Court File and Parties

Court File No.: CV-18-00602745-00CL Neutral Citation: AstraZeneca Canada Inc. v. Sadek et al. 2018 ONSC 7429

SUPERIOR COURT OF JUSTICE CIVIL COURT

B E T W E E N:

ASTRAZENECA CANADA INC Plaintiff

v.

SAMEH (AKA SAM) SADEK, ST. MAHARIAL PHARMACY INC. DBA MD HEALTH PHARMACY, ST. MAHARIAL CLINIC INC, SRX INVESTMENTS INC., SHEPHERD RX PHARMACY INC. AND LILIAN FAM Defendants

R E A S O N S F O R J U D G M E N T

BEFORE THE HONOURABLE MADAM JUSTICE S. DUNPHY on August 9, 2018, at TORONTO, Ontario

APPEARANCES: S. Woods and E. Hoult Counsel for the Plaintiff

L. Brzezinski and R. Harmon Counsel for the Defendants

SUPERIOR COURT OF JUSTICE CIVIL COURT

T A B L E O F C O N T E N T S

WITNESSES Examination In-Chief Cross- Examination Re- Examination

EXHIBITS EXHIBIT NUMBER ENTERED ON PAGE

REASONS FOR JUDGMENT 1 Transcript Ordered: December 28, 2018 Transcript Completed: December 12, 2018 Ordering Party Notified: December 28, 2018

Reasons for Judgment

THURSDAY, AUGUST 9, 2018

...PROCEEDINGS RECORDED BUT NOT TRANSCRIBED

R E A S O N S F O R J U D G M E N T

DUNPHY, J. (Orally):

Overview

These are my oral reasons in the application for a Mareva injunction by the plaintiff, AstraZeneca Canada Inc. The responding parties on the motion and defendants to the claim Sam Sadek, St. Maharial Pharmacy Inc. doing business as MD Health Pharmacy, St. Maharial Clinic Inc., SRX Investment Inc., Shepherd RX Pharmacy Inc., and Lilian Fam are all represented in court today by Mr. Brzezinski and Mr. Harmon.

MR. HARMON: Yes.

THE COURT: Although they are representing the defendants in this action, it is fair to note that they have only been served with the material for approximately 24 hours, perhaps a little bit less and have not had opportunity to respond in any meaningful way to the material that is before me. For that reason I am treating the matter as an ex parte injunction. It is I suppose quasi- ex parte because of the presence of Mr. Brzezinski, but his inability to obtain meaningful instructions and place a meaningful volume of evidence in front of me has necessarily handicapped his ability to do much more than play a devil's advocates role in here, for which I am grateful.

AstraZeneca in applying for this Mareva injunction has made a number of serious allegations of fraud against the defendants. I must consider whether those allegations and the evidence advanced in support of them rises to the level of establishing a strong prima facie case. The claims of fraud arise under a number of plans of AstraZeneca administered by two claims agencies. The fraud alleged has to do with a scheme to make claims under programs offered by AstraZeneca to encourage consumers to purchase original branded drugs that have come off of their patent protection by enabling the pharmacy selling those drugs to make a claim for the difference between the retail price of the drug as sold by AstraZeneca and the price at which the same compound might be available from a generic manufacturer.

Those programs are administered by claims agencies on an electronic basis. In the course of administering those claims facts came to the attention of AstraZeneca which resulted in a further investigation, which has eventually resulted in the four volumes of material that are now before me, which make a claim for fraud based upon a number of observed factors. These include:

• A very significant presence of duplicate claims, which refers to the defendant, St. Maharial Pharmacy Inc., otherwise known as MD Health Pharmacy, submitting the same claim in respect of the same prescription to multiple sources for repayment. A significant number of such duplicate claims were unearthed in the course of the investigation. The number of duplicate claims involved is highly suggestive of a deliberate attempt to do so, rather than anything that might have been an inadvertent error.

