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Diversion: Wholesaler's financial woes draw lawsuits by veterinarians
Wholesaler's financial woes draw lawsuits by veterinarians who claim to have lost thousands.
National Report — Dr. Mike McIntyre is struggling to care for his two chronically ill children. The associate veterinarian from Minnesota already borrows against his family's ranch in South Dakota to keep up on medical bills, and he turned to product diversion last year to supplement his family's income.
But what he didn't expect was to end up further indebted—this time after purchasing a large supply of a popular veterinary flea product to sell to a Florida wholesaler that, he alleges, did not pay for the transaction.
McIntyre claims he is out $26,000 and plans to file suit. He's not the only one. Other veterinarians already have filed legal complaints against WTF Wholesale Suppliers for allegedly not settling its debts.
Meanwhile, the company has disconnected its phone lines and closed up shop.
Diversion of non-prescription veterinary products, like flea and tick products, has opened up new distribution channels oftentimes in direct competition with private veterinary practices. Wholesalers seek out veterinarians to purchase products from animal-health manufacturers to resell outside of traditional veterinary channels. The legitimate practice is legal, and one official estimates that thousands of veterinarians are actually engaged in this business arrangement.
However, other veterinarians scorn the practice as unethical and detrimental to the entire market. Some manufacturers, like Ceva Animal Health, have policies in place to protect against product diversion.
In the most recent developments, several lawsuits involving diversion of Merial's Frontline flea product are already in litigation against WTF Wholesale in Volusia County Circuit Court and others have been voluntarily dismissed. Dr. John McQuown of Banning, Calif.; Royer Veterinary Services of Worthington, Ind.; Dr. David Kulhavy of Austin, Texas; and Dr. Clarissa Meeks of Red Feather Lakes, Colo., all have asked the court to force WTF to pay their outstanding debts—which range from $20,000 to $30,000 a piece.
The veterinarians and their lawyers did not return phone calls from DVM Newsmagazine, but court records indicate they all claim WTF has not settled its financial obligations.
Kelly Parsons, an attorney from Cobb Cole in Daytona Beach representing WTF, denies any allegations of fraud and cites a poor economy and diminished consumer spending—along with the introduction of generics to mass retailers—for the decline of the company.
That decline led to a "nonpayment issue with a few vendors who send product to WTF outside of its typical model," she says.
"At this time, WTF is in the process of marshalling its assets and determining its liabilities so that as many vendor issues can be resolved as smoothly as possible," Parson says. "We're treating all lawsuits the same, and WTF hopes to resolve any and all accounting matters in the near future."
She says WTF hasn't reopened under a new name to her knowledge, despite rumors to the contrary.
McQuown had an oral agreement with WTF to claim Frontline for the purchase price plus 5 percent. From August 2010 to May 2011, McQuown sent five shipments of Frontline totaling $30,489 to WTF, according to his complaint with the court. He was paid $10,850 in May 2011, but never received another payment from WTF, leaving him indebted to his supplier—without his promised 5 percent payment—for about $20,000, court records state.
Kulhavy also claims to have entered into an oral agreement with WTF to divert Frontline for the purchase price plus 3 percent in compensation. His complaint lacks a history of the orders he completed, but states that he is owed $25,148 by WTF, according to court records.
Royer Veterinary Services leaves out any details of an agreement with WTF in its court complaint. Royer simply states that WTF owes the practice $22,995.60 plus interest dating back to September 2010 for "goods sold and delivered by Royer to WTF." The complaint includes a copy of an email between Dr. Scott Royer and WTF detailing five orders of Frontline totaling $32,686, for which Royer was paid only $9,691, he alleges.
Meeks' case was filed Sept. 20, and a detailed complaint could not be obtained by press time.
Attorney Jeffrey Needle tells DVM Newsmagazine he settled two cases with WTF in the past. Both lawsuits centered on recovering monies owed to his clients, Needle says.
"There are businesses out there that, unfortunately—sometimes due to circumstances—do not manage their receivables short of litigation," he says, declining to elaborate on the settlements for either client.
Needle says he has been contacted by drug companies and law enforcement over the lawsuits, but he declined to comment further.
It's not black-and-white on the gray market
McIntyre estimates that by the time his son Lane was 2 years old, his medical bills already totaled $1 million. Born with a 2 percent chance of survival, the now 4-year-old suffers from kidney failure, hypertension, autism and Celiac's disease.
