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Aids Service Center of Lower Manhattan, Inc. v. Pharmblue LLC

United States District Court, S.D. New York

July 30, 2014


Joseph John Saltarelli, Esq., Patrick L. Robson, Esq., Hunton & Williams, LLP (NYC), New York, NY, for Plaintiff.

Casey Devin Laffey, Esq., Reed Smith, LLP (NYC), New York, NY, Dianna Calaboyias Wyrick, Esq., Reed Smith, LLP (Pittsburgh), Pittsburgh, PA, for Defendant.


SHIRA A. SCHEINDLIN, District Judge.


AIDS Service Center of Lower Manhattan, Inc., doing business as AIDS Service Center NYC ("ASCNYC"), brings this diversity action against PharmBlue LLC ("PharmBlue") for multiple causes of action, including: (1) fraudulent inducement; (2) negligent misrepresentation; (3) breach of contract; (4) breach of implied covenant of good faith; and (5) unjust enrichment. PharmBlue now moves to dismiss under the first-filed-case rule or, in the alternative, transfer venue to the United States District Court for the Western District of Pennsylvania. For the following reasons, PharmBlue's motion is DENIED in its entirety.


ASCNYC is a New York non-profit organization with its principal office in New York City.[2] ASCNYC provides comprehensive social and medical case management services to New York City's HIV/AIDS community, including assisting its clients in obtaining necessary medications.[3] PharmBlue is a Delaware limited liability company with its principal place of business in Pennsylvania.[4] In April 2013, ASCNYC and PharmBlue entered into a Pharmacy Services Agreement (the "Agreement"), [5] under which PharmBlue agreed to act as ASCNYC's designated "contract pharmacy" to dispense medications to its clients for purposes of the 340B Program ("the exclusivity provision").[6] PharmBlue's duties included providing Eligible Patients, as defined in the Agreement, with Pharmacy Services, including "dispens[ing] Covered Drugs to Eligible Patients in accordance with all applicable State and Federal statutes and regulations."[7] Under the Agreement, "[b]ased on prescriptions from their doctors, ASCNYC would order medication for 340B Program-enrolled clients at discounted prices and have the drugs shipped directly to PharmBlue, which would dispense the drugs to ASCNYC's clients."[8] PharmBlue would then seek reimbursement for the full cost of the drugs from the clients' insurance providers and retain a portion of the Reimbursement Differential Funds as its fee.[9] ASCNYC would receive the remaining portion to fund its various HIV/AIDS programs.[10]

Many of ASCNY's clients receive prescribed medications through New York's Medicaid insurance programs.[11] ASCNYC alleges that beginning with the execution of the Agreement and through the present, PharmBlue has failed to dispense Covered Drugs to ASCNYC's Medicaid-eligible clients because it lacks the required New York Medicaid licensure.[12] ASCNYC further alleges that PharmBlue made material misrepresentations in the Agreement regarding its Medicaid licensure and ability to lawfully provide Pharmacy Services to ASCNYC's Medicaid-eligible clients, on which ASCNYC relied to its detriment.[13] Specifically, ASCNYC alleges that PharmBlue deprived it of the benefits of the Agreement by preventing ASCNYC from obtaining 340B Program funds.[14]