• There was also a very large spike in the volume of reimbursement claims made for a period of time from approximately June of 2017 until March of 2018 when the investigation activities resulted in a fall-off in such claims. The statistical spike in claims made by MD Health Pharmacy by itself is equivocal evidence and could be attributed to a number of causes, both culpable and innocent. However, a number of other factors associated with those claims and the large number of such factors, largely precludes an innocent explanation. I say largely because this is of course an ex parte application and the defendants have not yet had an opportunity to assemble a case in response. I can only therefore review the evidence before me and apply such logic as can be applied to it to assess the likelihood that a convincing case against that made by AstraZeneca might emerge. In my judgment that, while possible, is not probable.

I rely upon the following facts, among others:

1. The investigation revealed a large number of DIN's, when compared to every statistical average that one would expect to see from a comparable number of claims. What this means is that whereas a typical patient might have only a couple of drugs on average being supplied, the claims made in this case were three and four times that statistical average and far above any averages normally found in Canada.

2. An examination of the claims made reveals a comparatively small number of drugs involved and those drugs involved were prescribed in a relatively high volume relative to the norm and were high cost or high value drugs.

3. The investigators were unable to find purchases of AstraZeneca drugs in the usual and ordinary course by MD Health Pharmacy in any volume sufficient to account for the spike in the number of claims being processed.

4. There were few instances of the claims also being subject to other insurance coverage, a factor which might indicate a desire to minimize the possibility or risk of audit.

5. There were a relatively small number of doctors responsible for a high proportion of the claims.

6. Although the attempts by the claims agencies to audit these claims were frustrated in March and April 2018, the information obtained in the course of those attempted audits was largely unable to be verified. The patients identified could not be contacted or their numbers had been disconnected. In other cases the doctors alleged to have written the prescriptions in question were unable to identify all of the prescriptions claimed or denied having been their author.

I emphasize that any one of these circumstances could have an innocent explanation by itself. It is the concurrence of these circumstances all together in the same batch of claims which themselves represented a marked departure from prior history which renders these exceptionally suspicious circumstances.

To this I add the fact that there were very strict and strong obligations on the part of MD Health Pharmacy to cooperate in the audit process, which were very clearly and transparently dodged.

In my view, the plaintiff has presented a very convincing case that it has been the victim of fraudulent claims made by the defendant St. Maharial Pharmacy Inc.

Analysis of Mareva Injunction Requirements

Analysis of Mareva Injunction Requirements

I turn now to the five requirements for a Mareva injunction identified by Justice Strathy as he then was in the case of Sibley & Associates v. Ross et al. [2011] O.N.C.S. 2951.

Number one, has the plaintiff made full frank and true disclosure? The plaintiff has presented four volumes of material containing a number of affidavits from the investigators who were responsible for looking into this fraud claim. Mr. Brzezinski, even if appearing on very short notice was retained in regard to related claims several months ago and received further particulars of those related claims which are not unrelated to the allegations made here approximately nine days ago. Recognizing as I do the very strong limitations on Mr. Brzezinski's ability to be responsive in this context, I nonetheless am able to draw some comfort from the fact that he has been unable to point anything which lacked the characteristic of full, frank and true disclosure.

Number two, particulars of the claim. The plaintiff has provided fulsome particulars of the fraud claim it is advancing. In addition to providing particulars of the claim and evidence of its investigation, the plaintiff has also frankly admitted and pointed the court towards the possibility that statistical aberrations or abnormalities detected in the investigation might have innocent explanations. IN my view, this requirement has been satisfied.

Number three, assets in the jurisdiction. I am satisfied that all of the defendants have sufficient assets in Ontario to justify this court asserting jurisdiction. Mr. Sadek has been identified as owning a bank account in the jurisdiction, he is the sole listed officer and director of the defendant SRX Investment Inc., which latter company is the registered owner of a house in Mississauga purchased for a price of 2.7 million dollars and an automobile. A recent photograph of the house shows two cars in the driveway, one of which has a vanity plate clearly connected or apparently connected with the business of the defendants. The corporations are Ontario corporations. Health MD was until May operating a retail outlet in Ontario as was St. Maharial Clinic Inc. The defendant, Lilian Fam, is, on the evidence before me, the co-owner of Health MD. While there is some evidence that she may have been separated from Mr. Sadek in 2015, there is no current evidence before me that that situation persists to this date. There were two cars spotted in the driveway and she was, on the evidence before me, the co-owner of the primary beneficiary of the fraud being affected.

