GRAY H. MILLER, District Judge.
Pending before the court are (1) defendants Solvay America Inc. ("SAI") and Solvay North America LLC's ("SNA") motion to dismiss relators John King and Jane Doe's (collectively, "Relators") fourth amended complaint ("4AC") (Dkt. 121); and (2) defendant Abbott Products Inc.'s, which was formerly known as Solvay Pharmaceuticals Inc. ("SPI"), motion to dismiss Relators' 4AC (Dkt. 122). Having considered the motions and related documents, including the United States' statement of interest (Dkt. 130), as well as the applicable law, the court is of the opinion that SAI and SNA's motion to dismiss (Dkt. 121) should be GRANTED IN PART AND DENIED IN PART, and SPI's motion to dismiss (Dkt. 122) should be GRANTED IN PART AND DENIED IN PART.
This case is about a pharmaceutical manufacturer and its affiliates that allegedly made millions of dollars by marketing three drugs—Luvox, Aceon, and AndroGel—for conditions other than the conditions for which the drugs were approved by the Food and Drug Administration
On June 10, 2003, Relators filed their original complaint in the Eastern District of Pennsylvania. Dkt. 1. The Relators moved to transfer venue to the Southern District of Texas on June 26, 2006, and the court granted that motion on June 27, 2006. Dkt. 27 (Sealed). Relators filed their first amended complaint on July 15, 2008. Dkt. 38. They filed their second amended complaint on December 7, 2009. Dkt. 54. SAI and SNA filed a motion to dismiss the second amended complaint on March 19, 2010, and SPI filed a motion to dismiss the second amended complaint on the same day. Dkts. 94, 95. Relators moved to amend their complaint, and the court granted that motion and denied the motions to dismiss as moot. Dkts. 99, 102, 104. Relators filed their third amended complaint on September 15, 2010. Dkt. 111. The third amended complaint contains confidential information about physicians who prescribed the Drugs at Issue. Dkts. 112, 113. On September 30, 2010, Relators filed their fourth amended complaint, which is substantially similar to the third amended complaint except that the confidential information has been removed or altered to address the confidentiality concerns. See Dkt. 114.
On December 7, 2010, Abbott and SPI filed a motion to dismiss the 4AC in which
On November 30, 2011, SAI and SNA filed a motion to dismiss the 4AC in which they argue that the 4AC (1) fails to allege with particularity the roles of SNA and SAI in the alleged misconduct; and (2) fails to plead any facts showing that SNA or SAI engaged in any misconduct or that they exhibited the total control and dominion of SPI that would be required for Relators to state a claim against SNA and SAI for the alleged misconduct of another corporate entity. Dkt. 121-1. SNA and SAI additionally move for dismissal of the claims against them for all of the reasons asserted in SPI's motion. Id. Both motions request prejudicial dismissal. Dkts. 121-1, 122-2.
Relators contend that Solvay inappropriately marketed the Drugs at Issue for off-label use by (1) encouraging its sales representatives to market the drugs to specifically targeted high Medicaid prescribers who Solvay deemed likely to heavily prescribe the drugs; (2) "shaping the science" through medical literature by paying influential doctors to research and write about the off-label uses that provided the most promise of profit; and (3) influencing physician speakers to promote the drugs off label. Id. at 95-107.
Luvox, which is the trade name for fluvoxamine, was initially approved by the FDA in 1994 for the treatment of Obsessive Compulsive Disorder ("OCD"). Id. at 26-27. Luvox CR is an extended release version of Luvox. Id. at 30. In 2007, the FDA approved Luvox for the treatment of Social Anxiety Disorder in adults, and it approved Luvox CR for the treatment of both OCD and Social Anxiety Disorder in 2008. Id. at 30-31. Relators contend that Solvay marketed Luvox for use in treating depression, anxiety-related disorders, and other conditions of what Solvay called the "OC Spectrum,"
Aceon, which is the trade name for perindopril, is an ACE-inhibitor
Relators contend that these tactics induced "[u]nsuspecting doctors" to prescribe Aceon instead of other, less expensive drugs. Id. at 61. Relators provide specific examples of doctors who (1) wrote prescriptions for Aceon after attending talks about arterial wall compliance; (2) wrote prescriptions for Aceon to patients with diabetes, allegedly due to the campaign indicating that Aceon provides better blood pressure control at the end of the dosing cycle—which would be especially significant for patients with renal dysfunction related to diabetes; and (3) wrote prescriptions for Aceon for patients with cerebrovascular disease after attending a program on the PROGRESS study that discussed the off-label use of Aceon as a stroke preventative. Id. at 63-65.
AndroGel, which is a synthetic testosterone gel, was approved by the FDA in 2000 as being "`indicated for replacement therapy in males for conditions associated with a deficiency or absence of endogenous testosterone'"—specifically, primary hypogonadism and hypogonadotropic hypogonadism.
Relators contend that the off-label promotion of Luvox, Aceon, and AndroGel resulted in prescriptions that were filled by pharmacies and that the pharmacies then submitted false claims to government health care plans, including Medicare, Medicaid, CHAMPUS/TRICARE, CHAMPVA, Federal Employees Health Benefit Plan, and ADAPs. Id. at 107. Relators assert that Solvay's drugs were added to state Medicare and Medicaid formularies after listings in DRUGDEX Information System supported the off-label uses,
In addition to the alleged off-label marketing campaign, Relators claim that Solvay "bribed doctors to use its drugs," for on- and off-label uses, with unlawful kickbacks such as "bogus speaker and research fees, resort weekends, cash payments, or Harley Davidson goods," in violation of the AKS. Id. at 122. These violations, in turn, allegedly led to the submission by pharmacies and others of false claims to the government for reimbursement for prescriptions. First, Solvay allegedly had several cash schemes whereby it would offer "incentives" to induce physicians to prescribe high volumes of their drugs. Id. at 123. For example, Solvay allegedly would (1) pay doctors to complete paperwork on patients taking Solvay drugs, claiming it was in the interest of furthering medical knowledge; (2) provide honoraria to speakers, including one instance in which Solvay paid one doctor $10,500 in one month to speak to fewer than 50 people about Aceon and a total of more than $100,000 in 2000 for speaking engagements; (3) hold these speaker engagements at upscale venues or luxury resorts; (4) pay for the speakers' families to attend these lush events; (5) invite doctors from across the country to fly to a luxury hotel or resort to listen to speakers promote defendants' drugs, paying for airfare, lodging, and an attendance fee, while claiming the physicians were consultants because they were asked to comment on the effectiveness of sales pitches; (6) provide honoraria to physicians who participated in district and regional advisory boards, which were open venues where off-label indications of defendants' drugs would be discussed; (7) host dinner meetings that ran afoul of the AKS; (8) host Continuing Medical Education ("CME") dinners of off-label topics and, in the early years, provide physicians with a $100 gift certificate for attending the events; (9) arrange for roundtable dinner meetings (or golf outings) hosted by a regional physician; (10) engage in preceptorships during which a physician allows a sales representative to shadow him or her for part of a day for fees ranging from $150 to $1,000; and (11) provide honoraria or grants for bogus clinical trials, studies, or focus panels. Id. at 123-37.
Solvay also allegedly offered non-cash kickbacks to induce physicians to prescribe its drugs. Examples include the following perks, which allegedly were received by physicians who were willing to listen to a sales pitch or presentation about Solvay's drugs: Lunch-N-Learn (food from a popular restaurant for the doctor and his or her staff); Dine N' Dash (free meals for physicians to take home to their families from a popular restaurant); Book-N-Dash (gift certificate to a book store); and Flowers-in-a-Flash (free flowers at a local flower shop). Id. 137-43.
Relators claim that Solvay provided these kickbacks so that physicians would prescribe the Drugs at Issue to individuals on government health plans. Relators assert that Solvay specifically targeted its
Relators provide several examples of prescriptions for Solvay drugs written by physicians after receiving an alleged kickback. Id. at 144-46 & Exhs. 131-33.
Under the Medicaid program, states may only restrict coverage of drugs if (1) "the prescribed use is not for a medically accepted indication"; (2) the drug is in the list contained in subsection 1396r-8(d)(2), which includes, for example, fertility drugs, prescription vitamins, and nonprescription drugs; (3) the drug manufacturer agreed to restrictions in an agreement with Medicaid; or (4) the State excluded the drug from its formulary. 42 U.S.C. § 1396r-8(d)(1)(B). A State can exclude a covered outpatient drug from its formulary "only if ... the excluded drug does not have a significant, clinically meaningful therapeutic advantage in terms of safety, effectiveness, or clinical outcome of such treatment for such population over other drugs included in the formulary and there is a written explanation ... of the basis for the exclusion." 42 U.S.C. § 1396r-8(d)(4)(C). However, if a State excludes a drug from its formulary, it must permit coverage of the drug pursuant to a prior authorization program that complies with the Medicaid statute. See id. § 1396r-8(d)(4)(D).
Relators claim that Luvox, Aceon, and AndroGel each require prior authorization in some states. Dkt. 114 at 18. In order to obtain prior authorization for drugs that are excluded from state formularies, physicians generally must state why the drug is necessary and provide a written diagnosis. Dkt. 114 at 17. This diagnosis may be written using an ICD-9 code, which is a coding system used by Medicaid to designate diagnoses. Dkt. 114 at 17. Relators allege, upon information and belief, that "certain state Medicaid programs will reimburse for pharmaceutical drugs only if the drug corresponds with a specific diagnosis of the patient, designated by an ICD-9 code recorded by the patient's physician." Dkt. 114 at 18.
Relators assert that Solvay provided ICD-9 codes to physicians in states that required prior authorization before the Drugs at Issue could be prescribed. Relators claim that the provided ICD-9 codes, which were allegedly codes for conditions for which physicians could obtain prior authorization for the drugs, were part of an effort to conceal the real reasons the drugs were prescribed in order to obtain reimbursement for the drugs from Medicare, Medicaid, and other federal healthcare programs. Id. at 115, 146. Relators provide examples of physicians that used ICD-9 codes that Solvay allegedly provided when submitting prior authorization forms for state Medicaid programs. Id.
SPI moves for dismissal of Relators' claims for violations of the FCA contained in the 4AC, asserting that the claims are insufficiently pled under Federal Rules of Civil Procedure 8(a), 9(b), and 12(b)(6), that the retaliation claim should be dismissed as time-barred, that the state qui tam claims should be dismissed for state-specific pleading deficiencies, and that count 34 should be dismissed because there is no cause of action for a "common fund relief." Dkt. 122.
"Federal Rule of Civil Procedure 8(a)(2) requires only `a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to `give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). In considering a 12(b)(6) motion to dismiss a complaint, courts generally must accept the factual allegations contained in the complaint as true. Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir.1982). The court does not look beyond the face of the pleadings in determining whether the plaintiff has stated a claim under Rule 12(b)(6). Spivey v. Robertson, 197 F.3d 772, 774 (5th Cir. 1999). "[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, [but] a plaintiff's obligation to provide the `grounds' of his `entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 127 S.Ct. at 1964-65 (citing Sanjuan v. Am. Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994)) (internal citations omitted). And, "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 127 S.Ct. at 1965. The supporting facts must be plausible—enough to raise a reasonable expectation that discovery will reveal further supporting evidence. Id. at 1959.
In addition to meeting the plausibility standard, under Federal Rule of Civil Procedure 9(b), if a party is alleging fraud or mistake, the pleading must "state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b); United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 185 (5th Cir.2009) (noting that Rule 9(b) does not "supplant" Rule 8(a)). However, this particularity requirement "does not `reflect a subscription to fact pleading.'" Id. (quoting Williams v. WMX Techs., Inc., 112 F.3d 175, 178 (5th Cir.1997)). Instead, pleadings alleging fraud must contain "simple, concise, and direct allegations of the circumstances constituting the fraud, which ... must make relief plausible, not merely conceivable, when taken as true." Id. (internal quotations omitted) (referring to the standard enunciated in Twombly).
The Fifth Circuit interprets Rule 9(b) strictly, "requiring a plaintiff pleading fraud to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." Id. (quoting Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 564-65 (5th Cir.2002)). Thus, Rule 9(b) generally requires the complaint to "set forth `the who, what, when, where, and how' of the events at issue." Id. (quoting ABC Arbitrage Plaintiffs Grp. v. Tchuruk, 291 F.3d 336, 350 (5th Cir.2002)). However, "Rule 9(b)'s ultimate meaning is context-specific." Grubbs, 565 F.3d at 185. Thus, "[d]epending on the claim, a plaintiff may sufficiently `state with particularity the circumstances constituting fraud or mistake' without including all the details of any single court-articulated standard—it depends on the elements of the claim at hand." Id.
SPI claims that Relators failed to plead their claims of violations of the FCA with the specificity required under Federal
Relators argue that the allegations in the 4AC lead to a strong inference that at least one false claim was submitted to the Government, and that Rule 9(b) does not require that the complaint allege the time, place, and contents of the actual claim submissions. Dkt. 131. As for SPI's 12(b)(6) arguments, Relators contend that kickback-tainted claims are inherently false, so pleading false certification in not necessary. Id. They claim, however, that, regardless, they have plausibly pled that physicians, pharmacists, and third-party payers made false certifications representing to the Government that they had complied with all federal and state laws and regulations relating to fraud, including the AKS. Dkt. 131 at 26. Relators additionally argue that they have plausibly alleged that off-label and ICD-9 code claims were not reimbursable.
The FCA provides for civil suits brought by either the Attorney General or private persons, known as "relators," "who serve as a `posse of ad hoc deputies to uncover and prosecute frauds against the government.'" Grubbs, 565 F.3d at 184 (quoting United States ex rel. Milam v. Univ. of Tex. M.D. Anderson Cancer Ctr., 961 F.2d 46, 49 (4th Cir.1992)). If a private person desires to bring a suit under the FCA as a relator, the suit is known as a qui tarn suit. See id. The relator must file the qui tarn action in the name of the Government, under seal, and serve the complaint and the material evidence on the Government. 31 U.S.C. § 3730(b) (2006). The complaint must remain under seal for 60 days, during which the Government may either elect to intervene and proceed with the action or notify the court that it declines to intervene. Id. If the Government elects not to intervene, the relator has the right to proceed with the action.
