United States District Court, D. New Jersey
FAIR LABORATORY PRACTICES ASSOCIATES AND NPT ASSOCIATES, Plaintiffs,
CHRIS RIEDEL AND HUNTER LABORATORIES, LLC, Defendants.
WILLIAM J. MARTINI, District Judge.
In this action, Plaintiffs Fair Laboratory Practice Associates and NPT Associates seek to enforce a qui tam award sharing agreement they entered into with Defendants Chris Riedel and Hunter Laboratories, LLC. This matter comes before the Court on Defendants' motion for judgment on the pleadings, Plaintiffs' cross-motion for summary judgment,  and non-party Quest Diagnostic Inc.'s motion for leave to appear amicus curiae. For the reasons stated in this opinion, Plaintiff's cross-motion for summary judgment is GRANTED. The motions filed by Defendants and non-party Quest are DENIED. Judgment will be entered in favor of Plaintiffs.
Plaintiffs Fair Laboratory Practices Associates ("Fair Laboratory") and NPT Associates ("NPT") are both Delaware partnerships formed for the purpose of prosecuting qui tam actions. Fair Laboratory's principle place of business is New Jersey and its CEO is Mark Bibi. Unless otherwise noted, the Court will refer jointly to Fair Laboratory and NPT as "Fair Laboratory" or "Plaintiffs." Defendant Hunter Laboratories, LLC ("Hunter") is a limited liability company that is organized under the laws of California and is in the commercial reference laboratory business. Defendant Chris Riedel is a California resident and Hunter's sole managing member. Unless otherwise noted, the Court will refer jointly to Hunter and Riedel as "Hunter" or "Defendants."
Plaintiffs and Defendants are both relators in separate qui tam actions against clinical laboratory companies. In their respective qui tam actions, the parties accuse certain laboratory companies of fraudulent conduct in connection with their generation of Medicare and Medicaid business. Two of those qui tam actions (both filed in 2005) are of particular importance in this case. First is a lawsuit Fair Laboratory filed in the Southern District of New York (hereinafter, "the New York Action") against Quest Diagnostics, Incorporated ("Quest") and Unilab Corporation ("Unilab"). Second is an action Defendants filed against Quest, Unilab, and other Defendants in California state court (hereinafter, "the California Action"). In 2009, Fair Laboratory and its counsel met with representatives from the State of California, Riedel, and Riedel's counsel, to discuss the New York Action. Defendants have also indicated that an Assistant United States Attorney was present by telephone. At around the same time, Fair Laboratory represented to Defendants that its CEO, Mark Bibi, formerly served as Unilab's general counsel from 1993 to 2000. With this information out in the open, the parties began negotiating a qui tam relator sharing agreement.
Following negotiations, the parties entered into a "Qui Tam Relator Sharing Agreement and Assignment" (hereinafter, "the Agreement") in May 2010. The Agreement provides that the parties would share with each other portions of qui tam awards they may obtain in the future. Specifically, the Agreement provides that Defendants will assign to Plaintiffs 15% of any qui tam award they may recover in certain actions, including any award they may recover in the California Action. In return, Plaintiffs agreed to assign to Defendants 15% of any award they may receive in the New York Action. However, the Agreement provides that neither party would be required to share an amount exceeding $15 million. In the Agreement, the parties also represented that "each of the [parties]...acknowledges that he or it has made his or its own evaluation of the [ qui tam ] lawsuits...and the transactions provided for in this Agreement, and is not relying on any information furnished by or on behalf of the other party or parties or any person or entity." (Agreement at § 3(b)). The parties do not dispute that a primary purpose of the Agreement was to hedge the risks associated with bringing their qui tam suits. In other words, even if one party recovered nothing from its own qui tam action(s), it still had the chance to recover a portion of shared qui tam proceeds under the Agreement.
Fair Laboratory's efforts in the New York Action were unsuccessful. Defendants in the New York Action (hereinafter, "The New York Defendants") moved for dismissal on the grounds that Bibi disclosed to Fair Laboratory confidential information he obtained when he served as Unilab's general counsel. According to the New York Defendants, Bibi's sharing of Unilab's confidential information was a breach of his duty of loyalty to his former client and a violation of the New York Code of Professional Responsibility. Fair Laboratory opposed the motion to dismiss on the grounds that Bibi's conduct fell within the New York Code's future crime exception.
The judge presiding over the New York Action, the Honorable Robert P. Patterson, Jr., agreed with the New York Defendants and granted their motion to dismiss. In an April 5, 2011 opinion and order (hereinafter, the "New York Order"), Judge Patterson held that Bibi's sharing of Unilab's confidential information violated the New York Code of Professional Responsibility, and further concluded that the crime fraud exception did not apply. Consequently, Judge Patterson dismissed Fair Laboratory's complaint and disqualified Fair Laboratory, its general partners, and its counsel from the New York Action or any subsequent suit premised on the same facts. Later, the Second Circuit affirmed Judge Patterson, concluding that that the decision to disqualify Fair Laboratory and its partners from the New York Action and any future related qui tam lawsuits was not an abuse of discretion. U.S. v. Quest Diagnostics Inc., 734 F.3d 154 (2d Cir. 2013).
The New York Order did not rule on the validity of the Agreement, nor did Judge Patterson suggest that his opinion affected the Agreement's enforceability. That said, the New York Order did reference the Agreement by noting that "Bibi also parlayed his information into a financial interest' in another qui tam suit against Unilab in California....[and that] [Fair Laboratory] is sharing information with the relators in that case." Despite that language, Defendants have repeatedly represented that the only documents they received related to the New York action were five copies of Fair Laboratory's amended complaints. Defendants have further represented that when prosecuting the California Action, they did not use any information they received from Bibi or Fair Laboratory.
One month after Judge Patterson dismissed the New York Action, Defendants in this case reached a $241 million settlement with Quest in the California Action. Because Defendants were relators in the California Action, they received a portion of the settlement proceeds. Under the terms of the Agreement, that award would be subject to the 15% sharing provision.
In July 2011, however, Defendants informed Plaintiffs that they would not pay 15% of the proceeds they received in the California Action, the reason being that the New York Order prohibits Defendants from paying Plaintiffs a portion of any award obtained in any lawsuit against Quest. Rather than pay Plaintiffs 15% of what they received in the California Action, Defendants have placed those funds - a sum total of $6.29 million - in an escrow account.
To this date, Defendants have refused to pay Plaintiffs 15% of what they received in the California Action. In response, Plaintiffs filed the instant lawsuit alleging (1) breach of contract; (2) conversion; and (3) unjust enrichment. Defendants then filed a motion for judgment on the pleadings. Plaintiffs then responded with a cross-motion for judgment on the pleadings, which this Court converted into a cross-motion for summary judgment pursuant to Fed.R.Civ.P. 12(d).
The Court will assess Defendants' submission using the standard applicable to motions for judgment on the pleadings. Pursuant to Federal Rule of Civil Procedure 12(c), judgment on the pleadings will be granted only if "the movant clearly establishes there are no material issues of fact, and he is entitled to judgment as a matter of law." Sikirica v. Nationwide Insurance Co., 416 F.3d 214, 220 (3d Cir. 2005) (citing Society Hill Civic Ass'n v. Harris, 632 F.2d 1045, 1054 (3d Cir. 1980)). The court "must view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party." Id. In deciding a motion for judgment on the pleadings, the court considers the pleadings and attached exhibits, ...