Georgia Judge Dismisses Lawsuit Against Cardinal Health Alleging Conversion, Contract Breach

Judge Clarence Cooper of the Northern District of Georgia dismissed an amended complaint by pharmacy consulting company MEI Services Inc. against health services provider Cardinal Health 110 LLC. The complaint alleged conversion and breach of contract against the defendant stemming from a payment dispute.

The parties’ litigation arose from an asset purchase and sale agreement between MEI and CVS Pharmacy stipulating that CVS would keep $340,000 of the sale proceeds as a “holdback,” 50% of which originally was to be returned to MEI after 18 months and the remaining half after 36 months, according to the court. Cardinal Health was a creditor of the plaintiff, so the parties agreed that the holdback funds would be assigned to Cardinal Health and another creditor, Live Oak.

“Under the agreement, Cardinal Health agreed to use any Holdback funds received from CVS exclusively to pay any outstanding notes or trade accounts between MEI and Cardinal Health,” the court explained. “It was also agreed that to the extent MEI was not indebted to Cardinal Health on any notes or trade accounts, Cardinal Health would return the Holdback funds to MEI.”

In a separate sale, an MEI affiliate sold its assets pursuant to a contemporaneous agreement also with Cardinal Health, and the affiliate incurred a debt of $69,511.65. Cardinal Health ended up retracting from the MEI account the $85,000 credit it received from CVS as part of the holdback payments and instead sought to apply it to the MEI affiliate’s account to settle the debt there. According to MEI, Cardinal Health never proposed that any MEI-affiliated entity be included in the sale agreement; accordingly, MEI sued for conversion and two counts of breach of contract, seeking to recover punitive damages and attorney’s fees, later filing a first amended complaint.

The defendant moved to dismiss the claims, arguing that the plaintiff failed to state claims on which relief could be granted for its causes of action.

“First, Cardinal Health maintains that it cannot be liable for conversion since it holds title to the funds that are the subject of the claim and because there is a commercial contract that allows Cardinal Health to apply the funds to the defaulted account of an MEI affiliate that governs the parties’ debtor-creditor relationship and the funds at issue,” the court explained. “Second, Cardinal Health argues that its internal directives did not establish a contract between Cardinal Health and MEI. Finally, Cardinal Health contends that the parties never consummated the settlement agreement and that, even if they did, MEI has not adequately alleged how Cardinal Health breached the agreement.”

The court agreed on all fronts, finding that, concerning the conversion allegation, Cardinal Health has ownership over “the relevant portion of the Holdback amount” and that the claim is based on the defendant’s “alleged breach of an alleged agreement and not a violation of an independent duty.”

On the contract breach claims, in siding with the defendant, the court said the plaintiff failed to establish that internal communications between the parties “g(a)ve rise to a contract that MEI can enforce.”

Along with its motion to dismiss, Cardinal Health also filed a motion for sanctions against the plaintiff, which the court denied because the plaintiff’s claims “were not so objectively frivolous so as to justify an award of sanctions.”

The plaintiff is represented by Kan Clark LLP. The defendant is represented by Quintairos, Prieto, Wood & Boyer P.A.