Under the current version of section 3729(a)(1) of the FCA,
31 U.S.C.A. § 3729(a) (Supp.2011). Under the previous version of the relevant subsections of section 3729(a),
31 U.S.C. § 3729(a) (2006). The amendments, which were enacted in 2009, generally apply to conduct on or after May 20, 2009. However, the amendment to the previous subsection 3729(a)(2), which renumbered the subsection as 3729(a)(1)(B) and changed the text, "applies retroactively to all claims pending on or after June 7, 2008." United States ex. rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 267 & n. 1 (5th Cir.2010). The Fifth Circuit interprets "claims" to mean cases or causes of action rather than claims for reimbursement. See id. Since this case was pending on June 7, 2008, the new subsection 3729(a)(1)(B) applies. See id. (applying the new subsection because the case was pending on June 7, 2008); see also United States ex rel. Patton v. Shaw Servs., L.L.C., 418 Fed.App'x. 366 (5th Cir.2011) (noting that the relator's complaint was "pending" after the effective date of the new subsection, indicating that the new subsection should apply, but determining that the difference between the old and new subsections was irrelevant under the facts of that case). But see United States ex rel. Bennett v. Medtronic, Inc., 747 F.Supp.2d 745, 763 (S.D.Tex.2010) (collecting district court cases) (finding that the revised version of the subsection did not apply to a case that was pending on June 7, 2008, because Congress made the revision retroactive to claims pending on June 7, 2008, and "claims" under the FCA means claims for reimbursement, not cases or causes of action). However, the older version of 3729(a)(1) (now 3729(a)(1)(A)) applies.
The Fifth Circuit has summarized the requirements of a claim under the FCA: "(1) a false statement or fraudulent course of conduct; (2) made or carried out with the requisite scienter; (3) that was material; and (4) that is presented to the Government." Steury, 625 F.3d at 267. As for scienter, the relevant provisions require "knowing" conduct, and the FCA defines "knowing" and "knowingly" as having "actual knowledge of the information," acting "in deliberate ignorance of the truth or falsity of the information," or acting "in reckless disregard of the truth or falsity of the information." 31 U.S.C.
SPI argues that Relators' FCA claims stemming from alleged off-label promotion, kickbacks, and ICD-9 code manipulation should be dismissed under Rule 9(b) because Relators fail to set forth the "`who, what, when, where, and how of the alleged fraud.'" Dkt. 122 at 12 (quoting Steury, 625 F.3d at 266). SPI contends that Relators must plead the specifics of a scheme to cause claims to be submitted for nonreimbursable uses and details of the claims. Id. at 15. Relators argue that, under Rule 9(b), the complaint must set forth the time, place, contents, and identity surrounding the fraud, but they contend that there is no requirement to plead the time, place, contents, and identity of the actual submissions to the Government. Dkt. 131 at 6.
The Fifth Circuit squarely addressed how much specificity is required under subsections 3729(a)(1) and (2) (2006) of the FCA in Grubbs. In Grubbs, James Grubbs, a psychiatrist who had worked for Memorial Hermann Baptist Beaumont Hospital (the "Hospital"), brought a qui tam complaint against the Hospital and seven physicians who worked at the hospital. Grubbs, 565 F.3d at 183. Grubbs alleged that the physicians at the Hospital saw patients only on an "as needed" basis, when the nursing staff felt it was appropriate, but the bill reflected a regular "face-to-face" hospital visit. Id. at 184. The Grubbs defendants filed a motion to dismiss for failure to comply with the pleading requirements of Federal Rule of Civil Procedure 9(b), and the magistrate judge recommended dismissal. Id. at 185. The district court adopted the magistrate judge's recommendation, and Grubbs appealed. Id.
The Fifth Circuit first noted that a complaint filed under the FCA must meet the heightened pleading requirement of Rule 9(b). Id. Under Rule 9(b), a party alleging fraud or mistake "must state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). Rule 9(b) "has long played [a] screening function, standing as a gate-keeper to discovery, a tool to weed out meritless fraud claims sooner than later." Grubbs, 565 F.3d at 185. "Rule 9(b) does not `reflect a subscription of fact pleading' and requires only `simple, concise, and direct' allegations of the `circumstances constituting fraud,' which after Twombly must make relief plausible, not merely conceivable, when taken as true." Id. at 186 (quoting Williams, 112 F.3d at 178). The Fifth Circuit, which "traditionally required that a fraud complaint include `the time, place
The Grubbs court determined that, in the context of a claim under subsection 3729(a)(1) (2006) of the FCA, the Act does not require the litigant to prove reliance or damages, it "is adequate to allege that a false claim was knowingly presented regardless of its exact amount; the contents of the bill are less significant because a complaint need not allege that the Government relied on or was damaged by the false claim." Id. at 189. A "plaintiff does not necessarily need the exact dollar amounts, billing numbers, or dates to prove to a preponderance that fraudulent bills were actually submitted." Id. at 190. The Fifth Circuit held that "to plead with particularity the circumstances constituting fraud for a False Claims Act § 3729(a)(1) claim, a relator's complaint, if it cannot allege the details of an actually submitted false claim, may nevertheless survive by alleging particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." Id.
The Fifth Circuit determined that the Grubbs complaint against the individual doctors pursuant to section 3729(a)(1) (2006) was sufficient to satisfy the requirements of Rule 9(b) because Grubbs set forth the details of the scheme as well as the specific dates that each doctor falsely claimed to have provided services to patients as well as, in some instances, the type of medical services or the procedural terminology code that would have been used to bill. Grubbs, 565 F.3d at 191-92. The Fifth Circuit noted that the list of dates that specified, unprovided services were recorded "amounts to more than probable, nigh likely, circumstantial evidence that the doctors' fraudulent records caused the hospital's billing system in due course to present fraudulent claims to the Government." Id. at 192. "That the fraudulent bills were presented to the Government is the logical conclusion of the particular allegations in Grubbs' complaint even though it does not include exact billing numbers or amounts." Id.
With regard to the claims under subsection 3729(a)(2) (2006), the Fifth Circuit noted that, to satisfy subsection 3729(a)(2) (2006), the defendant must make "a false record or statement for the purpose of getting a false or fraudulent claim paid by the Government." Grubbs, 565 F.3d at 193. Thus, "the recording of a false record, when it is made with the requisite intent, is enough to satisfy the statute." Id. There is no need to infer that the record caused a claim to be presented. Id. Therefore, Grubbs' allegations that two of the physicians explained how the nursing staff wrote notes relating to face-to-face visits with patients that were actually only seen on an as-needed basis, that the nursing staff attempted to assist him in recording such notes, and that certain doctors recorded false notes on specific dates, were sufficient to state a claim for fraud under subsection 3729(a)(2) (2006) and should not have been dismissed at the pleading stage. Id.
Under the subsection 3729(a)(1)(B) (2009), the phrase "to get a false or fraudulent claim paid or approved by the Government," which was used in the previous version, has been replaced with "material to a false or fraudulent claim." Compare 31 U.S.C. § 3729(a)(1)(B) (2009), with 31 U.S.C. § 3729(a)(2) (2006). The first part
Thus, in this case, in order for the subsection 3729(a)(1) (2006) claims to survive Solvay's Rule 9(b) challenge, the 4AC must allege "particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted." The "logical conclusion" of the allegations must be that fraudulent claims were submitted to the government. And, the subsection 3729(a)(1)(B) (2009) claims can survive only if the 4AC alleges that Solvay made a false record or statement that was material to a false or fraudulent claim, i.e. that had the potential to influence the government's decision. The court turns first to the subsection 3729(a)(1) (2006) claims.
SPI argues that, under Grubbs, Relators must pair their allegations of a scheme with "details `such as dates and descriptions of recorded, but unprovided, services and a description of the billing system that the records were likely entered into.'" Dkt. 122 at 15 (quoting Grubbs, 565 F.3d at 190-91). SPI states that Relators have not identified any instance in which a physician actually wrote a prescription for a federal program patient because of an alleged off-label promotion scheme and a pharmacy submitted a claim for that off-label prescription. Id. Relators, on the other hand, claim that the 4AC provides reliable indicia that claims were actually submitted and that they are not required to "plead the who, what, when, where, and how of a claim." Dkt. 131 at 7. Relators claim that they have pled the who, what, when, where, and how of the alleged fraudulent scheme in detail, including alleging the identities of brand managers and other executives involved in the alleged scheme, discussion of the official brand strategy, alleged illegal tactics endorsed for achieving off-label sales, and informal and formal selling practices. Dkt. 131 at 8. Relators contend that this information is sufficient, alone, to state a claim under Grubbs; however, they claim they have pled "more than was required," as they have pled "ample `representative samples' of off-label claims submitted to Medicaid for each of the three drugs" at issue. Id. at 12 (citations omitted).
The 4AC includes substantial allegations that Texas physicians wrote off-label prescriptions for Luvox, AndroGel, and Aceon for federal program patients. E.g., Dkt. 114 at 50, 63, 90. SPI claims, however, that the 4AC fails to assert that the alleged off-label promotion caused a specific physician or physicians to write these prescriptions. Dkt. 122 at 17-18. SPI contends that this court, in Bennett v. Medtronic, "rejected similarly lacking allegations just months ago." Dkt. 122 at 18 (citing Bennett, 747 F.Supp.2d 745).
In Bennett, the court considered whether to dismiss a qui tam FCA claim alleging that off-label promotion of a medical device caused physicians and hospitals to submit false Medicare and Medicaid claims. 747 F.Supp.2d at 748. The court determined that the relators "failed to plead with sufficient particularlity the alleged false claims, [as the] relators [did] not identif[y] any [of the defendant's] employees who engaged in off-label promotion nor specific physicians or hospitals who received the promotions." Bennett, 747 F.Supp.2d at 779. Additionally, the Bennett relators did not
Here, Relators' contentions relating to the off-label promotion scheme paired with the promotion and prescription details outlined relating to individual Texas physicians in the 4AC are reliable indicia that permit a strong inference that the off-label promotion scheme caused at least some physicians to write off-label prescriptions for Luvox, Aceon, and AndroGel. Unlike the complaint in Bennett, which did not identify any physicians who received the alleged off-label promotions (see 747 F.Supp.2d at 779), the instant complaint identifies specific physicians in Texas who prescribed Luvox, Aceon, and AndroGel to Medicaid patients for off-label use after sales representatives "pitched" these uses during sales calls or who attended presentations that specifically discussed the off-label uses. Dkt. 114 at 50.
For example, on December 31, 1999, a sales representative documented a "pitch" to a doctor in which the representative discussed geriatric safety of Luvox based on pediatric safety. This physician prescribed Luvox to a 74-year-old patient for anxiety on March 11, 2000, and to a 78-year-old patient for paranoia on September 7, 2000; these are both uses that are not indicated on Luvox's label.
With regard to AndroGel, the 4AC identifies, for example, two physicians who wrote Medicaid prescriptions for AndroGel for off-label conditions associated with "andropause" after receiving and being encouraged to use the ADAM questionnaire from Solvay, which is aimed at detecting "andropause." Dkt. 114 at 92-93 & Exhs. 72, 74. The 4AC additionally provides examples of physicians who received extensive detailing from Solvay about AndroGel and subsequently prescribed AndroGel for off-label uses. Dkt. 114 at 90-94. Relators do not provide any details about what the sales representatives said during the sales calls, so the court does not rely on these examples alone to determinate that Relators have provided reliable indicia that off-label promotion led to off-label claims, but these examples buttress the examples provided that are linked to specific promotional messages, and, when paired with these specific examples and all of the details provided about the off-label campaigns, constitute reliable indicia permitting the necessary inference. Thus, there is specific support for Relators' contention that physicians indeed wrote prescriptions for off-label uses of AndroGel after receiving off-label promotion.
There is less evidence of causation in the 4AC with regard to Aceon, but the court finds that the examples provided reliably indicate that Solvay's off-label marketing of Aceon led to off-label prescriptions. For instance, the 4AC identifies several
SPI also argues that Relators must provide details of instances in which SPI allegedly promoted each Drug at Issue to a physician for each alleged off-label use and caused a physician to write a prescription for that off-label use that was ultimately filled. Dkt. 122 at 15-17. Relators have provided representative examples for multiple alleged off-label uses for these drugs, but they have not provided examples of every alleged off-label use. Relators have alleged a nationwide off-label promotion scheme involving multiple drugs with multiple off-label uses, and with such an extensive scheme, it is not practical to provide specific details about prescriptions for every alleged off-label use at the pleading stage. Grubbs simply requires reliable indicia that lead to a strong inference that claims were actually submitted. Here, the court finds that the allegations relating to the off-label promotion scheme for each off-label use paired with the examples that show that some of the off-label promotion led to prescriptions for some of the off-label uses meets that standard. Moreover, the heightened 9(b) pleading standard
SPI claims that "[g]eneral off-label promotion allegations that are not linked to particularized details reliably demonstrating that false claims resulted do not state a FCA claim." Dkt. 122 at 17. SPI contends that Relators must allege the submission of a claim for payment to the government for a non-reimbursable, off-label use as a result of improper off-label promotion. Id. SPI argues that Relators' failure to provide "details like dates and descriptions of pharmacies submitting claims" is fatal to their claim. Id. at 16.
Relators claim, on the other hand, that the 4AC contains sufficient reliable indicia to raise a strong inference that claims arising from Solvay's alleged schemes were actually submitted to the government. Dkt. 131 at 8. First, Relators indicate that they have intimate knowledge of Solvay's off-label schemes due to their positions as district managers in the company. Id. at 9. Relators claim that their "supervisors trained them in various off-label tactics and directed them to teach them in turn to their representatives." Id. at 9. Second, Relators claim that Solvay specifically targeted physicians who prescribed to patients on government health programs as well as physicians who were on state P & T committees, which made decisions about which drugs to include on state formularies, so that physicians would prescribe the Drugs at Issue to patients on government health programs and the government would provide reimbursement for the prescriptions. Id.
SPI cites United States ex rel. Rafizadeh v. Continental Common, Inc., 553 F.3d 869 (5th Cir.2008), in support of its contention that the allegations in the 4AC are insufficient under Rule 9(b) because they are not particularized enough to demonstrate that false claims were actually submitted to the government. In Rafizadeh, the Fifth Circuit considered whether a district court erred in dismissing, with prejudice, a qui tam suit alleging that landlords overcharged government entities on lease agreements. 553 F.3d at 872. The pleading in Rafizadeh indicated that the defendants knowingly submitted false claims for rental invoices to the state departments in charge of the program, which caused them to submit false claims to the federal government, which was obligated to fund the state departments' budgets. The Fifth Circuit noted that "the linchpin of an FCA claim is a false claim" and determined that the allegation that claims were submitted was insufficient under Rule 9(b) because it did "not describe what statements were contained in the budget, who prepared it, or what role it played in securing funding from the federal government." Id. at 873. Thus, the details of the "claims" were not sufficiently particularized. Id.
