UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
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1 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #:0 0 Gary Jay Kaufman, Esq. (State Bar No. ) gary@kaufmanlawgroupla.com Colin Hardacre, Esq. (State Bar No. 0) colin@kaufmanlawgroupla.com Jonathan M. Genish, Esq. (State Bar No. 0) jgenish@kaufmanlawgroupla.com THE KAUFMAN LAW GROUP 0 Century Park East, Suite 0 Los Angeles, California 00 Telephone: (0) -0 Facsimile: (0) -00 Attorneys for Plaintiff and Counterdefendant, R&O Pharmacy, LLC UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA 0 R&O PHARMACY, LLC, a California limited liability company, v. Plaintiff, VALEANT PHARMACEUTICALS NORTH AMERICA LLC, a Delaware limited liability company, Defendant. And related counterclaim. Case No. : cv 0 SJO JEMx JOINT RULE (f) REPORT Assigned to: Hon. S. James Otero Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
2 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #:0 0 0 Plaintiff and Counterdefendant R&O Pharmacy, LLC ( R&O ) and Defendant and Counterclaimant Valeant Pharmaceuticals North America LLC ( Valeant ) (R&O and Valeant may be collectively referred to herein as the Parties ) hereby submit the following Joint Rule (f) Report: I. RULE (F) CONFERENCE On January, 0 the Parties counsel conducted their Rule (f) conference. During the collegial and productive telephonic meeting, counsel discussed the matters set forth in Rule, the Local Rules and this Court s Initial Standing Order for Cases Assigned to Judge S. James Otero. II. JOINT REPORT A. Nature And Basis Of Claims And Defenses.. R&O s Statement: Valeant is a publicly traded pharmaceutical company that produces specialty pharmaceutical products, over-the-counter (OTC) consumer products and medical devices. Philidor Rx Service, LLC ( Philidor ) is a mail order pharmacy that distributed nothing but Valeant named brand pharmaceuticals. R&O is a licensed pharmacy located in Camarillo, California. In December 0, Philidor attempted to purchase R&O through a shell company it created named Isolani, LLC ( Isolani ). Unbeknownst to R&O at the time, Philidor actually formed Isolani to disguise Philidor s attempted purchase of R&O from the California State Board of Pharmacy ( BOP ) because the BOP had recently denied Philidor an out-of-state pharmacy license. As it turns out, Isolani is not only the alter-ego of Philidor, but Philidor is the alter-ego of Valeant. These facts are supported by Valeant s public admissions that ) it paid $00,000,000 for an option to purchase Philidor for zero dollars; ) Valeant and Philidor have a joint steering committee; ) Valeant has a right of approval over key appointments at Philidor; ) Valeant included Philidor in its internal control testing and internal audit program for compliance with the Sarbanes-Oxley Act; and ) Valeant Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
3 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #:0 0 0 consolidates its financials with Philidor. It has also come to light that Philidor owns Isolani through an option contract substantially similar to the one between Valeant and Philidor. The actions of Valeant, and its alter-egos Philidor and Isolani, have destroyed R&O s business, the reputations of R&O and its principal, Russel Reitz, eliminated Reitz s ability to start another pharmacy, and exposed Reitz and R&O to civil, regulatory, tax and other liabilities. By way of example, Philidor and Isolani used R&O s unique National Council for Prescription Drug Programs ( NCPDP ) and National Provider Identifier Standard ( NPI ) numbers without R&O s knowledge or permission to bill for Valeant product dispensed by other pharmacies, and for drugs that R&O did not stock or dispense. These practices persisted despite multiple written demands to cease and desist from R&O, and despite written assurances from Philidor/Isolani that they would. Naturally, R&O has retained funds issued to R&O to protect itself and Reitz from these liabilities, the full magnitude of which are still surfacing. On September, 0, Valeant s Executive Vice President, Chief Legal Officer and General Counsel, Robert Chai-Onn, sent a letter to R&O out of the blue claiming that R&O owed Valeant over $,000,000 for unpaid invoices. R&O filed this declaratory relief action to prove that these allegations are baseless. Notably, Valeant has apparently changed course and now claims that R&O owes Valeant only $. million. Valeant fails, however, to identify any basis or evidence to support their everchanging calculations. / / / / / / / / / / / / / / / / / / Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
