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LLC v. RX Blue Star Solutions, LLC

Superior Court of Pennsylvania

December 19, 2017

340B MANAGEMENT, LLC, Appellant
v.
RX BLUE STAR SOLUTIONS, LLC; SACKS MEDICAL CORPORATION; SMC DIRECT LLC; PHARMBLUE LLC; PHARMBLUE HOLDINGS, LLC; MEIR SACKS a/k/a SHIM SACKS, AND YAAKOV SACKS a/k/a JAKE SACKS

         Appeal from the Judgment entered February 15, 2017 in the Court of Common Pleas of Allegheny County, Civil Division, No(s): GD 12-012001

          BEFORE: MOULTON, SOLANO and MUSMANNO, JJ.

          OPINION

          MUSMANNO, J.

         340B Management, LLC, appeals from the Judgment entered against it and in favor of RX Blue Star Solutions, LLC ("Blue Star"), Sacks Medical Corporation, SMC Direct LLC, Pharmblue LLC, Pharmblue Holdings, LLC, Meir Sacks a/k/a Shim Sacks ("Shim"), and Yaakov Sacks a/k/a Jake Sacks ("Jake") (collectively, "Defendants"). We affirm.

         The trial court aptly described the facts underlying the instant appeal as follows:

Brothers Shim [] and Jake [] owned the Evans City, Butler County[, ] mail order pharmacy[, ] [] Blue Star [], and they believed the 340B Drug Pricing Program[1] presented a new potential revenue source. In April of 2009, after meeting with Ira Landsman [("Ira")], Shim and Jake engaged Ira [] to solicit health centers eligible for the 340B Drug Pricing Program to name [] Blue Star as their contract pharmacy. Ira had been successful as a certified public accountant, securities trader and a real estate developer, but he had no experience in pharmacy matters. However, he immersed himself in 340B Drug Pricing Program literature and became very knowledgeable on the subject. With Shim and Jake agreeing [that] Ira would receive fifty percent of [] Blue Star's net profits from the 340B Program, in June of 2009[, ] Ira obtained [] Blue Star's first contract with a 340B heath center. Shim and Jake then gave Ira the title of Chief Operating Officer of [] Blue Star. Ira and [] Blue Star also put their net profit[-]sharing agreement into writing [("the Agreement")], with Ira first forming 340B Management, LLC[, ] to receive his fifty percent as [] Blue Star's independent contractor.
Ira worked diligently and obtained additional health centers to sign 340B contracts with [] Blue Star, and gross revenue to [] Blue Star from the 340B Program grew dramatically to approximately $1.7 million in 2011 and $17.7 million in 2012. Ira's duties involved much more than soliciting health centers eligible for the 340B Drug Pricing Program. He assisted the health centers in preparing extensive paperwork required from the health centers by the federal government, he prepared monthly reports on prescriptions filled for each customer health center[, ] and he managed the relationships with all of the customer health centers.
In approximately November of 2011[, ] Shim asked a healthcare merger and acquisition advisor to search for assistance selling [] Blue Star for an asking price of $4.5 million. A potential purchaser then emerged, but the net profit sharing agreement with Ira seemed to be a deal breaker. Jake and Shim then began to perpetrate an elaborate scheme on their unsuspecting friend and business associate, Ira. Shim bombarded Ira with a series of lies about civil proceedings and potential criminal charges against [] Blue Star that Shim said could ensnare Ira, its Chief Operating Officer. Around March 29, 2012, after Shim told Ira he could avoid this impending legal crisis if he resigned, Ira[, ] in fact[, ] submitted his resignation as Chief Operating Officer of [] Blue Star. In April of 2012, Pharmblue purchased [] Blue Star and Pharmblue subsequently refused to honor the agreement between [] Blue Star and Ira's 340B Management.
340B Management then initiated a lawsuit against [] Blue Star, Pharmblue, Shim [] and Jake [] for, among other things, fraud and breach of contract. Ira had regularly requested an accounting of [] Blue Star's net profits to determine his fifty percent, but Jake and Shim never provided him [with] this information. Instead, [] Blue Star paid Ira's 340B Management $18, 000 in 2010, $10, 000 in 2011[] and $65, 000 in 2012[, ] for a total of $243, 000. The breach of contract claim was based on the $243, 000 that [] Blue Star paid being far less than fifty percent of the net profits from the 340B Drug Pricing Program.

Trial Court Opinion, 4/24/17, at 1-3 (footnote added).

         After discovery, Defendants filed a Motion for summary judgment as to Ira's breach of contract claim. The trial court granted the Motion, concluding that the contract for payment (based upon 50% of net profits) violated the federal Anti-Kickback Statute ("the AKS"), 42 U.S.C.A. § 1320a-7b(b)(1)(B). Consequently, the trial court dismissed Ira's breach of contract claim. A jury subsequently determined that Shim had defrauded 340B Management. The jury awarded 340B Management $35, 000 in compensatory damages, and $400, 000 in punitive damages. 340B Management filed a Motion for post-trial relief, which the trial court granted in part and denied in part. The trial court entered Judgment on the jury's award of $35, 000 in compensatory damages, and $400, 000 in punitive damages to 340B Management. 340B Management filed the instant timely appeal of the trial court's Judgment, followed by a Pa.R.A.P. 1925(b) Concise Statement of matters complained of on appeal.

340B Management presents the following claims for our review:
I. Whether … a new trial is required as to [340B Management's] breach of contract claim because the [t]rial [c]ourt erred in granting partial summary judgment to [Defendants] with respect to [340B Management's] breach of contract claim based on the June 1, 2009 Agreement, as amended by the March 19, 2010 Amendment, by finding that said Agreement was unenforceable based on its violation of federal law, namely, [the AKS?]
II. Whether a new trial is required as to [340B Management's] breach of contract claim because the [t]rial [c]ourt erred in denying [340B Management's] Motion for Post-Trial Relief Pursuant to Pa.R.Civ.P. 227.1 with respect to [340B Management's] request for a new trial as to [its] breach of contract claim[?]

Brief for Appellant at 5.

         340B Management challenges the entry of summary judgment against it, and in favor of Defendants.

Our scope of review of an order granting summary judgment is plenary. We apply the same standard as the trial court, reviewing all the evidence of record to determine whether there exists a genuine issue of material fact. We view the record in the light most favorable to the non-moving party, and all doubts as to the existence of a genuine issue of material fact must be resolved against the moving party. Only where there is no genuine issue as to any material fact and it is clear that the moving party is entitled to a judgment as a matter of law will summary judgment be entered.
Motions for summary judgment necessarily and directly implicate the plaintiff's proof of the elements of his cause of action. Thus, a record that supports summary judgment will either (1) show the material facts are undisputed or (2) contain insufficient evidence of facts to make out a prima facie cause of action or defense and, therefore, there is no issue to be submitted to the fact-finder. Upon appellate review, we are not bound by the trial court's conclusions of law, but may reach our own conclusions. The appellate court may disturb the trial court's order only upon an error of law or an abuse of discretion.

DeArmitt v. N.Y. Life Ins. Co., 73 A.3d 578, 585-86 (Pa. Super. 2013) (internal citations and quotation marks omitted; some ...


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