Here, like in Rafizadeh, the details provided of the actual claims submitted to government payers are not substantial. However, there are enough other facts alleged that reliably indicate that false claims were submitted to government agencies. The 4AC provides many details that strongly suggest that Solvay's alleged off-label marketing scheme resulted in claims being submitted to the government for payment. First, it is clear that there were claims submitted to government payers
In sum, the 4AC plausibly alleges a nationwide off-label promotion scheme to submit false claims for each of the Drugs at Issue and reliable indicia leading to a strong inference that claims were actually submitted, and thus survives SPI's Rule 9(b) challenges. SPI's motion to dismiss based on failure to allege the off-label promotion claims with particularity is DENIED. SPI's other requests for dismissal relating to off-label promotion are made pursuant to Rule 12(b)(6) rather than 9(b) and will accordingly be analyzed after the court addresses SPI's Rule 9(b) challenges relating to kickbacks and ICD-9 codes.
In the 4AC, Relators contend that Solvay's alleged unlawful attempts to induce physicians to prescribe its drugs include a scheme to provide kickbacks to physicians for prescribing the Drugs at Issue. Relators claim that "Solvay's off-label marketing and kickbacks schemes went hand-in-hand to induce high-Medicaid prescribing—physicians to prescribe and continue prescribing Solvay drugs." Dkt. 131 at 19. Relators assert that "Solvay bribed doctors to use its drugs" with "bogus speaker and research fees, resort weekends, cash payments, or Harley Davidson goods." Dkt. 114 at 122. Relators contend that Solvay's provision of these kickbacks was a violation of the Medicare-Medicaid Anti-Fraud and Abuse Amendments ("Anti-Kickback Statute" or "AKS") and that any claims resulting from the unlawful kickbacks were in violation of the FCA.
SPI moves for dismissal of Relators' kickback claims under Rule 9(b), claiming that the 4AC fails to provide "any details about any false claim resulting from the variety of kickback `schemes'" that Relators allege and that the 4AC provides no details upon which to base a strong inference that false claims were submitted. Dkt. 122-2 at 19 (citing Grubbs, 565 F.3d at 190-91). SPI argues that in order to meet the Grubbs reliable indicia standard, Relators must allege "when SPI paid a physician an unlawful kickback with the requisite intent to cause a prescription to be written for one of those drugs for a government program patient, what prescriptions were caused by that kickback, and how the government was billed for those prescriptions." Dkt. 139 at 3-4. SPI claims that no allegations in the 4AC connect the alleged kickbacks to a resulting prescription from a doctor or a pharmacy's claim for payment. Dkt. 122 at 19-20. As for the specific examples that are contained within the 4AC, SPI notes that they only relate to "a handful of physicians" who allegedly prescribed a Solvay drug within four years of receiving a speaker fee for participating in Solvay
Despite the fact that the claims data that the 4AC uses to link specific physicians who allegedly received kickbacks to Medicaid prescriptions for the Drugs at Issue are all from Texas, Relators have alleged enough details of a geographically diverse kickback scheme to reliably indicate that there was a nationwide kickback scheme.
The 4AC reliably indicates that the alleged kickbacks resulted in prescriptions to patients on government health plans and leads to a strong inference that claims were actually submitted. First, the 4AC indicates that the physicians Solvay targeted to receive off-label promotion were also targeted for kickbacks-physicians who prescribed to patients on Medicaid and other government health plans and physicians who were on state P & T committees. Dkt. 114 at 116. For instance, Solvay managers allegedly considered doctors' Medicaid prescription volume when determining which doctors to target for kickbacks. Dkt. 114 at 113-15. Solvay also specifically targeted members of states' Medicaid P & T committees in an effort to obtain placement of their drugs on the state formularies, allegedly showering the committee members with offers of gifts, dinners, and bribes. Dkt. 113 at 116. Relators provide a specific example of a Solvay Regional Business Director who "encouraged his sales team members to `wine and dine' these doctors, even doctors who never prescribed Solvay drugs or were retired," in an obvious attempt to influence P & T committees. Id. at 117.
Moreover, the specific examples that Relators provide of physicians who prescribed the Drugs at Issue after receiving alleged kickbacks demonstrate that physicians who received alleged kickbacks in fact did write prescriptions for patients on Medicaid. Solvay argues that the provided examples are not sufficient because (1) the examples are all from Texas and thus
First, the examples of Texas physicians who prescribed Solvay drugs after receiving kickbacks lead to a strong inference that this also happened in other parts of the country. Solvay claims that the district court for the Eastern District of Arkansas, in United States ex rel. Thomas v. Bailey, No. 4:06CV00465 JLH, 2008 WL 4853630, at *6 (E.D.Ark. Nov. 6, 2008), held that a relator who identified only a "handful of physicians" who allegedly received kickbacks did not support the allegation of a nationwide policy. Dkt. 122 at 19. However, in Thomas the relator specified false claims with respect to only two physicians. 2008 WL 4853630, at *6. The alleged false claims specified in this case are significantly more extensive. See Dkt. 114 at 144-46 & Exhs. 131-33. Moreover, the 4AC alleges that some of the kickback schemes were organized by company headquarters and implemented nationwide. See, e.g., Dkt. 114 at 124-25.
Second, while Relators have not provided representative examples of false claims submitted for every alleged type of kickback scheme in the 4AC, the different schemes are alleged in detail, and there are representative examples that some of these alleged schemes resulted in claims to government health care programs. See Dkt. 114 at 122-46. Thus, there are reliable indicia that false claims resulting from kickbacks were submitted to government health care programs. Specific examples linking prescriptions to every type of kickback alleged is unnecessary, as Solvay has sufficient notice of the types of kickbacks alleged and can prepare its case accordingly.
Third, the specific Medicaid prescriptions for Aceon described in the 4AC are sufficiently linked to kickbacks as the physicians who wrote the prescriptions allegedly received kickbacks. The 4AC provides examples of physicians who prescribed Aceon within one to two months of attending programs offering cash kickbacks for prescribing Aceon. See id. at 136, 145 & Exh. 132. Solvay claims that the 4AC contains no link between a kickback and prescriptions that the physicians wrote years later, and it cites United States ex rel. Foster v. Bristol-Myers Squibb Co., 587 F.Supp.2d 805, 824 (E.D.Tex.2008) in support of its position. In Foster, the federal district court in the Eastern District of Texas dismissed a kickback claim because it was "without information to suggest that kickbacks induced any recommendation connected to... federal healthcare patients." 587 F.Supp.2d at 824. The Foster relator provided information about alleged kickbacks but did not provide one factual detail or example of a claim resulting from the kickbacks. Id. Here, Relators provide details and examples. Dr. Fifteen, for example, had never written a prescription for Aceon before February 2000, when he attended his first Solvay City event; Solvay City is a program whereby physicians were allegedly paid cash for providing feedback about Solvay sales pitches. Dkt. 114 at 63-64, 137. After this initial event, Solvay allegedly paid Dr. Fifteen to fly to Milan for the unveiling of the PROGRESS results and, thereafter, Solvay paid Dr. Fifteen to give presentations about PROGRESS. Dkt. 114 at 64 & Exhs. 37, 38. Dr. Fifteen wrote 365 Medicaid prescriptions for Aceon between February 2000 and June 2005. Dkt. 114 at 64 & Exh. 75.
The examples of kickbacks to physicians who prescribed AndroGel to Medicaid patients are not as extensive as the examples
With regard to Luvox, the examples of Medicaid prescriptions written for Luvox provided by Relators are, as Solvay suggests, too distant in time from the dates of the alleged kickbacks or otherwise do not reliably indicate that the two are related. The specific examples of Texas physicians who allegedly received kickbacks for prescribing Luvox indicate that the physicians received some type of speaker fees in 1996 or 1997; these physicians did not begin writing prescriptions for Luvox for Medicaid patients until November 1999. See Dkt. 114 at 144 & Exh. 131. Another example provided by Relators of physicians receiving kickbacks for prescribing Luvox is Dr. Twenty-Six. Solvay, through Relator King, provided fees ranging from $750 to $1000 per event to Doctor Twenty-Six, who was originally the eighth highest prescriber of Luvox in the country, to give speeches about Luvox. Relators state that a "turning point with Dr. Twenty-Six came with a speaker's event at Princeton Community Hospital in Princeton, WV, in 1995 or 1996 at which [Dr. Twenty-Six] spoke with local psychiatrists and nurses at the hospital. Before the event, 2.5 to three percent of Dr. Twenty-Six's prescriptions were for Luvox, but after that October 1, 2011, Dr. Twenty-Six began prescribing four to 4.5 percent of his patients Luvox." Dkt. 114 at 102. These prescriptions are linked sufficiently in time to the alleged kickbacks, but they are not linked sufficiently to Medicaid. According to King, Dr. Twenty-Six was in an economically depressed area in West Virginia with a high proportion of Medicaid enrollees. However, there is no allegation that Dr. Twenty-Six was even a Medicaid provider. Cf. United States ex rel. Barrett v. Columbia/HCA Healthcare Corp., 251 F.Supp.2d 28, 35 (D.D.C.2003) (holding that the qui tam relators did not plead their kickback claims with particularity because the allegations were not linked to Medicare patients, in general, and were "too vague to give defendants notice of the relationship between the alleged kickbacks and the submission of claims to Medicare"). The court therefore holds that the kickback claims relating to Luvox do not meet the Rule 9(b) pleading standard.
In sum, the court holds that the 4AC reliably indicates that Solvay's alleged kickback practices were crafted with the intent that physicians would write prescriptions for Solvay drugs and that these prescriptions would be reimbursed by Medicaid or other government payers. The examples of physicians who allegedly received kickbacks from Solvay and later wrote prescriptions for AndroGel and Aceon are reliable indicia that the kickbacks caused the Medicaid claims. However, the examples of Luvox claims are not sufficiently linked to alleged kickbacks to raise a strong inference that claims were actually submitted, and, while there do not necessarily have to be specific examples if the allegations lead to a strong inference that claims resulting from the kickbacks were submitted, there are not enough other details alleged to raise that inference. Accordingly, SPI's motion to dismiss Relators' kickback claims based on kickbacks
SPI contends that Relators' claims relating to ICD-9 code manipulation should be dismissed because there are no reliable indicia that claims were submitted to the Government with ICD-9 codes that were improper for a patient's diagnosis or treatment plan. Dkt. 139 at 9. Relators contend that the 4AC has supplied all of the particulars required by Grubbs with regard to the ICD-9 code scheme and have supplied specific examples as well. Dkt. 131 at 20. Relators state that they have alleged specific codes urged on specific physicians and described specific exchanges between sales representatives and physicians. Id. Relators claim that these allegations "more than raise a strong inference that claims were submitted to Medicaid, and thus they satisfy Rule 9(b) under Grubbs with regard to an (a)(1) claims." Id.
The 4AC alleges that Solvay provided lists of ICD-9 diagnosis codes to physicians "for the sole purposes of evading formulary controls and sometimes concealing actual uses in order to obtain reimbursement for Luvox, Aceon and AndroGel." Dkt. 114 at 146. Solvay allegedly trained sales representatives to distribute the codes to practitioners, and sales representatives allegedly coached physicians to submit alternative diagnoses to government health plans. Id. at 147. The 4AC contains examples of physicians who used these codes when writing prescriptions for Medicaid patients. Id. at 148-49. These examples, however, do not indicate that the codes used by the physicians did not actually meet the patients' diagnoses. For example, the 4AC alleges that Dr. Eighty-six's sales representative provided code 440.9 to him or her, which stands for Atherosclerosis (unspecified), and that Dr. Eighty-six used the code immediately with one of his or her Medicaid patients. Id. at 148. The 4AC fails, however, to allege that this diagnosis code did not match the patient's symptoms. Thus, it is unclear from the 4AC how the claim is a false claim. The 4AC also alleges that Doe's manager wrote an email indicating that the "best codes" for obtaining reimbursement for AndroGel prescriptions "are the ones that reflect the symptoms, not the disease, such as ED [erectile dysfunction], Low Libido, Depressed Mood, Fatigue/Tiredness, etc." Id. at 149. There is no indication, however, that a claim for a prescription for a symptom rather than the disease is a false claim. There are no allegations that any patient receiving a prescription for AndroGel for a symptom rather than a disease did not actually have the specified symptom. The 4AC also alleges that Dr. Eight-nine and Dr. Ninety "prescribed only AndroGel among testosterone products and chose [ICD-9] codes based on positive answers to the ADAM questionnaire." Dkt. 114 at 149-50. If the patients' responses were positive, then the codes apparently matched the patients' symptoms. Thus, any resulting claims could not be considered false.
Because there is no indication in the 4AC that claims arising from the ICD-9 codes Solvay allegedly provided to physicians are false claims, the 4AC fails to state a claim under subsection (a)(1) relating to ICD-9 manipulation with particularity. Accordingly, SPI's motion to dismiss the federal FCA claims relating to ICD-9 manipulation is GRANTED.
Relators contend that Solvay knowingly used, or caused to be made or used, false records or statements, or omitted material facts to either get false or fraudulent
In Allison Engine Co v. United States ex rel. Sanders, the Supreme Court of the United States interpreted subsection 3729(a)(2) (2006) as requiring that "the defendant made a false record or statement for the purpose of getting `a false or fraudulent claim paid or approved by the government.'" 553 U.S. at 671, 128 S.Ct. 2123. It additionally held that "it is insufficient for a plaintiff asserting a § 3729(a)(2) claims to show merely that `[t]he false statement's use ... result[ed] in obtaining or getting payment or approval of the claim,' ... or that `government money was used to pay the false or fraudulent claim'"; instead, "a plaintiff asserting a § 3729(a)(2) claim must prove that the defendant intended that the false record or statement be material to the Government's decision to pay or approve the false claim." Id. at 665, 128 S.Ct. 2123. Congress responded to the holding in Allison Engine by passing the Fraud Enforcement and Recovery Act of 2009 ("FERA"), which amends subsections 3729(a)(2) and 3729(a)(3) (the corresponding conspiracy subsection). Senator Leahy of the Committee on the Judiciary submitted a Senate Report on FERA, in which he noted that the bill would clarify and correct the erroneous interpretations of the FCA in Allison Engine and in a case decided by the District of Columbia Court of Appeals that held that FCA liability could only attach if a claim was presented to the federal government and paid by federal grant or contract funds. See S.Rep. No. 111-10, at 10 (2009), 2009 WL 787872 (discussing Allison Engine and United States ex rel Totten v. Bombardier Corp., 380 F.3d 488 (2004)). Senator Leahy noted that under Allison Engine, "even when a subcontractor in a large Government contract knowingly submits a false claim to a general contractor and gets paid with Government funds, there can be no liability unless the subcontractor intended to defraud the Federal Government, not just their general contractor." Id. Senator Leahy indicated that this interpretation was "contrary to Congress's original intent in passing the law and create[d] a new element in a FCA claim and a new defense." Id. The new bill removed the term "to get," which the Allison Engine court had interpreted as creating an intent requirement, as well as the phrase "paid or approved by the Government," and added the term "material to." Id. at 12. The new amendments defined "material" as "having a natural tendency to influence, or being capable of influencing, the payment or receipt of money or property." Id. The report notes that these changes "prevent a new `presentment' requirement from being read into the section." Id.
