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Piramal Critical Care, Inc., A v. Nephron Pharmaceuticals Corporation

February 27, 2012


The opinion of the court was delivered by: B. Lynn Winmill Chief Judge United States District Court



The Court has before it Defendant's Motion to Dismiss Plaintiffs' Complaint (Dkt. 17), Plaintiff's Motion to Amend the Complaint (Dkt. 25), and Plaintiff's Motion to Strike (Dkt. 30). The Court has read and fully considered the briefing and related materials submitted by the parties, and now issues the following Memorandum Decision and Order denying Defendant's Motion to Dismiss, granting Plaintiff's Motion to Amend, and denying Plaintiff's Motion to Strike as moot.


Plaintiff Piramal Critical Care, Inc., doing business in the state of Idaho as RXElite Holdings, Inc., is a Delaware corporation which purchases pharmaceutical drugs for resale under its own label on the wholesale market. Defendant Nephron Pharmaceuticals Corp. is a Florida-based manufacturer of such drugs. From August 12, 2002, until August 18, 2006, Piramal outsourced its production of certain asthma drugs to Nephron under a Pharmaceutical Manufacturing and Distribution Agreement (PMDA), which was terminated on the latter date by agreement of the parties after Piramal encountered financial trouble and defaulted on a series of notes. 2nd Am. Compl. at 2-7

¶¶ 2-38, Dkt. 25 Ex. A. The Termination Agreement, in addition to dissolving the PMDA, provided that in exchange for a release from certain debt, Piramal would assist Nephron in establishing direct relationships with Piramal's customers for the asthma drugs purchased from Nephron and previously sold under Piramal's brand. Id. at 7, ¶ 40. Additionally, Section 3 of the Termination Agreement provided that as to each customer of Piramal previously provided with Nephron-manufactured asthma drugs under the PMDA,

. . . Nephron will agree to assume any liability that RxElite may have for chargebacks to vendors (e.g., Medicaid rebates, and service level rebates, etc) owed in relation to service those customers pursuant to transactions made in accordance with applicable law, provided that such rebates are disclosed to Nephron and do not exceed $1,000,000.00.

All chargeback balances specifically related to products directly sold by Nephron to a previous RxElite customer associated with servicing an account, specifically McKesson, Cardinal, AmerisourceBergan, and Rochester Drug, shall be assumed by Nephron.

Id. at 7, ¶ 41. A "chargeback," in pharmaceutical industry parlance, is the difference between the wholesale acquisition cost for drugs paid by a wholesaler and the lower contract price paid by the buyer. Id. at 4, ¶ 15. Under the PMDA, this difference was credited to the wholesaler by Piramal or, at the relevant times, its predecessors-in-interest. Id. at ¶ 16.

As amended, the Complaint alleges that Nephron breached section 3 of the Termination Agreement by failing to pay one such wholesaler, McKesson, some 1.8 million dollars in chargebacks, as a result of which McKesson offset that amount from debts it owed Piramal for anesthetic gas products. Id. at 11-12, ¶¶ 61-66. The Complaint also states an alternative claim for indemnity. Id. at 12, ¶¶ 71-75. Piramal seeks compensatory damages and a declaration that Nephron is estopped, based upon its prior course of conduct, from asserting the one million dollar cap under section 3 of the PMDA.


1. Piramal's Motion to Amend

Rule 15(a) is very liberal and leave to amend "shall be freely given when justice so requires." See AmerisourceBergen Corp. v. Dialysist West, Inc., 465 F.3d 946 (9th Cir. 2006). However, a district court need not grant leave to amend where the amendment: "(1) prejudices the opposing party; (2) is sought in bad faith; (3) produces an undue delay in litigation; or (4) is futile." Id.

Here, Nephron opposes Piramal's Motion to Amend on the ground that it would be futile in light of Nephron's arguments regarding standing, joinder, and the identity of the correct defendant, as set forth in its briefing on the Motion to Dismiss. For the reasons set forth below, the Court finds that the amendment sought by Piramal would not be futile, and Piramal's Motion to Amend is granted in accordance with the liberal standard articulated above. Hence, the Court's analysis throughout this Memorandum ...

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