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Warren Prescriptions, Inc. v. Walgreen Co.

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

January 4, 2018

Warren Prescriptions, Inc., M.P.K., Inc., and Sax Discount Pharmacy, Inc., Plaintiffs,
Walgreen Co., Defendant.


          Nancy G. Edmunds United States District Judge.

         This matter is before the Court on Defendant's motion to dismiss counts IV and V of the amended complaint and to extend time for answering the remaining counts. (Docket 28.) On August 4, 2017, the Court issued an opinion and order (dkt. 23) denying in part and granting in part Defendant's motion to dismiss Plaintiffs' original complaint, which consisted of four claims for breach of contract (counts I-IV) and one claim for silent fraud (count V). At that time, the Court denied Defendant's motion to dismiss as to counts I (breach of indemnification provisions) and III (breach of the covenant of good faith and fair dealing). The Court granted Defendant's motion to dismiss with respect to count II (breach of the covenants, agreements and obligations under the Agreement) and dismissed it with prejudice. Finally, the Court granted Defendant's motion and dismissed without prejudice counts IV (breach of representations) and V (silent fraud). Plaintiffs filed a first amended complaint as to counts IV and V (dkt. 34) and Defendant again seeks to dismiss those counts. The Court heard this matter on November 1, 2017.

         I. FACTS

         The facts, as set forth in the Court's prior order, are as follows. Plaintiff Warren Prescriptions, Inc. (“Warren”), operated a retail store that included a pharmacy in Farmington Hills, Michigan (the “Farmington Hills Drugstore”). (Am. Compl. ¶ 10.) Plaintiff Sax Discount Pharmacy, Inc. (“Sax”), operated a pharmacy in Taylor, Michigan (the “Taylor Drugstore”), and Plaintiff M.P.K., Inc. (“MPK”) operated the front-end non-pharmacy retail business of the Taylor Drugstore (the Taylor Drugstore and Farmington Hills Drugstore together, the “Pharmacies”). (Am. Compl. ¶ 11.) On or about May 1, 2014, Warren, Sax and MPK (together, “Plaintiffs”) entered into an asset purchase agreement (the “APA”) with Defendant Walgreen Co. (Am. Compl. ¶ 8; Def.'s Mot. Ex. A-1, dkt. 19-1, filed under seal.) The APA was amended on or about July 31, 2014 by Amendment No. 1 to the Asset Purchase Agreement (the “Amendment”, together, the “Agreement” or “APA”). (Am. Compl. ¶ 9; Def.'s Mot., Ex. A-2, dkt. 19-2, filed under seal.) Defendant provided both documents under seal to the Court with its first motion to dismiss. Plaintiffs agree that the APA is referred to in the Complaint, is integral to Plaintiffs' claims, and should be considered with the instant motion. (Pls.' Resp. 1, dkt. 20.)

         The sale for the two drugstores closed on or about August 6, 2014 (the “Closing”). (Am. Compl. ¶ 19.) The parties agree that $6.7 million was paid at the Closing. (Am. Compl. ¶ 23; Def's. Br. 3.) The APA contains the following Purchase Price provision at section 4.1:

The purchase price (the “Purchase Price”) for the Purchased Assets and the covenants and agreements set forth herein shall be an amount equal to Ten Million Eight Hundred Thousand Dollars ($10, 800, 000.00) (the “Base Amount”), as adjusted in accordance with Sections 4.2(c) plus the Employment Bonus Payment and the Inventory Amount. The parties further agree that the Base Amount will decrease in the event there is a Material Reduction (as defined below) in the daily prescription count at the Pharmacies between the date of this Agreement and the Closing Date, which decrease shall be calculated as follows: (a) on a date within fifteen (15) days of Closing (such date the “Verification Date”) the parties shall measure, using the same procedures as used in measuring the Current Volume, the average daily prescription count over a six (6) month period ending on the Verification Date at the Pharmacies (such count, the “Verification Date Volume”); and (b) in the event the Verification Date Volume is less than the Current Volume by five (5) percent or more, then such shall constitute a “Material Reduction” and the Base Amount shall be reduced by an amount to be mutually agreed upon by the parties. Buyer's calculation of the Verification Date Volume shall be conclusive absent manifest error.

(APA § 4.1; Amendment No.1 To APA, Section 3.) Prior to the closing, the two drugstores were filling an average of approximately 820 prescriptions per day. (Am. Compl. ¶ 12, dkt. 1; APA §§ 1.1, 6.9 as amended, Ex. K, dkt. 19-1.)

         Section 4.2 provides that a portion of this Base Amount would be paid out after closing and pursuant to a schedule set forth at Exhibit L, on the basis of the retention of a certain average amount of prescriptions per day; filling less than an average of 610 prescriptions per day would result in a Retention Earnout Termination as follows:

(c) An amount up to Four Million Dollars and No/100 ($4, 000, 000.00) of the Records Amount (the “Retention Earnout”), shall be paid pursuant to Exhibit K within thirty (30) days after the date that is the last day of the month during which the twelve (12)-month and twenty-four (24)-month anniversaries of the Closing Date falls (the “Retention Earnout Termination Dates”), by wire transfer . . .; provided, that in the event of a Retention Earnout Termination (as defined below), Buyer will be permitted to retain any unpaid portion of the Retention Earnout, with no further obligation to Sellers. As used in this Section 4.2(c), “Retention Earnout Termination” means a determination by Buyer, based on the procedures set forth below, that the Average Customer Prescriptions is less than six hundred ten (610). On or promptly after each of the Retention Earnout Termination Dates, Buyer will identify, through its pharmacy computer system, the total number of prescriptions filled at pre-existing Walgreens drug stores and at the Premises for patients of the Pharmacies since the Closing Date (the “Customer Prescriptions”). Buyer shall then divide the Customer Prescriptions by the number of days from the Closing Date to each of the Retention Earnout Termination Dates (the “Average Customer Prescriptions”). Buyer's calculation of the Average Customer Prescriptions shall be conclusive.