On January 21, 2014, ASCNYC asked PharmBlue to amend the Agreement to eliminate the exclusivity provision. ASCNYC wanted to contract with a pharmacy with a New York Medicaid license in order to service its Medicaid-eligible clients.[15] PharmBlue rejected this request.[16] On March 6, 2014, Michael Nelson, CEO of PharmBlue, informed Sharen Duke, CEO and Executive Director of ASCNYC, that PharmBlue had obtained its Medicaid license.[17] ASCNYC alleges that this information was also false.[18] On March 14, 2014, ASCNYC provided PharmBlue with a Notice of Termination of the Agreement due to its continuing failure to render Pharmacy Services to Medicaid-eligible clients under the Agreement.[19] The Notice of Termination informed PharmBlue that ASCNYC would "continue to utilize PharmBlue's services for non-Medicaid eligible patients" for the next ninety days, but "intend[ed] during this 90-day period to contract with a properly licensed New York Provider" for its Medicaideligible patients.[20] It further informed PharmBlue that ASCNYC "intend[ed] to pursue a claim for all the damages it has sustained as a result of PharmBlue's material breaches."[21] On March 19, 2014, PharmBlue's attorney, Dianne Wyrick, responded to ASCNYC asserting that PharmBlue had not materially breached the Agreement and that even if it had, PharmBlue had ninety days from the date of the Notice of Termination to cure any alleged material breach before the Agreement could be terminated.[22] Wyrick also disclosed that on February 28, 2014, PharmBlue had acquired a pharmacy in Brooklyn, New York with a Medicaid license that could provide the Pharmacy Services to ASCNYC, thereby curing the alleged breach of the Agreement.[23] In light of that development, PharmBlue asked ASCNYC to withdraw the Notice of Termination so PharmBlue and ASCNYC could continue their business relationship "without the threat of litigation."[24] On March 31, 2014, ASCNYC's counsel, Joseph Saltarelli, responded that ASCNYC would not withdraw the Notice of Termination or waive its claim for damages.[25] However, ASCNYC would agree to meet with PharmBlue, in the interests of avoiding litigation, to address a mutually agreeable termination of the Agreement and appropriate compensation for ASCNYC's losses.[26] In subsequent telephone conversations with Wyrick on April 4 and April 9, 2014, ASCNYC reiterated that it would not withdraw the Notice of Termination.[27]

On April 9, 2014, Saltarelli informed Wyrick that ASCNYC was prepared to litigate if the parties could not reach a settlement, and thereafter updated Duke on this conversation.[28] The next day, at 12:17 p.m., Wyrick emailed Saltarelli a copy of the complaint and motion for preliminary injunction that PharmBlue had filed in the Allegheny Court of Common Pleas (the "Pennsylvania Action"). ASCNYC was served immediately thereafter.[29]

PharmBlue states that it based its April 10, 2014 filing on its discovery that ASCNYC had entered into a January 2014 contract with another pharmacy, Town Total Health, LLC ("Town Total"), in violation of the exclusivity provision of the Agreement.[30] PharmBlue learned of the Town Total contract from a publication on the HRSA website.[31] On April 15, 2014, PharmBlue amended its complaint to add Town Total as a defendant.[32] The judge in the Pennsylvania Action held a status conference on April 21, 2014, ordered expedited discovery, and set hearings for ASCNYC's expected objections to personal jurisdiction (June 11, 2014) and PharmBlue's motion for preliminary injunction (June 12, 2014).[33]

ASCNYC filed the instant action on April 18, 2014, seeking rescission of the Agreement and asserting claims for damages.[34] On April 30, 2014, ASCNYC removed the Pennsylvania Action to the United States District Court for the Western District of Pennsylvania, [35] and then moved to dismiss the case for lack of personal jurisdiction, transfer the case to this Court, and/or stay discovery.[36] On May 2, 2014, a telephone status conference was held in the Pennsylvania Action and an expedited briefing schedule for various procedural motions was set.[37] Those motions were all filed on May 12, 2014 and were fully briefed as of May 23, 2014.[38]


Under the first-filed rule, "[w]here there are two competing lawsuits, the first suit should have priority."[39] The rule "embodies considerations of judicial administration and conservation of resources."[40] It applies "where proceedings involving the same parties and issues are pending simultaneously in different federal courts."[41] However, the rule is not to be "applied in a rigid or mechanical way."[42] "[T]he existence of non-overlapping claims or parties does not disqualify lawsuits from the first-filed rule."[43] Additionally, "where the two actions were filed within a short span of time, the court may afford a diminished degree of deference to the forum of the first filing."[44] Application of the first-filed rule is also "diminished where there has been little progress in the first-filed action."[45] "The Second ...

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