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Daniel J. Cutie and Cutie Pharma-Care, Inc v. James G. Sheehan

October 5, 2011


The opinion of the court was delivered by: Mae A. D'Agostino, U.S. District Judge:



On January 18, 2011, Plaintiffs commenced the present civil rights action pursuant to 42 U.S.C. § 1983. Currently before the Court is Defendants' motion to dismiss and, in the event that the Court grants Defendants' motion, Plaintiffs' cross motion to amend their complaint. See Dkt. Nos. 13, 15.


Plaintiff Daniel J. Cutie has been a licensed pharmacist in New York State since 1989. See Dkt. No. 1 at ¶ 16. Plaintiff Cutie Pharma-Care, Inc. ("Cutie Pharma-Care") is a family owned and operated retail pharmacy created in 2002, and is located in Greenwich, New York. See id.

A. The Medicaid system

Plaintiffs are Medicaid "providers" that receive financial reimbursements for services that they provide to certain individuals covered by the Medicaid Act, which is set forth in Title XIX of the Social Security Act, 42 U.S.C. § 1396, et seq. See id. at ¶ 19. Medicaid is a cooperative federal-state program designed to provide federal funds to individual states in order to ensure that low-income families with dependent children, indigent and disabled individuals, and others with insufficient income and/or resources are able to meet the costs of necessary medical care. See id. at ¶ 20. A state's participation in the Medicaid program is voluntary, but once a state chooses to participate, it must comply with federal statutory and regulatory requirements. States participating in the Medicaid program are required to develop a comprehensive plan (the "State Plan") for the provision of services that must be approved by the Secretary of the Department of Health and Human Services, through the Centers for Medicare and Medicaid Services ("CMS"), pursuant to 42 U.S.C. § 1396a.

CMS is the agency that administers Medicaid at the federal level. 42 C.F.R. Part 30 sets forth rules and guidelines that govern CMS, which are binding on all states that participate in the Medicaid program. Under the Medicaid Act, if a state consents to establishing a State Plan that satisfies the requirements of Medicaid, the federal government will contribute a specified percentage of the total money expended as "medical assistance" under the State Plan.

New York is one such state that receives these federal funds to provide medical assistance to its indigent citizens under the Medicaid program. In order to receive federal funds, however, New York must comply with the requirements of the Medicaid Act and with the regulations promulgated by the United States Department of Health and Human Services.

New York has designated the New York State Department of Health ("DOH") as the state agency responsible for the administration of its Medicaid plan pursuant to 42 U.S.C. § 1396a and

42 C.F.R. § 431.10. In tandem, the New York State Office of the Medicaid Inspector General ("OMIG") has been established by state statute as an independent entity within the DOH to improve and preserve the integrity of the Medicaid program by conducting and coordinating fraud, waste, and abuse control activities for all state agencies responsible for services funded by Medicaid.

B. Defendants' alleged conduct

On June 14, 2006, the New York State Department of Education ("DOE") conducted an inspection of Plaintiff Cutie Pharma-Care, which revealed several "minor" violations with regard to the pharmaceutical services it provided. See id. at ¶ 29. As a result of the investigation, Plaintiffs accepted a "modest fine, censure and reprimand for these violations from the Department of Education under certain consent agreements." See id. at ¶ 30. The violations that Plaintiffs admitted to in the consent agreement, however, did not involve dispensing errors or Medicaid fraud or crimes of any type. See id. at ¶ 31. "Additionally, these minor violations were not of the type, quality or character that typically warrants an exclusion from the Medicaid provider program and all of the cited violations were corrected by Plaintiffs approximately four (4) years ago." See id.

Plaintiffs allege that, notwithstanding the consent agreement, "on February 23, 2010,

Plaintiffs received a letter from OMIG dated February 18, 2010 that set forth its intention to exclude Plaintiffs from participating in the Medicaid provider reimbursement program thirty (30) days from the date of that notice." See id. at ¶ 32. Plaintiffs claim that OMIG's intention to exclude was based entirely on the censure and reprimand issued by the DOE. See id. at ¶ 33. Further, Plaintiffs claim that, prior to sending the letter of intent to exclude, the individual Defendants "were gathering information on Plaintiffs' customers in an effort to coerce them to switch pharmacies as part of the plan to destroy Plaintiffs' business." See id. at ¶ 35. "Indeed, evidence reveals that [Defendant] Ruperto materially and falsely communicated to [Defendant] McMahon prior to February 22, 2010, 'this pharmacy was found to have accepted back previously dispensed medications and thereafter re-dispensed them to other residents/facilities,' when in fact, Defendants were aware that no finding of re-dispensing of returned drugs had ever been made by the DOH or OMIG." See id. at ¶ 36.

Thereafter, Plaintiffs claim that "evidence reveals that [Defendants] McMahon and Ruperto then communicated this same false statement, in sum and substance, through electronic mail to numerous other actors in the DOH and OMIG (including the Doe Defendants) advising them to identify and contact adult care facilities that utilized the Plaintiffs' services." See id. at ¶ 37. Further, Plaintiffs assert that [Defendants] Ruperto, McMahon and the Doe Defendants researched the likely customers of [Plaintiff] Cutie Pharma-Care and then systematically contacted them without the Plaintiffs' permission or knowledge, communicating in sum and substance that Plaintiffs re-dispensed previously dispensed drugs, committed other illegal activities, was going to be 'indicted' and/or subjected to criminal prosecution, and encouraged them to switch pharmacies.

Further, they continued to call those facilities that did not switch pharmacies to continue their effort to coerce them to change.

See id. at ¶ 38. Plaintiffs claim that these acts all occurred under Defendant Sheehan's supervision. See id. at ¶ 39.

Plaintiffs claim that neither DOH nor OMIG has ever taken such preemptive actions with regard to another pharmacy or pharmacist in similar circumstances and has admitted to the unique and selective nature of this conduct in its correspondence with Plaintiffs. See id. at ¶ 40. Although OMIG did not proceed with the planned exclusion of Plaintiff Cutie Pharma-Care from the Medicaid program due to injunctive relief that Plaintiffs' obtained and OMIG's subsequent disavowal of the proposed exclusion, Plaintiffs claim that their business has nonetheless suffered from Defendants' actions. See id. at ¶ 41.

On January 18, 2011, Plaintiffs commenced the present civil rights action. In the complaint, Plaintiffs assert due process and equal protection causes of action, and several state-law causes of action, including defamation, slander, libel per se, tortious interference with contracts and business relations, and prima facie tort. See id. at ¶¶ 45-97. Plaintiffs seek prospective injunctive relief, as well as compensatory damages, punitive damages, and attorneys' fees.

On June 28, 2011, Defendants filed a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. See Dkt. No. 13. In their motion, Defendants argue that (1) they are entitled to Eleventh Amendment immunity as to Plaintiffs' claims against them in their official capacities; (2) Plaintiffs have failed to allege that Defendant Sheehan was personally involved in the alleged constitutional violations; (3) they are entitled to qualified immunity; (4) Plaintiffs' class-of-one equal protection claim must be dismissed as a matter of law; and (5) with ...

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