4 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #: 0 0. Valeant s Statement: In this collection action, Valeant seeks payment for the $.-plus million in medications it delivered to R&O from July, 0 through August, 0. R&O dispensed Valeant s medication to patients, collecting at least $. million but failed to remit such amounts, all of which are owed to Valeant. R&O s sole claim is for declaratory judgment; Valeant s Counterclaim seeks to recover the millions of dollars that R&O is wrongfully withholding from Valeant. There is no dispute R&O purchased, received and dispensed Valeant medications. Nor is there any dispute that R&O received millions for those Valeant medications. Valeant shipped the requested medications directly to R&O, and R&O after acknowledging receipt of the medications dispensed them to patients pursuant to prescriptions from doctors, collecting millions of dollars in co-payments and reimbursement checks from third-party payors. On or about July, 0, without any notice to Valeant, R&O stopped making any payments to Valeant, taking those funds for itself. R&O has no affirmative claim that it, instead of Valeant, is entitled to the millions it now wrongfully holds. In fact, before Valeant s Counterclaim, R&O offered a different excuse: R&O boasted that Valeant could not come forward with a shred of evidence to show R&O s indebtedness to Valeant. (Compl..) But that boast is now gone: in its Answer to Valeant s Counterclaim, R&O admitted that it R&O notes in its description that the letter from Valeant identified the outstanding balance as approximately $ million. But R&O knows full well why the amount sought in Valeant s counterclaim is $. million. Because R&O had been authorized to utilize Valeant s co-payment assistance program for dispensing these Valeant products, R&O did not collect the full $,,.0 in co-payments and reimbursement checks. Valeant estimates that the total co-payments and reimbursement checks actually collected by R&O as payment for the prescriptions it dispensed amount to approximately $. million. Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
5 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #: 0 0 received copies of purchase orders and invoices identifying R&O as the recipient of Valeant medications (Admitted: see Answer to Countercl. ); accepted delivery of those Valeant medications (Admitted: id. ); used the Valeant medications to fill patient prescriptions (Admitted: see id. 0, ); and received reimbursement checks from the patients insurance companies as payment for those Valeant medications (Admitted: see id. 0). Based on the foregoing admissions, R&O is not entitled to the money it is withholding and Valeant will expeditiously establish its sole claim to the money. As is often the case where a party is desperate to avoid paying a debt that it has incurred and for which it has no defense, R&O is attempting to manufacture excuses and justifications for its failure to pay Valeant for the pharmaceuticals that it ordered, dispensed and was paid for, but for which it refuses to pay Valeant. Above, R&O claims that it is retaining Valeant s money in order to protect itself from future potential liability. But R&O has not identified any claim that has been made against it whatsoever. Further, R&O does not even suggest that Valeant has done anything that could have possibly harmed R&O. Rather, R&O makes generic, and unsupported, assertions that Valeant is somehow the alter ego of Isolani and Philidor, based on nothing more than Valeant working with Philidor and reporting financial results in accordance with Generally Accepted Accounting Principles. Such generic and unsupported allegations do not justify R&O s actions here. B. Discovery Plan / Initial Disclosures / Discovery Cutoff: The Parties have agreed to exchange initial disclosures on or before February, 0. The Parties propose September, 0 for the fact discovery cutoff and November, 0 for the expert discovery cutoff in this matter (as set forth in the Parties Proposed Schedule of Pretrial Dates, attached hereto as Exhibit ). As to privilege and protection issues, the Parties have discussed potentially entering into a Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
6 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #: 0 0 mutually agreeable protective order. The Parties will also discuss any issues regarding electronic discovery as they arise. The Parties do not believe that any changes should be made at this time to the limitations on discovery imposed under the federal or local rules and do not believe that discovery should be conducted in phases. However, the Parties reserve their rights to request modifications in the future, if necessary.. R&O s Written Discovery and Deposition Schedule: Following the Parties Rule (f) conference, R&O: () noticed two depositions of Valeant s managing agents and employees; () subpoenaed and noticed the depositions of three third-party individuals who have percipient knowledge of the facts alleged in the underlying pleadings, and have been heavily involved in the Parties dealings; and () served document requests on Valeant, responses to which are due February 0, 0. R&O also intends to take the deposition of Valeant s person most knowledgeable, as well as several other party and third-party percipient witnesses. The need for further depositions will be determined through discovery. R&O also intends to serve an initial set of interrogatories and other written discovery on Valeant in the near future, and perhaps a second set upon receipt and review of Valeant s discovery responses and initial disclosures. The depositions and subpoenas served by R&O are proper and in compliance with Federal and local rules, as R&O did not serve any discovery until after the Parties completed their Rule (f) conference. See Fed. R. Civ. Proc. (d) & 0(a)(). On January, 0, upon being served with the deposition notices, Valeant s counsel sent Valeant agrees that discovery in this matter should proceed expeditiously and cover all topics appropriate under Fed. R. Civ. P., without breaking those topics into phases or otherwise compartmentalizing them. As discussed below, however, Valeant objects to R&O s improper efforts to take depositions of its senior executives including its general counsel as well as the depositions of third-party trial witnesses before any discovery has taken place and any documents have been produced. Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
