Kroger Specialty Pharm. FL 2 v. Genefic Specialty Pharm.

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KROGER SPECIALTY PHARMACY FL 2, LLC; KROGER SPECIALTY PHARMACY LA, LLC; KROGER SPECIALTY PHARMACY HOLDINGS 2, INC.; and KROGER SPECIALTY PHARMACY HOLDINGS, INC., Plaintiffs, v. GENEFIC SPECIALTY PHARMACY, INC. and RICHARD BROOKS MADISON, Defendants.

No. 3:23-cv-001217

United States District Court, M.D. Tennessee, Nashville Division

April 24, 2024

MEMORANDUM

Aleta A. Trauger, Judge

Before the court are (1) the Motion to Dismiss (Doc. No. 46) filed by defendants Genefic Specialty Pharmacy, Inc. (“Genefic”) and Richard Brooks Madison, seeking dismissal of the First Amended Complaint (“FAC”) (Doc. No. 45) filed by plaintiffs Kroger Specialty Pharmacy FL 2, LLC (“KSP FL 2”), Kroger Specialty Pharmacy Holdings, Inc. (“KSP Holdings”), Kroger Specialty Pharmacy LA, LLC (“KSP LA”), and Kroger Specialty Pharmacy Holdings 2, Inc. (“KSP Holdings 2”); and (2) plaintiff KSP FL 2's Motion for Preliminary Injunction (Doc. No. 39)-which the court now construes as having been brought on behalf of all four plaintiffs named in the FAC-seeking to enjoin Madison from violating (or continuing to violate) the Confidentiality, Non-Disclosure Non-Competition, and Non-Solicitation Agreement (“Agreement” or “non-compete Agreement”) he entered into with Modern HC Pharmacy Inc. (“MHCP”) on April 1, 2015 (Doc. No. 45-2) and to enjoin Genefic from interfering with the Agreement.

As set forth herein, the court will grant in part and deny in part the Motion to Dismiss and will grant the Motion for Preliminary Injunction, insofar as it is brought by plaintiffs KSP Holdings 2 and KSP LA.

I. FACTUAL AND PROCEDURAL HISTORY

A. The Pleadings and The Motion to Dismiss

KSP FL 2 initiated this lawsuit on November 17, 2023, seeking a temporary restraining order and injunctive relief against both defendants. (Doc. No. 1.) Very generally, the Complaint alleges that Madison had formerly been employed by KSP FL2; that he had entered into the Agreement with MHCP while employed by MHCP; that MHCP was the predecessor-in-interest to KSP FL 2, making KSP FL 2 entitled to enforce the Agreement; and that the Agreement prohibited Madison from, among other things: “(a) working for a competitor for 1 year after termination [within] the Restricted Area (as defined in [the A]greement); (b) soliciting customers, referral sources and/or patients in the Restricted Area; and (c) using [KSP FL 2's] confidential information to compete unfairly.” (Doc. No. 1 ¶ 1.) Notwithstanding his Agreement, Madison had left KSP FL 2's employment, gone to work for defendant Genefic, a direct competitor, and engaged in precisely the activities barred by the Agreement. KSP FL 2 filed a Motion for Temporary Restraining Order (“TRO Motion”) (Doc. No. 7) the same day it filed the Complaint, supported by the Affidavit of Jeremy Richardson, Vice President of Sales, Marketing & Trade Relations for “Kroger Specialty Pharmacy” (i.e., not specifically KSP FL 2) (Doc. No. 7-1, Richardson Aff. ¶ 1).

After the court scheduled a hearing on the TRO Motion for December 28, 2023, KSP FL 2 voluntarily withdrew the motion, citing “certain documentation and other discovery issues discussed by the parties' counsel since the filing of the lawsuit” and signaling the parties' intent to file a joint motion to conduct expedited discovery in advance of a preliminary injunction hearing.

(Doc. No. 25.) The parties did so; the court granted the motion and scheduled the preliminary injunction hearing. (Doc. Nos 27, 29.) KSP FL 2 filed its Motion for Preliminary Injunction and supporting Memorandum on February 16, 2024. (Doc. Nos. 39, 40.)

Meanwhile, the defendants filed an Answer to the original Complaint, admitting that Madison began working for MHCP in April 2015 and was formerly employed by KSP FL 2. (Doc. No. 32 ¶¶ 1, 14.) Notwithstanding these admissions, the plaintiff withdrew both of those allegations in the First Amended Complaint (“FAC”) (Doc. No. 45), filed, with the defendants' consent, on February 27, 2024 (after filing the Motion for Preliminary Injunction).