Because Congress made the FERA amendments to subsection 3729(a)(2)
The first factor the court must consider for any FCA claim is whether a false statement or fraudulent course of conduct has been alleged. See Longhi, 575 F.3d at 467. As described above, the 4AC sets forth details about an off-label promotion scheme for the Drugs at Issue, and it has provided sufficient particularity to satisfy Rule 9(b). The second factor is scienter—the challenged pleading must allege that the defendant had "actual knowledge of the information," was acting "in deliberate ignorance of the truth or falsity of the information," or was acting "in reckless disregard of the truth or falsity of the information." Id. Here, Solvay does not argue that scienter is inadequately alleged. The third factor is materiality. Id. Relators have alleged sufficient facts for their claims under subsection 3729(a)(2) to demonstrate that Solvay engaged in the alleged marketing schemes with the intention that these schemes would have the natural tendency to influence the decision of the government to pay the claims resulting from the schemes. They have asserted facts indicating that Solvay had an intricate scheme to market each drug for off-label uses and that Solvay targeted its off-label marketing campaigns to doctors who prescribed to Medicaid populations and other healthcare programs by, for instance, distributing lists to sales representatives of doctors who prescribed Luvox, Aceon, or AndroGel to patients within these programs, and that Solvay intentionally targeted members of state Medicaid P & T committees to gain favorable treatment of the Drugs at Issue on state Medicaid formularies.
Because the details in the 4AC about the allegations in the 4AC that Solvay engaged in the alleged marketing schemes with the intention that the schemes would have the natural tendency to influence the decision of the government to pay the claims resulting from the schemes, Solvay's motion to dismiss Relators' subsection 3729(a)(2) (2006)/3729(a)(1)(B) (2009) claims because they lack Rule 9(b) particularity is DENIED.
Under the AKS, 42 U.S.C. § 1320a-7b(b), it is illegal for an individual to
42 U.S.C. § 1320a-7b(b)(1)(A). Likewise, it is illegal to
42 U.S.C. § 1320a-7b(b)(2)(A).
SPI argues that Relators' FCA claims should be dismissed under Rule 12(b)(6) for the following reasons: (1) FCA claims for violations of the AKS must be premised on a false certification to the Government by the pharmacies submitting claims for reimbursement that SPI complied with the AKS in its dealings with the prescribing physician, and the 4AC fails to allege certification; and (2) the 4AC fails to plead falsity or materiality as to the alleged FCA violations based on off-label promotion and ICD-9 code manipulation. Dkt. 122 at 22, 26. As to the former claim, Relators claim that FCA liability does not require false certification when the goods or services for which reimbursement is sought are tainted by kickbacks because kickback-tainted claims are non-reimbursable when they are intentionally or recklessly caused to be submitted. Dkt. 131 at 22. Relators argue, however, that they have plausibly pled certification, as they have alleged that compliance with applicable laws and regulations was a condition of payment for both the federal and state FCAs. Dkt. 131 at 26-27. As to the latter claim, Relators point to allegations in the 4AC that reimbursement for off-label uses are not generally covered by Medicaid and other government health programs, and that the programs' exceptions are generally limited to medically accepted indications. Moreover, Relators contend that they have pled at least one off-label use for each drug that was promoted by Solvay yet is not reimbursable under any circumstances because it is not listed in any drug compendium and is thus not a medically accepted use. Dkt. 131 at 29. Relators also note that there are problems with the uses that were listed in DrugDex and that some of the uses that were listed in DrugDex were not actually supported by DrugDex. Id. at 30.
In order for a claim for reimbursement to be a false claim under the FCA it must be "false." SPI argues that claims for reimbursement can be either "factually false" or "legally false." Dkt. 139 at 10. SPI contends that the claims for reimbursement of the Drugs at Issue are not factually false because they are for drugs that were actually disbursed. And, SPI alleges that a claim for reimbursement cannot be rendered "legally false" simply because it resulted from a violation of a statute. Id. SPI argues that Relators must, at a minimum, specify the certification that they allege makes it facially plausible that pharmacy claims were legally false. Dkt. 139 at 13. SPI additionally asserts that Relators cannot rest their claims on an implied certification theory because the Fifth Circuit has not recognized an implied certification theory. Dkt. 139 at 12.
The United States, though declining to intervene in this action, filed a statement
Relators argue that nothing "in the FCA or its history suggests that `certification,' whether express or implied, is the only form of a `false or fraudulent' claim," and that so long as a claim is nonreimbursable, it is a false claim under the FCA. Dkt. 131 at 21-22. Relators assert that compliance with the AKS is a condition of receiving Medicare payment and claim, therefore, that "where the goods or services are tainted by kickbacks and therefore nonreimbursable, it is not necessary to examine `false certification,' whether express or implied." Id. at 22. Relators contend that kickback-tainted prescriptions are inherently fraudulent and that the FCA "surely encompasses claims that are the product of fraudulent conduct." Id. at 23.
The United States likewise asserts that "claims for reimbursement for drugs prescribed because of kickbacks are plainly false under the FCA even in the absence of any express or implied false certification." Dkt. 130 at 2. The United States claims that "the judgment of a physician who receives something of value in return for the referral of medical procedures is per se tainted by the financial incentive being offered." Dkt. 130 at 8 (citing Kickbacks Among Medicaid Providers, Report of the Senate Special Committee on Aging, S.Rep. No. 95-320, at 2 (1977)). The United States and Relators cite several cases in which they claim courts have determined that claims for payment of services induced by kickbacks are false claims under the FCA. Id. (citing United States ex rel. Conner v. Salina Reg'l Health Ctr., 543 F.3d 1211, 1223 n. 8 (10th Cir.2008)); McNutt ex rel. United States v. Haleyville Med. Supplies, 423 F.3d 1256, 1259-60 (11th Cir.2005); United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir.2004); United States v. Rogan, 459 F.Supp.2d 692, 717 (N.D.Ill.2006), aff'd 517 F.3d 449 (7th Cir.2008); United States ex rel. Jamison v. McKesson, No. 2:08CV214-SA-DAS, 2009 WL 3176168, at *11 (N.D.Miss. Sept. 29, 2009). The United States asserts that "the question of `falsity' turns on whether the claimant is eligible for payment under the federal program at issue." Dkt. 130 at 8 (citing United States ex rel. Hendow v. Univ. of Phoenix, 461 F.3d 1166, 1174 (9th Cir.2006)).
SPI argues that the claims at issue are not "factually false" claims and that the PPACA is not necessarily a clarification. Rather, SPI argues that while the PPACA may make kick-back tainted claims false after its enactment, it has no bearing on whether kickback-tainted claims were considered false under the pre-PPACA Anti-Kickback Statute.
With the PPACA, Congress amended the Anti-Kickback Statute to provide that a "claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim" within the meaning of the FCA. 42 U.S.C.A. § 1320a-7b(g) (Supp.2011). In discussing the bill, Senator Leahy noted that it amends "the anti-kickback statute to ensure that all claims resulting from illegal kickbacks are considered false claims for the purpose of civil action under the False Claims Act, even when the claims are not submitted directly by the wrongdoers themselves," and he stated that the "bill clarifies the intent requirement of another key health care fraud statute in order to facilitate effective, fair, and vigorous enforcement." 155 Cong. Rec. S10852-01 (Oct. 28, 2009) (statement of Sen. Leahy), 2009 WL 3460582, at *S10854 (Westlaw). Senator Kaufman also discussed the bill, noting that efforts to prosecute violations of the Anti-Kickback Statute had been hindered because claims resulting from kickbacks were "laundered into ... `clean' claim[s] when an innocent third party submit[ted] the claim to the government for payment." 155 Cong. Rec. S10852-01, 2009 WL 3460582, at *S10853. Senator Kaufman stated that the bill remedied "the problem by amending the anti-kickback statute to ensure that all claims resulting from illegal kickbacks are `false or fraudulent,' even when the claims are not submitted directly by the wrongdoers themselves." Id.
This legislative history, unfortunately, does not answer the question before this court—whether the pre-PPACA statute should be interpreted as rendering a claim resulting from violations of the AKS a "false" claim under the FCA. The United States argues that the amendment is persuasive evidence of how claims made prior to the effective date of the new legislation should be treated, and the court agrees that it is persuasive. See Red Lion Broad. Co. v. F.C.C., 395 U.S. 367, 380-81, 89 S.Ct. 1794, 23 L.Ed.2d 371 (1969) ("Subsequent legislation declaring the intent of an
The United States and Relators cite several cases in support of their position that claims resulting from violations of the AKS are automatically false claims under the FCA. However, the cited cases do not provide support for the proposition that the court should consider any claims submitted as a result of Solvay's alleged kickbacks to be false claims under the FCA absent certification of compliance with health care laws by the entity submitting the claims. Instead, in each of these cases, the courts reasoned that filing a certificate of compliance with health care laws and regulations can result in FCA liability if the entity has submitted claims that resulted from violations of the AKS. See Conner, 543 F.3d at 1223 n. 8 (noting that several other courts had reasoned that violations of the AKS rendered the certification of compliance with laws and regulations contained in an annual cost report by a hospital false, but finding it unnecessary to reach the issue); McNutt, 423 F.3d at 1259-60 (finding that the government, which asserted a claim that the defendant had (1) violated the AKS, (2) certified on the Medicare enrollment form that they would comply with the statute, and (3) submitted claims for reimbursement knowing they were ineligible for payments, had stated a claim under the FCA); Schmidt, 386 F.3d at 243 (holding that the plaintiff "alleged a violation of the FCA when he alleged that [a hospital] certified its compliance with federal health care law knowing the certification was false," as the hospital had allegedly accepted kickbacks from the defendant orthopedic implant manufacturer, and that the implant manufacturer could likewise be liable if it knew the kickbacks would result in false certifications of compliance to Medicare); Rogan, 459 F.Supp.2d at 717 (noting that "falsely certifying compliance with the AKS in a Medicare cost report is actionable under the FCA");
Fifth Circuit caselaw likewise does not support a finding that claims arising before PPACA resulting from a violation of the AKS should be considered false without an allegation that the entities submitting the claims certified compliance with health care laws. In United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997), the Fifth Circuit reviewed a district court's order granting the defendants' motion to dismiss for failure to state a claim. The qui tam plaintiff, Thompson, alleged that
In light of this precedent, the court declines to hold, as the United States and Relators request, that an allegation of express certification is unnecessary and the allegations in the 4AC that claims to government entities resulted from unlawful kickbacks are sufficient to survive SPI's 12(b)(6) motion simply because the claims allegedly resulted from violations of the AKS.
SPI argues that, since there is no allegation that it submitted false claims itself, the only way Relators can state a claim under the FCA is to show that the entities submitting the claims falsely certified compliance with the AKS.
Under an express certification theory, "where the government has conditioned payment of a claim upon a claimant's certification of compliance with, for example, a statute or regulation, a claimant submits a false or fraudulent claims when he or she falsely certifies compliance with that statute or regulation." Thompson, 125 F.3d at 902. Under an implied certification theory, which has not been adopted by the Fifth Circuit, see United States ex rel. Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 382 (5th Cir.2003), "courts do not look to the supplier's actual statements; rather, the analysis focuses on the underlying contracts, statutes, or regulations themselves to ascertain whether they make compliance a prerequisite to the government's payment." McKesson, 2009 WL 3176168, at *11 (citing Conner, 543 F.3d at 1217-18, and United States ex rel. Siewick v. Jamieson Sci. & Eng'g, Inc., 214 F.3d 1372, 1376 (D.C.Cir.2000) (other citation omitted)). Thus, if a statute "expressly prohibits payment if a provider fails to comply with its terms, defendants' submission of the claim forms implicitly certifies compliance with its provision." Mikes v. Straus, 274 F.3d 687, 701 (2d Cir.2001).
First, the court notes that SPI's motion to dismiss asserts that the 4AC should be dismissed due to failure to sufficiently allege certification under Rule 12(b)(6), and it does so in a completely different section than its motion to dismiss for lack of particularity required by Rule 9(b). However, it argues that the 4AC has not alleged the "what when, and how of a certification case, and what made the certification a condition of compliance," and that it thus fails to state a claim under the FCA false certification theory. Dkt. 122 at 26. It is thus unclear whether SPI is suggesting that certification must be pled with particularity. However, the Grubbs court held that an FCA claim can survive even if it cannot allege the "details of an actually submitted false claim," so long as it does provide sufficient detail for the underlying fraudulent scheme and reliable indicia that strongly imply false claims were submitted. Grubbs, 565 F.3d at 190. The standard for certification should be embodied in the requirement of submission of a false claim, and the details of certification should not be required so long as there are reliable indicia that strongly imply that the certifications were made.
Relators claim that pharmacies and other entities submitting claims for payment of the allegedly false claims expressly or impliedly certified "full compliance" with the health care regulations and statutes. Caselaw suggests that at least some providers must sign a provider agreement certifying compliance with Medicare laws in order to receive reimbursement from Medicare, and the forms are standardized by the federal Centers for Medicare and Medicaid Services. See, e.g., Hutcheson, 647 F.3d at 381-82. Thus, it is plausible that at least some providers expressly certified compliance with health care regulations and statutes and that the certifications were rendered false by unlawful kickbacks. However, the conclusory statements
In Part II.B.2.a, supra, the court determined that the off-label promotion allegations are sufficient to satisfy the first two prongs of the FCA test enunciated by the Fifth Circuit in Longhi and Steury with regard to a false or fraudulent statement made with the appropriate scienter. The court also determined that the alleged off-label promotion was sufficiently linked to claims for reimbursement from government health plans for off-label uses, and thus that the fourth requirement, presentment, is met, insofar as whether off-label claims were submitted to the government. The third requirement for all FCA claims is materiality—the fraudulent action must have had a natural tendency to influence the government's decision regarding payment of claims. Longhi, 575 F.3d at 470. SPI moves to dismiss the 4AC under Rule 12(b)(6) because it fails to plead falsity or materiality as to the alleged FCA violations based on off-label promotion and ICD-9 code manipulation. Dkt. 122 at 22, 26.
