Diversion: Wholesaler's financial woes draw lawsuits by veterinarians

Some DVMs claim they are out thousands of dollars after diverting products outside of traditional veterinary channels
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Oct 01, 2011

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.