Number four, risk of dissipation. Looking at the evidence as a whole, I am satisfied that there is a serious risk of dissipation of the assets of these defendants. In reaching this conclusion, I have relied upon some of the following factors:

• there is very troublesome evidence of MD Health Pharmacy and Mr. Sadek taking active steps to avoid an audit in March and April of this year;
• MD Health Pharmacy closed its doors rather suddenly in early May, close on the heels of that attempted audit;
• Mr. Sadek gave as one of his excuses for avoiding the audit a necessity for taking a trip out of the country to Egypt;
• There was a recently observed sale of an expensive sports car owned by one of the defendants.

Finally, I look to the circumstances of the fraud itself. In this I am persuaded by the reasoning of Strathy, J., as he then was, in the Sibley & Associates case. I am mindful of the fact that there is no execution before a judgment in this jurisdiction. And the fact that fraud is pleaded or even that there is a strong prima facie case of fraud made out does not in and of itself create an exception to that general rule. The risk of dissipation, in my view, arises from the circumstances of this case, considered in the context of the strength of the evidence of fraud. In combination, the strength of the case and the circumstances of the evidence raise a reasonable probability that the plaintiff's fear the defendants will attempt to dissipate their assets is a real one.

Among the circumstances I have looked to in reaching this conclusion is the closure of the retail store and the clinic operated by the first two corporate defendants, both of which closures came hard on the heels of an audit that was in the process of uncovering details of the fraud which is now laid before me in the evidence of the plaintiffs' investigators. I look as well to the various badges of fraud demonstrated by this case. These include:

• the hollow excuses offered to seek to delay or defeat the audit process;
• the sudden closure of the store;
• the sudden travel; the disconnected phones of patients identified as having received some of the prescriptions for which claims were made.

I am mindful of the fact that the presence of unencumbered real estate on the part of SRX Investment Inc. is something of a contra-indication of an intention to dissipate assets as real estate is not very liquid. However, the real estate does not constitute by any stretch the entire claim of the plaintiffs. Having regard to all the evidence, I believe that there is a reasonable inference to be drawn that there is a risk of dissipation of these assets. The recent travel history of Mr. Sadek does little to dissipate that fear.

I am also satisfied that there is a risk of irreparable harm to the plaintiff in this case. In addition to the risk of dissipation of assets, there is the fact that a tracing remedy would normally be applicable to this type of claim and the plaintiff stands to lose access to that remedy if the assets that are currently available are not preserved.

The balance of convenience also favours the plaintiff in this case. It would appear that the corporate defendants are not currently conducting any active business. In so saying I exclude Shepherd RX Pharmacy Inc. from my comments as the evidentiary record in respect of that company is simply too thin for me to make any firm or confident conclusions yet.

Conclusion

Conclusion

I will now proceed to examine the proposed order suggested by the plaintiff in this case. Before doing so, I will comment on its general form. The plaintiff is asking for, and I am inclined to grant, a worldwide injunction, particularly as regard to the individual defendants. I am going to exclude from the injunction that I am going to examine Shepherd Pharmacy because of a lack of concrete evidence of its involvement in this fraud at this stage. However, I expect that the form of order that I sign will include sufficient personal injunctions binding upon the individual defendants as to grant some level of assurance that assets that may be connected to this fraud, should they be found in that company, would not be subject to danger. And there will be in the normal course an obligation to disclose assets as part of a Mareva injunction which will enable the situation in relation to Shepherd to be fleshed out if need be at a later date.

Those are the end of my reasons.

...END OF EXCERPT AS REQUESTED

FORM 2 Certificate of Transcript Evidence Act, Subsection 5(2)

I, Nimrod Jenikovszky, certify that this document is a true and accurate transcript of the recording National Steel Car Limited v. Independent Electricity System Operator et al., in the Superior Court of Justice, held at 361 University Avenue, Toronto, Ontario, taken from Recording(s) No. 4899_4-3_20180809_093748__10_DUNPHYS.dcr, which has been certified in Form 1.

December 28, 2018 ORIGINAL MUST BE SIGNED BY ACT (Date) (Signature of authorized person)

Nimrod Jenikovszky ACT ID: 4069134316 1-855-443-2748 njeniktranscripts@vptranscription.com