First, the court notes that it found above that the claims based on ICD-9 code manipulation were not stated with particularity under Rule 9(b) because there were no reliable indicia that claims were actually submitted with ICD-9 codes that were improper for a patient's diagnosis. See Part II.D, supra. This means that the claims were not material, so there is not need to address materiality in this section. Conversely, the court found above that the alleged off-label promotion was material to off-label claims, under subsection 3729(a)(1) (2006), insofar as that requirement is encompassed in the Grubbs standard, see Part II.B.2.a, supra, and under subsection 3729(a)(1)(B), see Part II.B.2.d, supra.
SPI's argument here, though, is not that the alleged scheme was not material to off-label claims. Rather, SPI argues that Relators fail to allege facts demonstrating that off-label claims stemming from the alleged off-label promotion were non-reimbursable, and therefore false, claims. Dkt. 139 at 17. SPI asserts that claims for off-label uses could be reimbursable if certain state Medicaid agencies decided not to restrict off-label use or if the off-label use is included in DrugDex or other compendia, making it a "medically accepted" use. Dkt. 122 at 27-28. SPI thus contends that the government's decision regarding payment of claims would not be impacted by knowledge that the claims were for off-label uses unless the claims were not for medically accepted uses, and most of the off-label uses alleged are medically accepted. SPI contends that Relators have not provided any details about states that would have placed restrictions on medically accepted uses.
Relators point out that the 4AC states that reimbursement for claims for off-label uses, whether arising from off-label marketing or ICD-9 code manipulation, are
The 4AC alleges that Solvay promoted each of the Drugs at Issue for uses that were not on the drugs' labels and not listed or not supported by DrugDex. However, while the 4AC has linked off-label promotion of the Drugs at Issue to off-label claims submitted to government health plans, it does not link the uses that are not in DrugDex to claims submitted to government health plans. "FCA liability does not attach to violations of federal law or regulations, such as marketing of drugs in violation of the [Food, Drug, & Cosmetic Act], that are independent of any false claim." United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720, 727 (1st Cir.2007), overruled on other grounds by Allison Engine, 553 U.S. 662, 128 S.Ct. 2123. Even though the 4AC clearly states that the alleged uses of Luvox, Aceon, and AndroGel are off-label, a claim for reimbursement of an off-label prescription is not automatically a "false" claim because an off-label use is not always a "medically unnecessary" use. See Bennett v. Boston Scientific, No. H-07-2467, 2011 WL 1231577, at *3 (S.D.Tex. Mar. 31, 2011) (Rosenthal, J.) (collecting cases) ("Courts recognize that off-label use of a drug or medical device is not the same as medically unnecessary use of that drug or device."). If an off-label use is supported by DRUGDEX or another approved compendia, then it is a "medically accepted indication," and claims for payment of medically accepted indications are not false claims. See 42 U.S.C. § 1396r-8d.
For example, in Rost, DRUGDEX stated that the FDA had not approved the drug at issue, Genotropin (also known as Somatropin), for short stature but that the drug was possibly effective for adults with short stature and its use for children with short stature was controversial. United States ex rel. Rost v. Pfizer, Inc., 253 F.R.D. 11, 14 (D.Mass.2008) (remand after 507 F.3d 720). The Rost defendants argued that this listing in DRUGDEX meant that the drug's use for short stature was a medically accepted indication because it was supported by DRUGDEX. Id. The Rost court noted that there were conflicting viewpoints on whether a listing in DRUGDEX for a specific use is "support" for that use or whether the listing actually has to be positive in order to "support" the use. Id. (comparing Edmonds v. Levine, 417 F.Supp.2d 1323 (S.D.Fla.2006) (holding that a drug is "supported" by citation in a compendia even if it is only "possibly effective" or even "ineffective") with Ctr. for Medicaid and State Operations, Medicaid
Here, Relators list several problems with the DRUGDEX listings for Luvox, Aceon, and AndroGel and thus maintain that claims for reimbursement for prescriptions for the off-label uses it describes in the 4AC, even if the uses were listed in DRUGDEX, were false claims.
Notwithstanding the alleged problems with DRUGDEX's listed off-label uses for Luvox, according to the Medicaid statute, if the uses are "supported by one or more citations" in DRUGDEX, the uses are "medically accepted indications." 42 U.S.C. § 1396r-8(k)(6). Absent special circumstances, states cannot restrict coverage of a drug if it is used for a medically accepted indication. See 42 U.S.C. § 1396r-8(d)(1)(B)(i). Many of the off-label conditions for which Relators claim Solvay promoted Luvox were supported by DRUGDEX. There can be no claim that depression, for instance, was merely listed, when Relators themselves confirm that it was in the most supportive category for some of the relevant time period. Allegations that indicate that claims were submitted for Luvox prescriptions for conditions supported by DRUGDEX do not reliably indicate that false claims were submitted.
The 4AC, however, asserts that Solvay promoted Luvox for uses that were not even listed in DRUGDEX, including "use as a sleep aid, all children's prescriptions outside of OCD, and the following OC Spectrum disorders: stand alone anxiety disorder, Tourette's syndrome, anti-social personality disorder, schizo-obsessive disorder, sexual compulsions, and ADHD." Dkt. 114 at 48-49. Additionally, the 4AC claims that hypochondriasis appeared only after 2003 and that Solvay had already pulled Luvox from the market at this time. Id. at 49.
According to the 4AC there were at least $6 million in Medicaid claims for Luvox in Texas alone and the majority of these sales were for indications other than OCD. Id. at 50. The specific call notes
The specific examples of off-label prescriptions for AndroGel in the 4AC indicate that physicians prescribed AndroGel for off-label uses after receiving detailing for those uses from Solvay sales personnel. See, e.g., id. at 91-92 (providing details about promotions to specific doctors for off-label uses); id. 93-94 (providing details of specific Medicaid prescriptions for off-label uses). However, the 4AC does not provide any specific details of off-label prescriptions for uses not listed by DRUGDEX (i.e. andropause, diabetes, metabolic syndrome, and methadone/pain).
The fourth listing, atherosclerosis, is offered because one of the biggest off-label campaigns for Aceon was allegedly "arterial wall compliance," which is not listed in DrugDex, and the 4AC posits that atherosclerosis could be understood to cover this use.
Linking the off-label promotion to materially false claims with claims data is not the only way in which the 4AC could allege that the prescriptions resulting from the off-label promotion had a natural tendency to influence the government's decision regarding payment of claims. Relators argue that problems associated with the DrugDex support of the off-label uses and Solvay's specific targeting of P & T committee members to gain favorable treatment on state formularies demonstrate that the off-label promotion campaign had a natural tendency to influence the government's decision regarding payment of claims.
With regard to DrugDex, the 4AC alleges that Solvay improperly influenced what uses were included in DrugDex by manufacturing "medical literature over which it maintained control in order to submit to compendia and win access to Medicaid formulary coverage." Dkt. 114 at 108-09. This allegation includes claims of ghostwriting, conflicts of interest, and scientifically flawed studies. Id. at 109. The 4AC provides a specific example of a physician who was one of Solvay's "thought leaders" and has recently been exposed (in relation to other companies) as signing ghost-written articles. Id. The 4AC also alleges that Solvay did not disclose to DrugDex that it had financial ties to various entities that sponsored studies
The 4AC additionally alleges that Solvay specifically geared its off-label promotion towards members of state P & T committees in a attempt to influence which drugs were included on the states' Medicaid formularies. Dkt. 114 at 116. The 4AC alleges that "[w]ooing P & T committee members was discussed openly and earnestly on periodic conference calls with upper management." Id. at 117. A Solvay sales representative allegedly argued for the inclusion of Aceon on the Preferred Drug List in a meeting with the West Virginia P & T Committee. Id. at 118. She allegedly relied on the PROGRESS study, which the 4AC alleges does not support the use of Aceon at all. See id.
Taken together, the allegations about problems with the DrugDex listings and the alleged wooing of P & T committee members plausibly influenced which drugs were placed on state formularies and thus had a natural tendency to influence the states' decision, and in turn the federal government's, decision with regard to payment. Accordingly, the 4AC plausibly satisfies the materiality element.
SPI additionally asserts that claims for off-label uses could be reimbursable if certain state Medicaid agencies decided not to restrict off-label use and contends that Relators have not provided any details about states that would have placed restrictions on medically accepted uses. Relators argue that it is patently unreasonable to require them to do so. The court agrees that this level of detail is not necessary at the pleading stage. Cf. Grubbs, 565 F.3d at 190 (stating, in the context of holding that exact contents of bills were not required to state a claim, that "[t]o require these details at pleading is one small step shy of requiring actual documentation with the complaint, a level of proof not demanded to win at trial and significantly more than any federal pleading rule contemplates").
In sum, the court finds that the 4AC plausibly pleads that the claims resulting from off-label promotion were false or material. SPI's motion to dismiss the off-label claims based on the alleged lack of falsity or materiality is DENIED.
Relators allege that Solvay conspired with physicians to promote of-label uses of the Drugs at Issue and to pay kickbacks to physicians in violation of the AKS and subsection 3729(a)(3) (2006) of the FCA. Dkt. 114 at 169. Congress did not make the FERA amendments to subsection 3729(a)(3), which it amended and recodified as subsection 3729(a)(1)(c), retroactive. The amended version applies only to "conduct on or after the date of enactment"— May 20, 2009. The court therefore will analyze the FCA conspiracy claims in accordance
SPI contends that Relators' conspiracy claims fail under Rules 9(b) and 12(b)(6) for the same reasons the underlying claim fails and, additionally, because Relators fail to allege the basic elements of a conspiracy. Dkt. 122 at 29. Like the underlying claims, a conspiracy claim under section 3729(a)(3) (2006) must be plead with particularity under Federal Rule of Civil Procedure 9(b). Grubbs, 565 F.3d at 193. Thus, like with the underlying claims, the motion to dismiss the conspiracy claims based on off-label promotion is DENIED, the motion to dismiss the conspiracy claims based on ICD-9 code manipulation is GRANTED, and the motion to dismiss the conspiracy claims based on the AKS is GRANTED.
In addition, to plausibly plead an FCA conspiracy claim, Relators must allege "`(1) the existence of an unlawful agreement between defendants to get a false or fraudulent claim allowed or paid by [the Government] and (2) at least one act performed in furtherance of that agreement.'" Grubbs, 565 F.3d at 193 (quoting United States ex rel. Farmer v. City of Houston, 523 F.3d 333, 343 (5th Cir.2008)). The actual presentment of a false claim is not necessary. See id. Relators claim that the following allegations in the 4AC assert an agreement and an act or acts in furtherance of that agreement: (1) Solvay allegedly paid doctors' airfare and lodging to go to a luxury hotel or resort to participate in marketing feedback panels about Aceon and Luvox, during which the physicians, deemed "consultants," would provide comments about the presented marketing schemes, Dkt. 114 at 126; (2) Solvay allegedly would provide physicians with honoraria or fees for participating in regional advisory boards during which off-label indications for AndroGel and Luvox would be discussed, id. at 126-27; (3) Solvay allegedly provided honoraria and other kickbacks to physicians who prescribed Aceon and provided case studies about its use for secondary stroke patients, id. at 129 & Exh. 114; (4) Solvay allegedly paid physicians participating in the ACES program, who signed district advisory board agreements and completed patient tracking forms, $100 for each patient to whom they prescribed Aceon, id. at 136; and (5) Solvay allegedly paid physicians, who signed expert interview consultants' request forms, $100 after the launch of Aceon for participating in an interview about the physicians' treatment of hypertension prior to the launch of Aceon, id. at 135.
In order to state a claim, these alleged facts must give rise to an inference that the Solvay and the physicians conspired to defraud the government. Allison Engine, 553 U.S. at 672, 128 S.Ct. 2123. Moreover, if the alleged conduct pertains to an agreement to make a false record or statement (subsection 3729(a)(2) (2006)), "it must be shown that the conspirators had the purpose of `getting' the false record or statement to bring about the Government's payment of a false or fraudulent claim." Id. at 672-72, 128 S.Ct. 2123. In other words, "it must be established that [the alleged conspirators] agreed that the false record or statement would have a material effect on the Government's decision to pay the false or fraudulent claim." Id. at 673, 128 S.Ct. 2123.
Here, there is no allegation that the physicians made any agreement with the purpose of having an impact on the Government's decision to pay false or fraudulent
Fourth, SPI contends that the retaliation claims should be dismissed because the applicable limitations period is, at most, 180 days, yet King did not file his claim for over a year after the alleged retaliation against him, and Doe did not file her claim until approximately eight months after the alleged retaliation against her. Dkt. 122 at 31. Relators argue that the 180-day limitations period would frustrate the FCA's provisions and the court should apply either a two-year statute of limitations from a Georgia statute that is analogous to the FCA or the two-year statute of limitations contained in section 16.003 of the Texas Civil Practices and Remedies Code. Dkt. 131 at 41-42.
In Graham County Soil & Water Conservation District v. United States ex rel. Wilson, the United States Supreme Court ruled that the six-year statute of limitations applying to FCA claims, in general, does not apply to FCA retaliation claims. 545 U.S. 409, 422, 125 S.Ct. 2444, 162 L.Ed.2d 390 (2005). Rather, the "most closely analogous state statute of limitations... applies." Id. The United States Supreme Court specifically noted which state statutes were likely the most closely analogous for several states, and, for Texas, it cited section 16.003 of the Texas Civil Practices and Remedies Code, which governs personal injuries, and section 554.005 of the Texas Government Code, which governs retaliation actions for whistle-blowers. Id. at 419 & n. 3, 125 S.Ct. 2444.
Relators argue that the court must apply the most closely analogous statute of limitations of either Georgia, where the cause of action allegedly accrued, or Texas, where this case is pending, and they claim that the Supreme Court has not addressed which state to choose when the alleged retaliation took place outside of the forum state. Dkt. 131 at 41-42 & n. 32. SPI agrees that the court must apply the most closely analogous state statute, but it claims, citing a case relating to which statute
The court finds that it should apply the law of Texas, the forum state. The court would not apply Georgia substantive law if the retaliation cause of action accrued in Georgia, because the FCA is, of course, a federal statute. The court would not apply Georgia procedural law to this case because federal courts apply federal procedural law. See All Plaintiffs v. All Defendants, 645 F.3d 329, 335 (5th Cir.2011). Thus, it does not make sense to borrow Georgia's statute of limitations.
