract Price

Under New York law, a seller who prevails on a breach of contract claim may recover the contract price of accepted goods. N.Y. U.C.C. § 2-709(1)(b); see also Hyosung America, Inc. v. Sumagh Textile Co., Ltd., 137 F.3d 75, 80--81 (2d Cir. 1998). Here, unpaid invoices signed by RxUSA employees show that RxUSA accepted, but failed to pay for, goods totaling $275,274.27 across its three accounts. Accordingly, and consistent with the jury's advisory verdict, the Court directs entry of judgment against Rx USA International, Inc. in the principal sum of $175,718.26 and against Parsons Medical Center Pharmacy Inc., and Parsons Medical Center Pharmacy Inc. (II) in the principal sum of $99,709.01.

B. Prejudgment Interest

In a diversity action such as this, state law governs the availability of prejudgment interest. See Baker v. Dorfman, 239 F.3d 415, 425 (2d Cir. 2000). New York law entitles the prevailing party in a breach of contract claim to prejudgment interest as a matter of statutory right. Paddington Partners v. Bouchard, 34 F.3d 1132, 1139 (2d Cir. 1994) (citing N.Y. C.P.L.R. § 5001(c)). Interest accrues at the rate of 9% per annum unless otherwise provided in the contract and is computed from the date the principal became past due through the date of judgment. See id. at §5001(b)--(c); E*Trade Financial Corp. v. Deutsche Bank AG, No. 09-CV-3029, 2010 WL 1196814, at *3 (2d Cir. Mar 30, 2010) (citing NYCTL 1998-2 Trust v. Wagner, 61 A.D.3d 728, 729 (2d Dep't 2009)).

Here, it is undisputed that the prejudgment interest rate is governed by the Terms of Sale (the "Terms"), which Drucker signed on behalf of each of the defendants upon opening their respective Amerisource accounts. The Terms include two provisions relevant to prejudgment interest. The first states: "All past due balances are subject to a Service Charge of 1.50% per month." After reciting a number of other provisions regarding access to credit history and other payment logistics, the Terms go on to state: "Should Amerisource find it necessary to obtain assistance in collecting any past due balances, I/We agree to pay interest at the rate of 1.50% (or such other rate allowable by State Law) . . . ." Amerisource asserts that the two provisions combined establish a single prejudgment interest rate of 1.5% per month. RxUSA asserts that the two provisions create two distinct obligations and that prejudgment interest is governed solely by the latter. Since that ...


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