(APA § 4.2(c); Am. Compl. ¶¶ 24-27.)

         On September 3, 2015, little more than one year after the Closing, Defendant sent an email to Plaintiffs' agent, stating the following:

Pursuant to the Asset Purchase Agreement dated May 1, 2014, and Amendment No. 1 to the Asset Purchase Agreement dated July 31, 2014, by and among WALGREEN CO., SAX DISCOUNT PHARMACY, INC., MPK INC. and WARREN SAV-MOR PRESCRIPTIONS, the amount of $4, 000, 000.00 (the ‘Twelve Month Prescription Earnout') was withheld from the Purchase Price, and payable upon Sellers [sic] retaining an average of at least six hundred ten (610) prescriptions per day for the twelve (12)-month period following Closing. According to Buyer's calculations, 253 Rx/Day were retained from Sax Pharmacy and 143 Rx/Day were retained from Warren Pharmacy and Sellers did not retain the required number of prescriptions necessary for payment of the Prescription Earnout. Therefore, no full or partial payment of the Twelve Month Prescription Earnout shall be made, and Buyer shall have no further obligations for payment.

(Am. Compl. ¶ 28; Pls.' Resp. 2-3.) Plaintiffs' claims arise from Defendant's position that it is not obligated to pay a remaining amount of $4, 000, 000 to Plaintiffs. Plaintiffs bring claims for breach of contract (breach of the indemnification provisions- Count I); breach of the covenant of good faith and fair dealing (Count III); breach of representation (Count IV) and silent fraud (Count V). (Dkt. 34.)


         Defendant brings this motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), alleging the "failure to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). The Sixth Circuit noted that under the United States Supreme Court's heightened pleading standard laid out in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), “a complaint only survives a motion to dismiss if it contains sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Estate of Barney v. PNC Bank, Nat'l Ass'n, 714 F.3d 920, 924 (6th Cir. 2013) (internal quotations and citations omitted). The court in Estate of Barney goes on to state that under Iqbal, “[a] claim is plausible when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (internal quotations and citations omitted). Furthermore, while the "plausibility standard is not akin to a ‘probability requirement, ' . . . it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Estate of Barney, 714 F.3d at 924 (citing Iqbal, 556 U.S. at 679 (quoting Fed.R.Civ.P. 8(a)(2)). If the plaintiffs do "not nudge[ ] their claims across the line from conceivable to plausible, their complaint must be dismissed." Twombly, 550 U.S. at 570. Finally, the Court must keep in mind that “on a motion to dismiss, courts are not bound to accept as true a legal conclusion couched as a factual allegation.” Id. at 555 (quotation and citation omitted).

         “[D]ocuments attached to the pleadings become part of the pleadings and may be considered on a motion to dismiss.” Commercial Money Ctr., Inc. v. Ill. Union Ins. Co., 508 F.3d 327, 335 (6th Cir. 2007) (citing Fed.R.Civ.P. 10(c)). "A court may consider matters of public record in deciding a motion to dismiss without converting the motion to one for summary judgment.” Id. at 336. "In addition, when a document is referred to in the pleadings and is integral to the claims, it may be considered without converting a motion to dismiss into one for summary judgment." Id. at 335-36; see also Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514 (6th Cir.1999)(documents not attached to the pleadings may still be considered part of the pleadings when the “document is referred to in the complaint and is central to the plaintiff's claim”) (internal quotation marks and citations omitted).

         III. ANALYSIS

         A. Whether Plaintiffs State A Claim For Breach of Contract Predicated Upon Defendant's Breach Of The Representation - Count IV

         In Count IV, Plaintiffs allege that Defendant breached APA, section 7.2, Representations and Warranties of Buyer:

7.2. No Conflicts. The execution, delivery and performance of this Agreement by Buyer does not and will not constitute a breach of any contract to which it is a party, the effect of which breach could reasonably be expected to have an adverse effect on Buyer's ability to consummate the transactions contemplated by this Agreement.

(APA § 7.2; Am. Compl. ¶¶ 13, 81.) Plaintiffs allege that Defendant did not inform them that it had entered into a Settlement Agreement with the United States Department of Justice (“DOJ”) and the United States Drug Enforcement Administration (“DEA”) in which Defendant acknowledged that certain of its retail Pharmacies did on some occasions dispense certain controlled substances in a manner not fully consistent with federal regulations. (Am. Compl. ¶¶ 53-55.) Plaintiffs allege that pursuant to the Settlement Agreement, Defendant was required to operate pursuant to a compliance program, the obligations or restrictions of which caused the pharmacies to lose customers and to not fill prescriptions at the rate at which prescriptions were filled prior to Closing. (Am. Compl. ¶ 56, 74.) This is one of the two counts which the Court dismissed without prejudice in its August 4, 2017 opinion and order. (Dkt. 23.) The Court found that while these allegations raised a possibility of Defendant being party to an undisclosed contract which would hinder Defendant's ...

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