Since the court has decided to apply the most analogous Texas statute, it must determine which statute is most analogous. The FCA retaliation statute states: "Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment ... because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section... shall be entitled to all relief necessary to make the employee whole."
This court, joining its sister court in United States ex rel. Smart v. Christus Health and the federal district court in the Northern District of Texas in United States ex rel. Wall v. Vista Hospice Care, Inc., will apply the 180 day statute of limitations contained in the Texas healthcare whistleblower statute. See United States ex rel. Wall v. Vista Hospice Care, Inc., 778 F.Supp.2d 709 (N.D.Tex.2011) (applying the 180 day statute of limitation in the Texas hospital whistleblower's retaliation action in an FCA retaliation case and noting that the case would have the same result if the court were to apply the 90 day statute of limitations); United States ex rel. Smart v. Christus Health, 626 F.Supp.2d 647, 657 (S.D.Tex.2009) (Rainey, J.) (applying the 180 day statute of limitations in Texas Health & Safety Code § 161.134(h) to an FCA retaliation claim). The personal injury statute of limitations applies to trespass, conversion, taking or detaining personal property of others, forcible entry and detainer, forcible detainer, and personal injury resulting in death. Tex. Civ. Prac. & Rem.Code Ann. § 16.003 (Vernon 2002). None of these causes of action relates in any way to a retaliation claim. The whistleblower statute with the 90-day statute of limitations, on the other hand, is directly on point as evidenced by the title of the chapter in
Under the 180 day statute of limitations, both King's and Doe's retaliation claims are untimely. Since an amendment to the complaint will not cure this deficiency, SPI's motion to dismiss the retaliation claims is GRANTED, and the retaliation claims under the FCA are DISMISSED WITH PREJUDICE. Since the claims are time-barred, the court finds it unnecessary to address SPI's argument that Relators have not pled facts demonstrating that King and Doe engaged in protected activity.
SPI contends that Relators' state and local qui tam claims should be dismissed for the same reasons the federal claims should be dismissed or, alternatively, if the court dismisses the federal claims, the court should decline to exercise pendant jurisdiction over the state claims. Dkt. 112 at 34. Since the court has not dismissed all of the federal FCA claims, it declines to dismiss the state of local claims on either of these theories. SPI, however, also asserts that each state claim is flawed for other reasons, which the court will address in turn. Dkt. 122 at 34.
Before reaching the contested issues, the court notes that Relators concede that their claims on behalf of the City of Chicago (Count 33) should be dismissed. Dkt. 140-1 at 17. Thus, SPI's motion to dismiss the claims based on the Chicago FCA is GRANTED, and Relators' claims on behalf of the City of Chicago (Count 33) are DISMISSED WITH PREJUDICE.
SPI moves to dismiss Relators' claims made under the Delaware and New Mexico FCAs (Counts 10 and 22, respectively), arguing that the Delaware and New Mexico FCAs permit a relator to continue a qui tam action in which the state does not intervene only if the appropriate authorities in those states issue a written determination that there is substantial evidence that a violation occurred. Dkt. 122 at 35-36. Under New Mexico Statute section 27-14-7(E)(2) (2004) (hereinafter, the "N.M. Substantial Evidence Section"), the New Mexico Government is required to either proceed with an FCA action filed by a qui tam relator or "notify the court and the person who brought the action that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action if the department determined that there is substantial evidence that a violation of the Medicaid False Claims Act has occurred." Similarly, under Delaware Code title 6, section 1203(b)(4)(b) (2000) (hereinafter, the "Del. Substantial Evidence Section"), the Delaware Government is required to either elect to proceed with
Relators next argue that the Delaware Substantial Evidence Section no longer applies because the Delaware General Assembly amended this section in 2009, and the new provision simply requires the Delaware Department of Justice to either proceed with the action or notify the court that it declines, "in which case the private party bringing the action shall have the right to conduct the action." Del.Code tit. 6, § 1203(b)(3)(b) (2009). The amended statute, however, does not apply retroactively. See United States ex rel. Conrad v. GRIFOLS Biologicals Inc., No. RDB 07-3176, 2010 WL 2733321, at *6 (D.Md. Jul. 9, 2010) (noting that under Delaware law, "retroactivity is a matter of legislative intent" and that Delaware courts will not infer such intent, and then dismissing a Delaware FCA qui tam action under the previous version of the statute). Thus, the court will apply the previous version of the Delaware statute.
There is no contention that the Delaware Attorney General determined that there was substantial evidence that a violation of Delaware's FCA occurred. However, SPI has failed to explain how dismissal under Rule 12(b)(6) is appropriate. The Substantial Evidence Section does not state that the Delaware Attorney General must notify the court of its determination regarding substantial evidence, and Relators are not required on a Rule 12(b)(6) motion to come forward with evidence. Relators could not have alleged in their complaint that the Delaware government had issued such a notice since the statute does not require such a notification until after the complaint is filed. SPI's motion to dismiss the Delaware False Claims and Reporting Act claim (Count 10) because the Delaware Attorney General has failed to provide notice that the Relators may proceed is DENIED.
Relators make no arguments with regard to SPI's argument that Relators cannot maintain a claim under the New Mexico FCA unless the State intervenes or provides them with a statement of substantial evidence, with the exception of their erroneous argument that New Mexico has not declined to intervene. However, since, as with the Delaware statute, SPI has not explained how dismissal under this section is appropriate under Rule 12(b)(6), SPI's motion to dismiss the New Mexico FCA claim (Count 22) as it relates to the alleged absence of a substantial evidence statement from New Mexico is DENIED.
SPI alternatively argues that the New Mexico FCA (§ 27-14-1 et seq.) only permits an "affected person" to bring a civil action, and that neither King, who is a resident of Virginia, nor Doe, who is a resident of Florida, could be affected by the New Mexico statute.
SPI moves to dismiss Relators' claims under the Texas, New Hampshire, and Maryland FCAs (Counts 20, 27, and 30, respectively), contending that the Texas, New Hampshire, and Maryland FCAs do not permit Relators to litigate FCA actions that those states have declined to take over. Dkt. 122 at 35. Relators argue that an amendment to the Texas statute makes dismissal of the Texas claims inappropriate, and that New Hampshire and Maryland have not yet declined to intervene, so relators may continue to pursue these claims. Dkt. 131 at 37. First, the court notes that both New Hampshire and Maryland have declined to intervene. See Dkt. 50 (Nov. 20, 2009) (notice of non-intervention of New Hampshire and several other states); Dkt. 138 (Feb. 17, 2011) (State of Maryland's notice of election to decline intervention). Thus, the court must determine if the statutes of those states mandate dismissal after an election not to intervene. The court will address each state in turn.
The Texas FCA has been amended since the commencement of this lawsuit, and the amendment became effective on May 4, 2007. The version that was in effect at the time this lawsuit was filed required the court to dismiss the action if the State of Texas declined to take over the action. Tex. Human Res. Code Ann. § 36.104 (Vernon 2001). The new version of the statute states that if the State of Texas declines to take over the action, "the person bringing the action may proceed without the state's participation." Tex. Human Res. Code Ann. § 36.104 (Vernon Supp. 2010) (amended May 4, 2007). SPI argues that the claims in this case arose while the former version of the statute was in place
The 2007 amendments apply "only to conduct that occurs on or after the effective date ... of [the] Act. Conduct that occurs before the effective date of [the] Act is governed by the law in effect at the time the conduct occurred, and that law is continued in effect for that purpose." Tex. Human Res. Code Ann. § 36.104 (Vernon Supp. 2010) (Historical and Statutory Notes). The "conduct" discussed in section 36.104 is the State of Texas's election not to intervene. The State of Texas filed its amended notice of non-intervention on October 5, 2009. Dkt. 45. Thus, the "conduct" occurred after the statute was amended. At the point the State of Texas declined to intervene, thus triggering section 36.104(b), the section allowed a qui tam relator to proceed without the State of Texas' participation. Therefore, the relevant Texas statute does not prohibit Relators from maintaining an action on Texas' behalf, and SPI's motion to dismiss the Texas FCA claims (Count 20) on this basis is DENIED.
The New Hampshire statute has likewise been amended since this lawsuit commenced. The version in effect when the action commenced stated that the action should be dismissed if the state declined to intervene. See N.H.Rev.Stat. § 167:61-c(II)(e) (2004). The amended version, which was enacted on June 29, 2009, states that "the relator who initiated the proceeding may conduct the action" if the State of New Hampshire declines to intervene. N.H.Rev.Stat. § 167:61-c(II)(e) (2009). The bill amending this section indicates that the act would "take effect upon its passage." S.B. 174, 161st Leg., 1st Sess. Gen. Ct. (N.H. 2009). Thus, the amendment is not retroactive. However, New Hampshire declined to intervene on November 20, 2009, which is after the new section took effect. Like the Texas section at issue, the New Hampshire section at issue is triggered once the state declines to intervene. Thus, it was only triggered after the amendment to the statute. Accordingly, SPI's motion to dismiss the claims on behalf of New Hampshire (Count 27) on this basis is DENIED.
The Maryland Code of Health-General section 2-604(a)(7) states: "If the State does not elect to intervene and proceed with the action . . . before unsealing the complaint, the court shall dismiss the action." Md.Code Ann. Health-Gen. § 2-604(a)(7) (West 2011). Here, the State of Maryland did not elect to intervene before the complaint was unsealed and, in fact, declined to intervene after the complaint was unsealed. See Dkt. 138. In its election not to intervene, the State of Maryland stated that it was notifying the court pursuant to section 2-604(a)(6)(ii) of its Code of Health-General, and that it was reserving its rights under section 2-603 of its False Health Claims Act to intervene at a later date upon a showing of good cause. Id. Subsection 2-604(a)(6)(ii) simply indicates that the State of Maryland must
SPI moves to dismiss each state claim to the extent it is based on allegedly fraudulent claims submitted prior to the state FCAs' effective dates. Dkt. 122 at 36. SPI specifically contends that sixteen (16) of the state counts involve a statute post-dating some of all of the alleged misconduct that either is silent or explicitly forbids retroactive application—Colorado (effective 5/26/10, silent on retroactivity), Connecticut (effective 10/5/09, silent on retroactivity), Delaware (6/30/00, silent on retroactivity), Georgia (effective 5/24/07, silent on retroactivity), Hawaii (effective 5/26/00, silent on retroactivity), Indiana (effective 5/11/05, silent on retroactivity), Minnesota (effective July 1, 2010, silent on retroactivity), Montana (effective 10/1/05, applies after 10/1/05), New Hampshire (effective 1/1/05, applies after 1/1/05), New Jersey (effective 3/13/08, silent on retroactivity), New Mexico (effective 5/19/04, silent as to retroactivity), New York (4/1/07, silent as to retroactivity), Oklahoma (11/1/07, silent as to retroactivity), Rhode Island (effective 2/15/08, silent as to retroactivity), Virginia (effective 1/1/03, silent as to retroactivity), and Chicago (12/15/04, silent as to retroactivity). Dkt. 122 at 36-37 & Exh. A. Relators concede some of these points, but they argue that North Carolina and Maryland specifically allow for retroactive application of their statutes if the limitations period has not run and that the state FCAs that are silent with regard to retroactivity should be applied retroactively. Dkt. 131 at 38. Relators also generally allege that each state FCA claim is an "indivisible claim that may not be carved up." Dkt. 131 at 39. Relators cite an unpublished decision from the District of South Dakota for this proposition. Id. (citing Janis v. Nelson, No. CR. 09-5019-KES, 2009 WL 4505935, at *7 (D.S.D. Nov. 24, 2009)). In that case, the plaintiff sought to dismiss the type of relief sought in each count, not simply portions of the claims. Janis, 2009 WL 4505935, at *6. Here, SPI requests dismissal of a portion of the substantive claim. Dismissing these portions of the substantive claims, to the extent dismissal is warranted, helps streamline the issues, making preparation for trial easier on all parties. Thus, the court does not find Relators' argument that it should not dismiss portions of the claims persuasive.
The court will first discuss the parties' general arguments with regard to retroactivity, and it will then specifically address the claims under the state FCAs that are addressed in the parties' briefing.
Relators argue that the state FCAs in Delaware, Georgia, Hawaii, Massachusetts, New Jersey, New Mexico, New York, Oklahoma, Rhode Island, and Virginia should be applied retroactively since the statutes are silent on retroactivity. Dkt. 131 at 38. Relators contend that the statutes that are silent on the issue of retroactivity should be applied retroactively if doing so is not contrary to express legislative history or does not result in manifest injustice. Dkt. 131 at 38. Relators rely on Bradley v. School Board of City of Richmond, 416 U.S. 696, 711, 94 S.Ct. 2006, 40 L.Ed.2d 476 (1974), for this argument. Dkt. 131 at 38-39. Solvay contends that the Supreme Court directly rejected Relators' reading of Bradley in Landgraf v. USI Film Products, 511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994). Dkt. 139 at 24. Additionally, Solvay argues that the Supreme Court has refused to read retroactivity into the federal FCA at least twice. Id. (citing Graham Cnty. Soil & Water Conservation Dist. v. United States ex rel. Wilson, ___ U.S. ___, 130 S.Ct. 1396, 1400 n. 1, 176 L.Ed.2d 225 (2010)) (noting that the PPACA legislation made "no mention of retroactivity, which would be necessary for its application to pending cases given that it eliminates petitioners' claimed defense to a qui tam suit"); Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 950, 117 S.Ct. 1871, 138 L.Ed.2d 135 (1997) (noting that the 1986 amendment, which spoke "to the substantive rights of the parties," "is as much subject to [the Court's] presumption against retroactivity as any other").
The United States Supreme Court, in Bradley, "anchor[ed] its holding ... on the principle that a court is to apply the law in effect at the time it renders its decision, unless doing so would result in manifest injustice or there is statutory direction or legislative history to the contrary." 416 U.S. 696, 711, 94 S.Ct. 2006, 40 L.Ed.2d 476 (1974). The court rejected "the contention that a change in the law is to given effect in a pending case only where that is the clear and stated intention of the legislature." Id. at 715, 94 S.Ct. 2006. The court declined to hold that "courts must always ... apply new laws to pending cases in the absence of clear legislative direction to the contrary," but noted that since the legislative history of the statute in question could be supportive of either position (applying the new law or the old), "it would seem to provide at least implicit support for the application of the statute to pending cases." Id. at 716, 94 S.Ct. 2006.