7 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #: 0 0 an to R&O s counsel stating that the depositions will not be going forward on those dates. Within five minutes of receiving that , R&O s counsel responded that R&O would of course try to accommodate Valeant and its counsel s schedules, and asked for alternative deposition dates. Valeant s counsel did not respond or provide alternative dates. On January, 0, R&O s counsel again followed up on its request for alternative dates, however Valeant again failed to respond or provide alternative dates. While Valeant takes issue with the fact that R&O noticed the depositions to occur before documents are due to be exchanged, there is no discovery priority under the Federal Rules. Instead, Rule is crystal clear that discovery by one party does not require any other party to delay its discovery. Fed. R. Civ. Proc. (d)()(b). R&O is not seeking to cross-examine witnesses on documents that they have never seen or to gain some tactical advantage by deposing witnesses before documents have been produced, as was the case in Roberts v. American Int l Inc., F.Supp. (E.D. Cal. ), cited by Valeant below. R&O will be deposing these individuals as percipient witnesses and, as to two of the witnesses, on declarations they filed in this case in support of Valeant s motion for preliminary injunction (which Valeant subsequently withdrew). Moreover, the information derived from these depositions will help R&O determine whether to amend its pleadings or add parties within the deadlines set by the Court and rules. Finally, the fact that one of the percipient witnesses in this case, Valeant s Executive Vice President, also happens to be Valeant s general counsel does not prevent R&O from taking his deposition before production of documents. The Executive Vice President authored the September, 0 letter that contains the first ever communication from Valeant regarding R&O s alleged debt. All of R&O s pending depositions were properly noticed and R&O looks forward to receiving convenient alternative dates for the previously-noticed depositions of Valeant s two employees. Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
8 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #: 0 0 As to the three third-party depositions, R&O has not received any response or objection to date.. Valeant s Discovery and Deposition Schedule: Valeant has served interrogatories, requests for admissions and documents requests on R&O. Responses to those requests are due in mid-february. Valeant has taken particular care to comply with revised Fed. R. Civ. P. (b)() and has tailored its discovery requests accordingly. Following completion of the initial round of written discovery and the production of documents by both parties, Valeant intends to depose Mr. Reitz, the pharmacist-incharge at R&O and the person who (i) personally signed off on R&O s receipt of the Valeant shipments; (ii) dispensed the pharmaceutical products to patients; and (iii) received the payments from the patients and other third-party payors for the Valeant products. Valeant will also likely depose the other employees of R&O. Although Valeant will first seek to informally resolve any discovery disputes with R&O, an issue has already arisen that Valeant would like to discuss at the Scheduling Conference. Less than an hour after the early meeting of counsel, when discovery formally opened in this matter, R&O served deposition notices for two Valeant executives, including its general counsel and its controller. The deposition notices, which were sent without any consultation with Valeant s counsel, purported to schedule the depositions on ten days notice and well before any written discovery had occurred or a single document had been produced. Within hours, Valeant notified R&O s counsel that the noticed dates would not work and expressly reserved all objections. Two days later, R&O served notices of third-party subpoenas for the depositions of three Philidor employees, again noticing the depositions for the minimum notice period. Valeant has two significant objections to these depositions that it would like to discuss with the Court at the scheduling conference. First, R&O s attempt to rush these depositions prior to the completion of any written discovery and, more importantly, the production of any documents by either party, is improper. Courts routinely hold that Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