The FAC brings claims on behalf of all four plaintiffs identified above. Notably, the FAC alleges that Madison is a “former employee of KSP LA and KSP Holdings 2”-not KSP FL 2. (FAC ¶¶ 9, 16.) It alleges that Madison began working for an entity known as Total Life Care Rx Pharmacy, LLC (“TLCRx Pharmacy”) in 2013 but was working for MHCP in April 2015 when he signed the Agreement. (FAC ¶¶ 17, 18.) Regarding the plaintiffs' capacity to enforce the Agreement, the FAC alleges that, in July 2016, Modern HC Holdings, Inc. (MHCP's “holding company”-i.e., parent corporation) and Axium Pharmacy Holdings, Inc. (“Axium”) (which was already owned by The Kroger Co.) entered into a stock purchase agreement (“SPA”) and then engaged in corporate rebranding and various entity name changes. (FAC ¶¶ 26-28.) Axium became KSP Holdings; MCHP became KSP Holdings 2; TLCRx Pharmacy became KSP LA; and TLCRx, LLC became KSP FL 2. (FAC ¶¶ 30-33.) In other words, KSP Holdings now “holds” KSP Holdings 2, while KSP LA and KSP FL 2 are, according to the FAC, “affiliates” of both. (See FAC ¶ 29; see also Doc. No. 45-2, Agreement ¶ 1 (identifying TLCRx Pharmacy and TLCRx, LLC as “affiliates” of MHCP).) The FAC does not allege that Madison was ever employed by either KSP Holdings or KSP FL 2, nor does it identify any basis or mechanism through which either KSP Holdings or KSP FL 2 would have the capacity to enforce the Agreement.

The FAC continues to allege that Madison has materially breached the Agreement, causing KSP LA and KSP Holdings 2 irreparable harm (FAC ¶ 52), through his employment with Genefic, a specialty pharmacy in direct competition with KSP LA (FAC ¶ 47), by (1) engaging in the sale of the same specialty medications he previously sold as an employee of KSP LA and KSP Holdings 2, within the “Restricted Area” covered by the Agreement; (2) soliciting customers, referral sources and/or patients of KSP LA and/or KSP Holdings 2 within the Restricted Area, using Confidential Information (as defined in the Agreement) to engage in such solicitation, and by soliciting (successfully in at least one case) employees of KSP LA and KSP Holdings 2 to leave that employment and go to work for Genefic. Based on that conduct, and Genefic's knowledge of the Agreement and involvement in Madison's activities, the FAC states claims for (1) breach of contract against Madison; (2) trade secret misappropriation against Madison and Genefic; (3) tortious interference with a contractual relationship against Genefic; and (4) tortious inducement of breach of contract against Genefic.

Immediately after the plaintiffs filed the FAC and while briefing on the Motion for Preliminary Injunction was ongoing, the defendants filed their Motion to Dismiss the FAC. (Doc. No. 46.) As set forth in their supporting Memorandum of Law (Doc. No. 47), the sole basis for dismissal of the claims brought by plaintiffs KSP LA and KSP Holdings 2 is that these entities are, respectively, a foreign limited liability company and a foreign corporation that were (as of the date the Motion to Dismiss was filed) transacting business in Tennessee without a certificate of authority, as a result of which they lack(ed) legal capacity to bring a lawsuit in any court within this state, pursuant to Tenn. Code Ann. §§ 48-246-601(a) and 48-65-102(a). In addition, the defendants seek dismissal of the claims brought by KSP FL 2 and KSP Holdings on the grounds that the FAC fails to state a claim on behalf of these entities for which relief can be granted. (Doc. No. 47, a 2, 4-6.)

In their Response to the Motion to Dismiss (Doc. No. 60), the plaintiffs explain that

[o]riginal Plaintiff KSP FL 2 added new Plaintiffs KSP LA, KSP Holdings, and KSP Holdings 2 in the First Amended Complaint to address Defendants' arguments during expedited discovery that KSP FL 2 did not have ‘standing” to enforce Madison's Agreement. KSP LA was added as a Plaintiff because it is the entity that paid Madison during his employment. KSP Holdings was added as a Plaintiff because it is the (now renamed) buyer in the July 19, 2016 Stock Purchase Agreement whereby Kroger and its affiliate Axium Pharmacy Holdings, Inc. (now renamed KSP Holdings) purchased the stock of Modern HC Holdings. And KSP Holdings 2 (formerly named Modern HC Pharmacy) was added as a Plaintiff because it is the now-renamed entity with which Madison entered into the Agreement at issue.

(Doc. No. 60, at 1-2.) Responding to the defendants' arguments, the plaintiffs do not dispute the legal basis for the dismissal of KSP LA and KSP Holdings 2. Instead, they assert-and have produced evidence establishing-that these entities are both now authorized to transact business in Tennessee, KSP LA having applied for and obtained a license to do business in Tennessee as of March 4, 2024 and KSP Holdings 2 having applied for and obtained a license to do business in Tennessee effective March 5, 2024. (See Doc. Nos. 60-1, 60-2, 60-3.) They argue that the Motion to Dismiss as to these plaintiffs has thereby been rendered moot.

Regarding KSP FL 2 and KSP Holdings, the plaintiffs argue rather vaguely that these entities are properly named as plaintiffs, first, because they are both “affiliates” of plaintiff KSP Holdings 2 and, as such, are protected by express contractual provisions in the Agreement that is at issue in this case. They also contend that KSP Holdings is a proper plaintiff because “KSP Holdings is the now renamed buyer in the Stock Purchase Agreement. And the Stock Purchase Agreement is the ‘vehicle' by which Modern HC Holdings became a company owned by Kroger Specialty Pharmacy.” (Doc. No. 60, at 2, 3-4.) In other words, KSP Holdings is the parent company of KSP Holdings 2. (See id. at 4.)

The...