In Landgraf, the Supreme Court "clarified the circumstances in which a new statute which itself does not explicitly state whether it applies to pending cases should be applied retroactively." Hartford Cas. Ins. Co. v. F.D.I.C., 21 F.3d 696, 700 (5th Cir.1994) (citing Landgraf, 511 U.S. 244, 114 S.Ct. 1483). The Landgraf Court noted that it "did not intend to displace the traditional presumption against applying statutes affecting substantive rights, liabilities, or duties to conduct arising before their enactment" with the Bradley decision. 511 U.S. at 278, 114 S.Ct. 1483. It noted that although the language in Bradley "suggests a categorical presumption in favor of application of all new rules of law," it was making "clear" with the Landgraf decision "that Bradley did not alter the well-settled presumption against application of the class of new statutes that
Thus, the Landgraf Court enunciated the following standard:
Id. at 280, 114 S.Ct. 1483.
Relators claim that retroactive application of the state FCAs does not impair any of Solvay's rights, increase Solvay's liability, or impose new duties, and that the court should thus apply them retroactively in accordance with the Bradley decision. Dkt. 140-1 at 17-18. The Landgraf Court, however, instructed that courts must determine first whether Congress expressly made the statute retroactive and, if not, if the statute would have retroactive effect. Applying the State FCAs that were not in effect at the time the events giving rise to this lawsuit occurred would certainly have retroactive effect—Solvay would be held accountable for conduct that occurred at a time when it had no notice that such conduct would be in violation of the State FCAs at issue, since they were not even enacted yet. Thus, under Landgraf, the new FCAs should not be applied unless there is clear legislative guidance that it is proper to do so.
However, in both Bradley and Landgraf the United States Supreme Court was discussing whether it was appropriate to apply federal statutes retroactively. Here, the issue is whether state statutes should be given retroactive effect when the state legislatures did not provide any guidance. Thus, the court must consider how each state or locality at issue treats retroactivity issues.
Since the court already dismissed the Chicago claims on other grounds, it will not address SPI's argument that the Chicago claims occurring before the statute was enacted should be dismissed. Relators concede that the Montana FCA applies only to claims submitted after October 1, 2005 and that the New Hampshire FCA applies only to claims submitted after January 1, 2005. Id. Thus, the alleged violations of the Montana FCA occurring before October 1, 2005 and the alleged violations of the New Hampshire FCA occurring after January 1, 2005 are DISMISSED WITH PREJUDICE.
SPI argues that Relators' claims with regard to alleged violations occurring before the enactment of state FCAs for sixteen state that are either silent of expressly forbid retroactive application should be dismissed. Dkt. 122 at 37. Relators argue that ten of these states, Delaware, Georgia, Hawaii, Indiana, New Jersey, New Mexico, New York, Oklahoma, Rhode Island, and Virginia, plus one state FCA not specified by SPI, Massachusetts, are all silent on retroactivity and should be
The Massachusetts FCA took effect on July 1, 2000. See 2000 Mass. Legis. Serv. Ch. 159 (H.B. 5300) (West). It was part of the appropriations act for the
The Massachusetts FCA imposes liability on any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval"; "knowingly makes, uses, or causes to be made or used, a false record or statement to obtain payment or approval of a claim"; or "conspires to defraud the commonwealth or any political subdivision thereof through the allowance or payment of a fraudulent claim...." Mass. Gen. Laws Ann. 12 § 5B. Because the Massachusetts FCA did not take effect until July 1, 2000, any violations of the statute that occurred prior to July 1, 2000 are not covered by the statute. Accordingly, SPI's motion for partial dismissal of the Massachusetts FCA claims is GRANTED. The Massachusetts FCA claims relating to alleged violations occurring before July 1, 2000 are DISMISSED WITH PREJUDICE.
The New Jersey FCA was approved on January 13, 2008, and the legislature specifically stated that it was to "take effect on the 60th day after enactment"—March 13, 2008. N.J. Stat. Ann. § 2A:32C-1 (West 2010). None of the exceptions to the presumption against retroactivity applies. Under the New Jersey FCA, a person is liable to the State of New Jersey if the person "a. Knowingly presents or causes to be presented to an employee or officer or agent of the State [of New Jersey], or to any contractor, grantee, or other recipient of State funds, a false or fraudulent claim for payment or approval; b. Knowingly makes, uses, or causes to be made or used a false record or statement to get a false or fraudulent claim paid or approved by the State [of New Jersey]; [or] c. Conspires to defraud the State [of New Jersey] by getting a false or fraudulent claim allowed or paid by the State." Id. § 2A:32C-3. Since this statute did not take effect until March 13, 2008 and does not apply retroactively, SPI's motion to dismiss Relators' claims as they relate to alleged false or fraudulent claims made to the State of New Jersey, false records or statements to get a false or fraudulent claim paid or approved by the State of New Jersey, or conspiracies to defraud the State of New Jersey, under the New Jersey statute and before March 13, 2008, is GRANTED, and these claims are DISMISSED WITH PREJUDICE.
Under the relevant portions of the New York FCA, "any person who: (a) knowingly presents, or causes to be presented a false or fraudulent claim for payment or approval; (b) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; [or] conspires to commit a violation of paragraph (a), (b), (d), (e), (f) or (g) of this subdivision ... shall be liable [under the statute]." N.Y. State Fin. Law § 189 (McKinney 2007). Since this provision was not in force until April 1, 2007 and is not retroactive, SPI's motion as it relates to the enactment of the New York FCA is GRANTED, and Relators' claims under the New York statute pertaining to alleged false or fraudulent claims for payment to the State of New York, false records or statements material to a false New York claim, or conspiracies to commit a violation of the New York FCA that occurred before April 1, 2007 are DISMISSED WITH PREJUDICE.
2003 OK 81, ¶ 8, 78 P.3d 542, 546. The Oklahoma Medicaid FCA was approved May 14, 2007 and became effective November 1, 2007. 2007 Okla. Sess. Law Serv. Ch. 137 (S.B. 889) (West). There is no plain legislative intent that the statute should apply retroactively, and it does not affect only a mode of procedure as it creates a substantive cause of action. Thus, there is no reason to apply the statute retroactively.
The relevant portion of the Oklahoma Medicaid FCA states that any "person who: 1. Knowingly presents, or causes to be presented, to an officer or employee of the State of Oklahoma, a false or fraudulent claim for payment or approval; 2. Knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the state; [or] 3. Conspires to defraud the state by getting a false or fraudulent claim allowed or paid ... is liable to the State of Oklahoma for a civil penalty." Okla. St. Ann. tit. 63, § 5053.1 (West, Westlaw current through 1st Reg. Sess. of the 53rd Legis.). This statute applies only to alleged false or fraudulent claims for payment or approval made to the State of Oklahoma, false records or statements to get a false or fraudulent claim paid or approved by the State of Oklahoma, or conspiracies to defraud the State of Oklahoma that occurred on or after November 1, 2007. SPI's motion with regard to the Oklahoma statute is GRANTED. Relators' claims under the Oklahoma statute as they pertain to alleged claims, records, or conspiracies occurring before November 1, 2007 are DISMISSED WITH PREJUDICE.
The Rhode Island FCA is similar substantively to the other state FCAs and the federal FCA, and it certainly, therefore, cannot be deemed a remedial or procedural statute, as it creates civil liability. The statute, known as the State False Claims Act, became effective on July 1, 2007. R.I. Gen. Laws 1956, § 9-1.1-3 (West, Westlaw current through ch. 407 of the Jan. 2011 sess.). The Rhode Island State FCA, in relevant part, makes any "person who: (1) knowingly presents, or causes to be presented, to an officer or employee of the state [of Rhode Island] or a member of the guard a false or fraudulent claim for payment or approval; (2) knowingly makes, uses, or causes to be made or used, a false
SPI argues that any alleged violations of the Colorado, Connecticut, and Minnesota FCAs occurring before these statutes were enacted should be dismissed. See Dkt. 122 at 37 (specifying these state FCAs as three of the sixteen that should be partially dismissed under its enactment date argument). Relators do not assert specific arguments relating to the FCAs of these three states. However, Relators do assert a general argument that the court should apply the state FCAs retroactively because doing so does not deprive Solvay of rights, impose new obligations, or result in "manifest injustice."
The current version of the Colorado Medicaid FCA was "reenacted" on May 26, 2010. Colo.Rev.Stat. Ann. § 25.5-4-305 (West, Westlaw through Laws of 2011, Ch. 264, § 66). The Colorado Legislature indicated that the effective date of the relevant
SPI does not specifically address the North Carolina and Maryland FCAs in the portion of its motion requesting partial dismissal of state FCA claims to the extent they request relief before the statutes were enacted. Relators, however, argue that North Carolina and Maryland specifically allow for retroactive application of their statutes and that claims under these statutes should not be dismissed based on enactment date.
The Maryland statute was enacted in 2010, and the Maryland Legislature made it effective October 1, 2010. Md. Code Health-Gen. §§ 2-601 et seq. The Maryland Legislature, however, specified that a "civil action may be filed . . . for activity that occurred prior to October 1, 2010, if the limitations period. . . . has not lapsed." Md.Code Health-Gen. § 2-609(b). Thus, to the extent SPI moves to partially dismiss claims under the Maryland FCA occurring before its enactment, the motion is DENIED.
The North Carolina FCA was enacted in 2009. See N.C. Gen.Stat. Ann. § 1-605 (West, Westlaw current through Chap. 18) (Historical and Statutory Notes). The North Carolina Legislature specified that the relevant section of the act became effective January 1, 2010 but that a "civil action may be filed after January 1, 2010, under Section 1 of this act based on acts committed prior to that date if the activity would also be covered under Part 7 of Article 2 of Chapter 108A of the General Statutes and if the limitation period . . . has not lapsed." Id. Part 7 of Article 2 of Chapter 108 A of the General Statutes is the Medical Assistance Provider False Claims Act. N.C. Gen.Stat. Ann. § 108A-70.10. This section applies specifically to presentation of false claims and false records or statement made, used, or caused to be made or used by providers of medical assistance under the Medical Assistance Program of North Carolina. Id. § 108A-70.12.
Relators filed their original complaint on June 10, 2003, their first amended on July 15, 2008, their second amended complaint on November 24, 2009, and their third amended complaint on September 15, 2010. Dkts. 1, 38, 54, 111. SPI moves for dismissal of several of the state FCA claims, which were raised at different points during this litigation, to the extent that the claims relate to conduct that predates the limitations periods for those state FCAs. Dkt. 122 at 37-38. The Texas FCA claim was asserted in the original complaint on June 10, 2003. SPI argues that the Texas FCA has a four-year limitations period and that therefore all claims relating to conduct occurring before June 10, 1999, should be dismissed. Dkt. 122 at 38. Relators added claims in the first amended complaint under the FCAs of ten states that SPI claims should be partially time-barred—Georgia, Indiana, Michigan, Montana, New Hampshire, New Jersey, New York, Oklahoma, Rhode Island, and New Mexico. Id. at 37. SPI argues that the FCAs for Georgia, Indiana, Michigan, Montana, New Hampshire, New Jersey, New York, Oklahoma, and Rhode Island have six-year limitations periods, so the claims relating to conduct occurring before July 15, 2002 under each of these states' FCAs should be dismissed, and that the limitations period for the New Mexico Medicaid FCA is 4 years, so claims under the New Mexico Medicaid FCA for conduct predating July 15, 2004 should be dismissed. Id. & Exh. B. SPI also argues that the FCA claim under the Wisconsin FCA, which was raised in the second amended complaint on November 10, 2009, should be partially dismissed because the Wisconsin FCA has a ten-year limitations period. Dkt. 122 at 38. Thus, SPI moves for dismissal of the Wisconsin FCA claims insofar as they relate to conduct occurring prior to November 10, 1999. Id. SPI additionally asserts that the FCA claims for six states that were raised for the first time in the third amended complaint on September 15, 2010, Colorado, Connecticut, Maryland, Minnesota, North Carolina, and Chicago, should also be partially dismissed as time-barred. Id. at 37-38 & Exh. B. SPI alleges that each of these state FCAs have a six-year limitations period and that the claims for conduct predating September 15, 2004 under these state or local FCAs should be dismissed.
Relators assert that the statutes of limitations for the following states contain the same statute of limitations language as the federal statute, and they argue that the tolling provision in the federal FCA, rather than a flat six-year statute of limitation, should also apply to these state claims: Georgia, Indiana, Michigan, Montana, New Hampshire, New Jersey, New York, Oklahoma, and Rhode Island. Dkt. 131 at 39. Under section 3731(b) of the federal FCA,
A civil action under section 3730 may not be brought—
Relators also appear to argue that the court should apply the ten-year period to the Texas FCA claims because the Texas statute does not have an express limitations period. Id. SPI alleged that the four-year catchall limitations period in section 16.051 of the Texas Civil Practice and Remedies Code should apply, but Relators claim that this argument "contradicts Texas' desire to be considered qualified to receive additional Medicaid funding under the Deficit Reduction Act ("DRA") by having provisions that are at least as effective as those in the federal FCA." Dkt. 131 at 39-40 & n.30 (citing 42 U.S.C. § 1396h).
While SPI moves to partially dismiss the state FCA claims for eighteen states or localities because the claims are allegedly partially time-barred (Dkt. 122 at 37-38), the court finds it unnecessary to address SPI's motion to dismiss claims under the New Mexico and Chicago statutes because it has completely dismissed the claims under those statutes on other grounds. The court likewise finds it unnecessary to address SPI's motion to dismiss the claims under the Georgia, Indiana, Montana, New Hampshire, New Jersey, New York, Oklahoma, and Rhode Island FCAs as they relate to conduct occurring before July 16, 2004, as barred by the states' statutes of limitations, as the court has already dismissed all claims under these statutes that relate to conduct occurring before May 24, 2007, July 1, 2005, October 1, 2005, July 1, 2005, March 13, 2008, April 1, 2007, November 1, 2007, and July 1, 2007, respectively, because the statutes are not retroactive. Additionally, the court will not address SPI's motion to dismiss the claims under the Connecticut and Minnesota FCAs as they relate to conduct occurring before September 16, 2004, as barred by the states' statutes of limitations, as the court has already dismissed all claims under the Connecticut statute that occurred before October 5, 2009, and all claims under the Minnesota statute that occurred before July 1, 2010, with prejudice because the statutes are not retroactive.
