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Prescription Supply, Inc v. Musa

United States District Court, E.D. Michigan, Southern Division

February 27, 2017

Prescription Supply, Inc. et. al., Plaintiffs,
Moussa “Mark” Musa, et. al., Defendants.

          David G. Grand U.S. Magistrate Judge


          Arthur J. Tarnow Senior United States District Judge

         Plaintiffs filed a complaint in the Northern District of Ohio on January 22, 2016 [3]. The case was transferred to the Eastern District of Michigan on June 7, 2016 per Plaintiffs' request under 28 U.S.C. §1404. On July 8, 2016, Defendant Care Home RX. Corp. (“Care Home”) filed a Motion to Dismiss [6]. Plaintiffs responded on August 1, 2016 [14] and Defendant Care Home replied on August 15, 2016 [16]. The Court finds the motion suitable for determination without a hearing, as provided by Local Rule 7.1(f)(2), with respect to all of Plaintiff's claims brought against Defendant Care Home. For the reasons stated below, Defendant's Motion to Dismiss is GRANTED in part, and Plaintiffs' tortious interference with business relationships, defamation, unjust enrichment, conversion and conspiracy claims are dismissed and DENIED in part as to Plaintiffs' claims of misappropriation of trade secrets and unfair competition claims. Additionally, Plaintiffs are given leave to amend complaint to reflect the Court's determination that Michigan state law applies.

         Factual Background

         Plaintiff Prescription Supply Inc. (“PSI”) was ASAP RX, Inc. (“ASAP”)'s main supplier of prescriptions for several years prior to July 2015. Defendants Mark Musa and Mike Musa's pharmacy, ASAP, entered into a Credit Agreement with Plaintiffs and further granted to Plaintiffs a security interest in all of ASAP's inventory. Defendants Mark Musa and Mike Musa each executed an Unconditional Personal Guaranty of the Corporate Debt of ASAP in favor of PSI, and subsequently began falling behind on their payments due to the credit account in December 2013.

         PSI believed the likelihood of collecting the amounts due (over $1 million) was slim, so PSI and Defendant Mark Musa and Mike Musa entered into an Asset Purchase Agreement (APA) on July 20, 2015, which had a far less value ($300, 000) than the debt owed to Plaintiffs. Pursuant to the APA, Defendants Mark and Mike Musa agreed to be employed at PSI, through its wholly owned subsidy Plaintiff LTC Pharmacy LLC (“LTC”), for at least six months, and further agreed to be subject to terms containing non-competition, non-disclosure and non-solicitation provisions. Under the APA, so long as certain conditions were met, the debt owed to PSI would be extinguished.

         The complaint alleges that while working for Plaintiffs, Defendants Mark and Mike Musa engaged in unlawful competitive behavior prohibited by the APA and Employment Agreements. Defendants Mark and Mike Musa are alleged to have used the assistance of Defendant Laureen Musa and Care Home to divert customers and opportunities to Care Home, unlawfully stealing customers and opportunities. Plaintiffs allege, upon information and belief, that Care Home was formed in August 2014 for the purpose of continuing the retail pharmacy business of Defendant Mark and Mike Musa, and that it was in competition with LTC. Plaintiffs allege that Laureen Musa and other employees of ASAP working at Care Home diverted Plaintiffs' customers to the new pharmacy in knowing violation of the APA and employment agreements. Plaintiffs further allege that Defendant Care Home is knowingly profiting from its violation of these agreements.

         Standard of Review

         Defendants move to dismiss Plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) and 9(b). On a Rule 12(b)(6) motion to dismiss, the Court must “assume the veracity of [the plaintiff's] well-pleaded factual allegations and determine whether the plaintiff is entitled to legal relief as a matter of law.” McCormick v. Miami Univ., 693 F.3d 654, 658 (6th Cir. 2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009); Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir. 1993)).


         1. Choice of Law

         Having originally filed their complaint in the Northern District of Ohio, Plaintiff's complaint contains claims raised under Ohio state law. Defendant argues that, under Michigan choice of law jurisprudence, Michigan state law should apply. Defendant asserts that Michigan law applies in this diversity case under the rule articulated in Olmstead v. Anderson, 428 Mich. 1 (1986) and Sutherland v. Kennington Truck Serv., 454 Mich. 274 (1997). Plaintiffs argue that under Van Dusen v. Barrack, 376 U.S. 612, 639 (1964), Ohio state law should apply because the Court must apply the law that the Ohio District Court would have applied to the state law claims.

         This case was transferred under 28 U.S.C. §1404 from the Northern District of Ohio at the request of the Plaintiffs, without objection from the Defendants, in order to avoid a possible destruction of complete diversity. [2]. Per Van Dusen v. Barrack, the Erie doctrine requires that Courts apply the choice of law rules of the transferor state if a case is transferred into their jurisdiction under §1404. 376 U.S. 612, 639 (1964). In Ohio, the choice of law rules dictate that “the law of the place of injury controls unless another jurisdiction has a more significant relationship to the lawsuit.Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 946 (6th Cir. 2011), citing Morgan v. Biro Mfg. Co., 15 Ohio St.3d 339, 474 N.E.2d 286, 289 (1984). When deciding which State has the most significant relationship, Ohio courts consider:

(1) the place of the injury;
(2) the location where the conduct causing the injury took place;
(3) the domicile, residence, ... place of incorporation, and place of business of the parties;
(4) the place where the relationship between the parties ... is located;
(5) any of the factors listed in Section 6 of the Restatement (Second) of Conflict of Laws

Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 946 (6th Cir. 2011).

         In this case, it is clear that Michigan state law should apply. All parties but one Plaintiff reside or maintain a principle place of business in Michigan, and therefore any injuries that may have occurred were also situated in Michigan. The alleged acts of harm stemming from the violations of contract, i.e. the taking of clients from Plaintiffs, and misuse of trade secrets, et. al., also occurred in Michigan, as did the underlying relationship of the various contracts between Plaintiffs and Defendants as well as the individual Defendants' relationship with Defendant Care Home. Finally, as Defendants illustrate in their response brief, there is little substantive difference between the jurisprudence governing the claims at issue in Ohio and Michigan. Therefore there is no risk of Plaintiffs being entitled to greater relief if Michigan law is applicable rather than Ohio state law. Accordingly, under Ohio choice of law rules, Michigan law should apply in this case.

         Because Plaintiffs' complaint contemplates claims brought under state law, the Court grants Plaintiffs leave to amend their complaint to reflect the choice of law decision in the interests of justice. However, the claims that the Court has dismissed in this complaint are not affected by this limited amendment of the complaint, because based on the substance of the complaint and the legal arguments made by Plaintiffs under Michigan law in the response brief, a valid claim cannot be stated for the claims that are dismissed under a Michigan law analysis and any amendment that would affect this dismissed claims would be futile based on the facts alleged against Care Home in the complaint. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962).

         2. Misappropriation ...

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