Last summer, McIntyre and his wife, a teacher, were looking forward to the birth of a new baby. Their daughter, Kayla, was born in May 2010 with congenital adrenal hyperplasia. Kayla lacks an enzyme needed by the adrenal gland to make cortisol and aldosterone.
McIntyre's wife quit her job to care for the children, who require at least 14 medical appointments each week, plus 100- to 200-mile trips to see their doctors. McIntyre was already borrowing against his family's calf stock and South Dakota ranch when he began diverting veterinary flea product to WTF Wholesale last summer. He says he was solicited for months with promises of 3 percent profit over his order total. He had the products shipped to his parents' South Dakota ranch, where they affixed shipping labels and sent them along to the wholesaler.
"I know a lot of vets aren't happy about diversion," McIntyre says. "But there are reasons as to why something happens—it's not just black and white."
Over the next year, McIntyre shipped the company close to $100,000 in product, and he says the extra income was helping. WTF even sent cards to the McIntyre family whenever Lane had surgery. But all that ended when McIntyre claims he never got paid nearly $26,000 for his fifth shipment in February.
Since then, his calls have gone unanswered and, with two sick children, he has had little time to press the issue further. Then he realized he wasn't alone.
After searching on the Internet for WTF Wholesale, he found Costello. She was working with her supplier to mitigate her own debt of $25,832 that she allegedly racked up over five orders for WTF.
Costello's experiences with diversion began about five years ago. As a relief veterinarian, she worked for a practice owner who was diverting.
"At that time, I thought it was a terrible thing to do," she says. "But I had breast cancer in 2007 and I wasn't able to work for a while because of that, and I didn't have enough in savings to support myself."
Now 52, Costello says she still has about $5,000 in student loans, lived alone and was barely getting by after being out of work for three months as she battled cancer.
Then, in 2009, her perceptions of diversion started to change.
"I finally decided, if PetSmart is selling it, I might as well utilize this as a way to make some revenue," Costello says.
In May 2009, she sold a $5,000 order of veterinary flea product to WTF. She placed the order under her name, and the wholesaler sent her shipping labels. She would then forward the product to Daytona Beach and wait for payment, which usually came two or three months later. In June 2009, she alleges she shipped WTF a $15,798 order, followed by a $21,147 order in July 2009, a $22,257 order in September 2009 and a final $26,557 order in July 2010.
She used the money to pay extra bills and says it did help, but her total earnings for diverting the flea product totaled only about $2,700. But something happened in fall 2010, and WTF allegedly stopped paying her.
"[Product diversion] is actually a very common practice, and practice owners do it just as much as the drug representatives and the relief veterinarians," she says.
"I think the thing that impacted me the most is when one veterinarian said to me, 'I'm sorry about what happened to you, but basically you're stealing from me.' I think, in a way, she's right. Anyone who supplies third parties, we're taking away from private practice veterinarians," she says. "But there are many of us who will probably have to declare bankruptcy if the company doesn't pay."
Mike Mittleman, a private investigator in Daytona Beach, is all too familiar with the claims of veterinarians who allegedly haven't been paid for diverted product. He was first contacted months ago by a California veterinarian who allegedly was solicited by WTF to divert flea product with the promise that she would be compensated at 3 to 10 percent above the order price. Months went by, and she didn't get paid, Mittleman says. As she became more abrasive with the company, they allegedly stopped answering her calls all together and her emails started bouncing back.
Mittleman says he is now dealing with more than 30 veterinarians who allege on the record that they have not been paid. There are many more who have contacted him, but would rather stay anonymous.
"They don't want law enforcement to have their information, and they aren't going to pursue a civil suit," Mittleman says. "They're afraid of being scrutinized and demonized. They're willing to eat the money."
Most of the veterinarians he is working with have not gotten rich diverting veterinary products, he says.
"Every one of these vets who did this, they didn't [divert] prescription drugs. We're talking about a very unglamorous flea and tick product. Thousands of vets were moving this product and diverting it to retailers," he says. "And most of the vets got enticed into this because they were struggling. They were either young vets trying to pay their student loans or vets with debts.
"I know a lot of other vets might judge people, but I hope they see when you've got two kids who are severely ill, you're not exactly in a regular practice scenario," he says.