Sandoz Inc. v. Medwiz Solutions, LLC

Background

Sandoz alleged that Defendants submitted falsified debit memos to Sandoz’s return-processing service, FedEx Supply Chain, formerly known as Genco Pharmaceutical Services. According to the complaint, Defendants identified Kinray Inc. and McKesson Pharmaceutical as wholesalers even though they had not purchased the returned products from those wholesalers. Sandoz alleged that the products were nonrefundable, short-dated products, but that Defendants received approximately $1,880,533.16 in credits.

Sandoz asserted claims for fraud and fraudulent inducement, negligent misrepresentation, unjust enrichment, and violations of the Racketeer Influenced and Corrupt Organizations Act, commonly called RICO. Defendants moved to dismiss all claims for failure to state a legally sufficient claim. At this stage, the court treated the complaint’s factual allegations as true and assessed whether they plausibly supported the claims.

Fraud and Fraudulent Inducement

The court held that Sandoz pleaded its fraud claim with the particularity required by the federal rules. The complaint identified the alleged false statements—the statements identifying Kinray and McKesson as the wholesalers—along with when the debit memos were submitted and why the statements were allegedly false. The court also held that the complaint sufficiently connected Reiss and Gorelick to the alleged statements because they were listed as specific contacts in the debit memos.

The court rejected Defendants’ arguments that Sandoz had failed to allege a required duty or that the truthfulness of the debit memos could be resolved at the pleading stage. The court denied the motion to dismiss the fraud and fraudulent-inducement claims against Medwiz, Reiss, and Gorelick.

Negligent Misrepresentation

The court held that Sandoz sufficiently pleaded negligent misrepresentation under New York law. The complaint alleged that Defendants had unique knowledge about where they purchased the products and whether the products were eligible for credit, that the information provided was false, and that Sandoz relied on it. The court denied the motion to dismiss this claim.

Unjust Enrichment

The court recognized that Sandoz’s unjust-enrichment allegations appeared to repeat its fraud allegations. It nevertheless allowed the claim to proceed to the extent Sandoz asserted unjust enrichment as an alternative way to recover the credits if its tort claims ultimately failed. The court denied the motion to dismiss the unjust-enrichment claim on that basis.

RICO Claim

Sandoz alleged that Defendants committed predicate acts, including mail fraud, wire fraud, and interstate transportation of money taken by fraud. The court found that Sandoz pleaded those alleged acts with sufficient particularity and also sufficiently pleaded a RICO enterprise consisting of Medwiz and the individual defendants.

The court nevertheless held that Sandoz failed to plead a pattern of racketeering activity. The alleged conduct lasted approximately 22 months and involved one scheme, which was insufficient to establish closed-ended continuity. Sandoz also failed to plead open-ended continuity because it did not allege that Medwiz primarily engaged in racketeering or provide facts showing a threat of continuing criminal activity. The court granted the motion to dismiss the RICO claim and dismissed it without prejudice.

Attorneys’ Fees

The court held that attorneys’ fees are a possible form of relief, not a separate cause of action. It dismissed the complaint’s asserted fifth cause of action for attorneys’ fees with prejudice. The court also stated that, because the RICO claim was not sufficiently pleaded, Sandoz was not entitled to attorneys’ fees under RICO.

Disposition

Judge Nelson S. Roman granted in part and denied in part Defendants’ motion to dismiss. The RICO claim was dismissed without prejudice, and the attorneys’ fees cause of action was dismissed with prejudice. All other claims remained. Sandoz was granted leave to file an amended complaint as to claims not dismissed with prejudice, with a filing deadline of February 2, 2022. The court stated that claims dismissed without prejudice could later be deemed dismissed with prejudice if Sandoz did not timely amend and could not show good cause for the delay.