9 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #: 0 0 depositions particularly when witnesses are not within the jurisdiction should wait until after substantive documents and materials have been produced. See, e.g., Roberts v. American Int l Inc., F. Supp., 0 (E.D.Cal. ) (holding that district courts have authority to control the sequence of discovery to promote fair and just litigation practices and ordering depositions to occur following the production of documents and recordings of statements the deponents would be questioned on). Here, where R&O has a significant asymmetrical advantage because it holds the documents related to its defense (and those materials have not yet been produced), courts have delayed the taking of discovery and trial depositions until after the parties document productions are substantially complete. Moreover, R&O s statement above that the depositions would be focused on the declarations that some of the deponents submitted in support of a now-withdrawn motion just adds further justification to delaying these depositions until after substantive discovery has been completed. R&O s suggestions would inevitably lead to these witnesses being deposed multiple times, which is presumptively improper. Rather, the more efficient, fair and just practice would be to order depositions to wait until after the parties have equal access to the underlying documents and information. See Roberts, F. Supp. at 0. Second, R&O s attempt to depose Valeant s general counsel as the first witness in the case is also improper. Numerous courts have held that efforts to depose the opposing side s counsel (which includes in-house counsel), are appropriate only in limited circumstances, including where () no other means exist to obtain the information than to depose opposing counsel; () the information sought is relevant and not privileged; and () the information is crucial to the preparation of the case. Shelton v. American Motors Corp., 0 F.d, (th Cir. ). See also, Spectra- Physics, Inc. v. Sup. Ct., Cal. App. d, (). At this very early stage of the litigation, where discovery has only just begun and not a single document has been produced, R&O cannot satisfy its burden to show that deposing Valeant s general Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
10 Case :-cv-0-sjo-jem Document 0 Filed 0// Page 0 of Page ID #: 0 0 counsel is the only means for obtaining the information. Valeant submits that any consideration of deposing its general counsel should be delayed until after basic discovery has been completed and good cause for that deposition exists. C. Listing and Proposed Schedule of Law and Motion Matters: The Parties propose January, 0 as the dispositive motion cutoff date. Valeant anticipates potentially filing a motion for summary judgment after conducting sufficient discovery. R&O may also file a motion for summary judgment should it become apparent through discovery that such a motion is warranted. The Parties do not anticipate any other law and motion matters at this time. D. Settlement Efforts and Recommended Settlement Procedure: R&O reached out to Valeant shortly after filing the action and offered to mediate. Valeant rejected that offer. R&O remains open to a private mediation before a retired judge. Valeant prefers a settlement conference before a magistrate judge. The Parties agreed that they need to conduct discovery before discussing settlement prospects further, but will keep the lines of communication open. E. Estimated Length of Trial and Proposed Dates for the Final Pretrial Conference and for Trial: The Parties propose February, 0 as the date for a jury trial. R&O estimates that the trial will last -0 days. Valeant estimates that the trial will last - days. The Parties propose February, 0 as the date for the Final Pretrial Conference. F. Last Day to Amend the Pleadings or Add New Parties: March, 0. G. Other Issues Affecting the Status or Management of the Case: None at this time. Case No. : cv 0 SJO JEMx - Joint Rule (f) Report 0
11 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #: H. Severance / Bifurcation or Other Ordering of Proof: None at this time. Respectfully submitted, 0 0 DATED: January, 0 DATED: January, 0 THE KAUFMAN LAW GROUP By: /s/ Gary Jay Kaufman Attorneys for Plaintiff and Counterdefendant R&O Pharmacy, LLC /s/ Michael H. Steinberg (SBN ) steinbergm@sullcrom.com Brian R. England (SBN ) englandb@sullcrom.com SULLIVAN & CROMWELL LLP Century Park East, Suite 00 Los Angeles, California 00- Telephone: (0) -00 Facsimile: (0) -00 Attorneys for Defendant and Counterclaimant Valeant Pharmaceuticals North America LLC Attestation: Pursuant to Local Rule -..(a)()(i), I hereby attest that all other signatories listed, on whose behalf this filing is submitted, concur in the filing s content and have authorized the filing thereof. /s/ Gary Jay Kaufman Case No. : cv 0 SJO JEMx - Joint Rule (f) Report
12 Case :-cv-0-sjo-jem Document 0 Filed 0// Page of Page ID #: 0 0 Matter Trial Date (Jury) Estimated Length: Days Final Pretrial Conference; Discuss Previously Filed Motions in Limine; File Agreed Upon Set of Jury Instructions and Verdict Forms and Joint Statement re Disputed Instructions and Verdict Forms; File Proposed Voir Dire Questions and Agreed To Statement of Case; File Witness List, Exhibit List, and Trial Brief Last Day for Hearing Motions Discovery Cut Off EXHIBIT [PROPOSED] SCHEDULE OF PRETRIAL DATES Time :00 a.m. Day(s) or Weeks Before Trial :00 a.m. days before trial days before trial 0 days before trial Plaintiff's Request // -0 days estimate Defendant's Request // - days estimate // // // // Fact: // Expert: // Fact: // Expert: // Court Order ADDITIONAL MATTERS TO BE DETERMINED AT SCHEDULING CONFERENCE L.R. Settlement Choice: () CT/USMJ (Valeant) () Atty () Outside ADR (R&O) () Trial Court Last Day to Conduct Settlement Conference Last Day to Amend Pleadings or Add Parties // // weeks prior to pretrial conference Within 0 days from scheduling conference [Proposed] Schedule of Pretrial Dates
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