The court will thus address SPI's motion to partially dismiss for limitations with regard to the remaining states—Michigan, Wisconsin, Colorado, Connecticut, Maryland, and North Carolina. The court will first consider Relators' argument that the FCA's ten-year tolling provision should apply to the claims of parallel state provisions, and then it will address the limitations issues for each individual state.
Relators claim that the issue of whether to allow qui tam relators under state FCAs to take advantage of the ten-year period in the federal FCA is unsettled in the Fifth Circuit. Dit. 131 at 39. Relators cite a Ninth Circuit case, United States ex rel. v. Northrop Corp., an Eastern District of Texas case, United States ex rel. Foster v. Bristol-Myers Squibb Co., and an unpublished Middle District of Georgia case, United States ex rel. Lewis v. Walker, in support of their argument that this court should apply the ten-year period and allow the claims for conduct occurring within ten years of filing to go forward.
In Hyatt, the Ninth Circuit considered whether the ten-year period in subsection 3731(b)(2) should apply to qui tam relators or only to the U.S. Government. 91 F.3d 1211, 1213 (9th Cir.1996). The Ninth Circuit
Importantly, the Ninth Circuit additionally held that, even though in the statute the ten years begins to run when an official of the U.S. government should have discovered the alleged misconduct, "the rationale behind tolling requires that the statute of limitations start to run when the plaintiff acquires knowledge of the wrongful activity, [as] [s]tatutes of limitation are used to determine `whether the plaintiff has inexcusably slept on his rights.'" Id. (citing Holmberg v. Armbrecht, 327 U.S. 392, 396, 66 S.Ct. 582, 90 L.Ed. 743 (1946)). Thus, under Hyatt, "the three-year extension of the statute of limitations begins to run once the qui tam plaintiff knows or reasonably should have known the facts material to his right of action." Id. at 1217-18. The Ninth Circuit pointed out that "allowing a qui tam plaintiff to wait ten years might interfere with law enforcement," as if "relators wait over five years to report the fraud, the government will lose the right to seek a criminal penalty." Id. at 1218.
In Foster, the federal district court for the Eastern District of Texas also addressed whether the ten-year period in section 3731(b)(2) applies to relators and the government or just the government. 587 F.Supp.2d 805 at 814. The court pointed out that, at the time, the only Fifth Circuit case to address the issue was an unpublished decision in which the Fifth Circuit determined, based on the legislative history of the statute, that the six-year period applied to the relator's claims. Id. (citing United States ex rel. Erskine v. Baker, No. 99-50034, 2000 WL 554644 (5th Cir. Apr. 13, 2000)). The Foster court then noted that other courts are divided on the issue, with some courts holding, as the Fifth Circuit did, that an FCA qui tam relator is bound by the six-year limitations period, some court holding, like the Hyatt court, that the ten-year period applies to qui tam relators, but it applies from the time the relator, rather than the government, learned of the wrongdoing, and some courts holding that the ten-year limitations period applies to qui tam relators and tolls the limitations period until the government actually learns of the violation. See id. (citing United States ex rel. Snapp, Inc. v. Ford Motor Co., 532 F.3d 496, 509-10 (8th Cir.2008)) (collecting cases). The Foster court ultimately joined the courts that concluded that only the six-year statute of limitations period contained within subsection 3731(b)(1) applies to qui tam relators.
In Lewis, the federal district court in the Middle District of Georgia thoughtfully considered the same authorities discussed by the Foster court. No. 3:06-CV-16(CDL), 2007 WL 2713018, at *6 (M.D.Ga. Sept. 14, 2007). The court found the reasoning of the courts that have held that section (b)(2) applies to qui tam relators' suits persuasive, but it did not find it necessary to determine whether the tolling applied until the time of the relator's discovery or the government's discovery. Id.
SPI notes that the only Fifth Circuit and Texas district courts to address this issue
SPI also points out that other circuits have adopted this view, including the Fourth Circuit in United States ex rel. Sanders v. North American Bus Industries, Inc., the Tenth Circuit in United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, and the Eleventh Circuit in Foster v. Savannah Commication. In Sanders, the Eleventh Circuit held that subsection 3731(b)(2) "extends the FCA's statute of limitations beyond six years only in cases in which the United States is a party." 546 F.3d 288, 293 (4th Cir.2008). The Fourth Circuit based this opinion on the language of the statute, which discusses when the government discovered facts material to the right of action. See id. at 294. The Fourth Circuit stated that "applying the statute's language to a relator's action makes no sense whatsoever" because the government's knowledge "does not notify the relator of anything." Id. The Fourth Circuit also pointed out, similarly to the Hyatt court when it concluded that the tolling must apply only until relator's discovery, not the government's, that "allowing relators to sit on their claims would undermine the purpose of the qui tam provisions of the FCA: to combat fraud quickly and efficiently by encouraging relators to bring actions that the government cannot or will not—`to stimulate actions by private parties should the prosecuting officers be tardy in bringing the suits.'" Id. at 295 (quoting United States ex rel. Marcus v. Hess, 317 U.S. 537, 547, 63 S.Ct. 379, 87 L.Ed. 443 (1943)).
The Tenth Circuit, in Sikkenga, acknowledged that the text of subsection (b)(2) is ambiguous and discussed the legislative history of the statute. 472 F.3d 702, 722-25 (10th Cir.2006). It noted that the Senate report states that "`the statute of limitations does not begin to run until the material facts are known by an official within the Department of Justice with the authority to act in the circumstances.'" Id. at 723 (quoting S.Rep. No. 99-345, at 30 (1986)), as reprinted in 1986 U.S.C.C.A.N. 5266, 5295. The Tenth Circuit also considered Senator Grassley's statement explaining the amendments and testimony before the House Judiciary Committee. See id. & n. 31 (quoting 132 Cong. Rec. $11,238 (1986) (Sen. Grassley's comments), and False Claims Act Amendments: Hearings Before the H. Subcomm. on Admin. Law and Governmental Relations of the H. Comm. on the Judiciary, 99th Cong. 118, 159 (1986) (Statement of Mr. Richard K. Willard, Assistant Attorney General, Dep't of Justice)). While the text of the legislative history, taken alone, supports the conclusion that subsection (b)(2) refers only to the government, the Tenth Circuit found the facts that the text and history of the
This court joins the Eastern and Western Districts of Texas in concluding that the six-year statute of limitations should apply to FCA claims that are brought by qui tam relators when the United States does not intervene. The court finds the reasoning in Sikkenga persuasive. Subsection 3731(b)(2) refers only to the United States, not qui tam relators, and the legislative history of the statute suggests that Congress desired to give the government more flexibility in prosecuting FCA violations. Moreover, as noted by the Sikkenga court, "Congress viewed qui tam prosecutions as providing a means to achieve rapid exposure to fraud against the public fisc, unencumbered by the lack of resources or the bureaucracy inherent in enforcement by public authorities." Id. Allowing relators to take advantage of a tolling statute that specifically mentions the government and does not refer to relators runs contrary to the purpose of allowing qui tam relators to proceed with the action in the first place.
None of the cases cited to the court in relation to whether to apply the tolling provision in state FCA claims in states that have FCA statutes of limitation that are substantially similar to the federal provision deals with state FCA claims. The parties have not provided briefing informing the court how each particular state would treat this issue and thus appear to agree that the interpretation of the federal statute applies to the state statutes.
SPI contends that the Colorado, Connecticut, Maryland, and North Carolina FCAs have six-year statutes of limitations and that all alleged violations of these statutes occurring before September 15, 2004, which is six years prior to the date the claims were added, should be dismissed. Relators do not present any specific arguments rebutting SPI's allegation that the statutes of limitation in these state FCAs partially bar their claims under the FCAs of those states. See Dkt. 131. The court, however, will examine the statutes of limitations periods in each of these states to determine if partial dismissal is appropriate.
SPI moves to dismiss the Texas FCA claims occurring before June 10, 1999 because it alleges that Texas' four-year general statute of limitation applies, and the Texas claims were asserted in the original complaint on June 10, 2003. Dkt. 122. Relators argue that applying the Texas general statute of limitations "contradicts Texas' desire to be considered qualified to receive additional Medicaid funding under the Deficit Reduction Act ("DRA") by having provisions that are at least as effective as those in the federal FCA." Dkt. 131 at 40. SPI does not address this argument in its reply. However, the court finds nothing in the 4AC or Texas law that supports Relators' position that the normal statute of limitations should not apply. See Foster, 587 F.Supp.2d at 817-18 (holding that the four-year limitations period in Texas
SPI moves to partially dismiss Relators' Wisconsin claims, asserting that Wisconsin has a 10-year statute of limitations and that, since Relators did not add the Wisconsin claims until November 10, 2009, all claims occurring before November 10, 1999 should be dismissed as time-barred. Dkt. 122. The Wisconsin FCA states that a "civil action may be brought based upon acts occurring prior to October 27, 2007, if the action is brought within the period specified in section 893.981." Wis. Stat. Ann. § 20.931 (West, Westlaw current through 2011 Act 31). Section 893.981 states, "An action or claim under s. 20.931 shall be commenced within 10 years after the action or claim accrues or be barred." Id. § 893.981. Thus, the alleged violations of the Wisconsin FCA occurring more than ten years before the Wisconsin FCA claims were filed are barred. SPI's motion to dismiss the claims based on alleged violations of the Wisconsin FCA occurring before November 10, 1999 is GRANTED, and these claims are DISMISSED WITH PREJUDICE.
SPI contends that counts 28-33 (asserting claims on behalf of Colorado, Connecticut, Maryland, Minnesota, North Carolina, and the City of Chicago) of the 4AC should be dismissed because Relators failed to serve the sealed complaint and a written disclosure of all material evidence on specific state officials as required by the state statutes under which the claims are filed. Dkt. 122 at 38. Additionally, SPI asserts that the court should dismiss the new claims because Relators were granted leave to amend only to remedy pleading deficiencies, not to add new claims. Id. at 39. In the third amended complaint, Relators assert claims on behalf of six new states—Colorado, Connecticut, Maryland, Minnesota, North Carolina, and Chicago.
First, since the Chicago claims have been dismissed by agreement, the court need not address whether they should be dismissed on this procedural issue. Second, Solvay's assertion that Relators were given leave to amend solely to correct pleading deficiencies is not supported by the record. Relators motion to amend, which is contained within its response to a previous motion to dismiss, requests leave to amend "[i]f the Court concludes that Solvay Pharmaceuticals is entitled to either more specific pleading . . . or a more facially plausible claim," which certainly might lead one to suspect that they were only seeking leave to amend the current claims. However, Relators also state in their motion that "[t]hese additions and clarifications would not unduly prejudice Solvay Pharmaceutical at this early stage of litigation." Dkt. 102 at 67-68 (emphasis added). In the order granting the motion to amend, the court simply granted Relators' motion. Dkt. 104. While the better practice would have been to specifically move to add the new state claims, the court did not limit Relators to only clarifying existing claims. Relators could have filed a new complaint in each of these states rather than adding the new state claims into the instant complaint, and it is more efficient to the judicial system as a whole if the new claims (to the extent they are not being dismissed herein) and the old claims remain together.
SPI cites United States ex rel. Summers v. LHC Group, Inc., 623 F.3d 287, 298 (6th Cir.2010) in support of its contention that the court should dismiss based on failure to file under seal and serve the sealed complaint. In Summers, a district court dismissed a qui tam action because the relator failed to initially file it under seal, as required by the FCA. Summers, 623 F.3d at 290. The Sixth Circuit, in reviewing the district court's judgment, discussed the legislative purpose behind the seal requirement, which was established in 1986: Requiring the complaint to be under seal "permit[s] the Government sufficient time in which it may ascertain the status quo and come to a decision as to whether it will intervene in the case filed by the relator." Summers, 623 F.3d at 292 (citations omitted). Additionally, the requirement "`prevent[s] alleged wrongdoers from being tipped off that they were under investigation.'" Id. (quoting Erickson ex rel. United States v. Am. Inst. Biological Scis., 716 F.Supp. 908, 912 (E.D.Va.1989)). The Sixth Circuit held "that violations of the procedural requirements imposed on qui tam plaintiffs under the False Claims Act preclude such plaintiffs from asserting qui tam status." Id. at 296. The Sixth Circuit reasoned that (1) "Congress clearly identified a sixty-day in camera period was the correct length of time required" for the Government to consider whether it should intervene; and (2) Congress allowed for an extension of the sixty-day in camera period if the United States could show just cause, but failed to allow relators to shorten the period for just cause. Id. at 296-97.
Relators argue that the purpose of the in camera requirement has been met here even though they did not file the third amended complaint under seal because they "served the new states with all prior complaints and disclosure statements in a timely manner before filing the third amended complaint." Dkt. 131 at 41. Relators claim that "[v]irtually every other opinion addressing the issue has rejected [the] automatic dismissal" espoused by the Summers court. Dkt. 131 at 40. Relators rely, mainly, on United States ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242, 245 (9th Cir.1995), in which the Ninth Circuit expressly disagreed with the Sixth Circuit's holding in Summers.
In Lujan, a California district court dismissed a qui tam complaint because the qui tam relator disclosed the nature and existence of the action to the Los Angeles Times while the complaint was still under seal. 67 F.3d at 243. On appeal, the Ninth Circuit found that the plaintiff
The Ninth Circuit, in formulating its rule, noted that the seal provision is not jurisdictional Id. at 245. The Ninth Circuit then instructed that the "district court must keep in mind both sides of the balance when constructing a sanction for a violation of the seal provision." Id. The Ninth Circuit provided several factors that district courts could consider before deciding if dismissal is warranted: (1) whether the government was harmed by the disclosure; (2) whether the violation of the sealing requirement was extreme or minor; and (3) whether the failure to seal was in bad faith. Id. at 245-47.
The Fifth Circuit has not yet reached this issue, and treatment by the district courts in the Fifth Circuit is scarce. Two federal district courts in Louisiana have addressed the issue, with differing results. A federal district court in the Eastern District of Louisiana addressed whether to dismiss a qui tam action for lack of subject matter jurisdiction when the relator filed his original complaint under seal but failed to file his first amended complaint under seal. United States ex rel. Branch Consultants, L.L.C. v. Allstate Ins., 668 F.Supp.2d 780, 803 (E.D.La.2009). The court held that the relator's failure to file the first amended complaint under seal "neither requires dismissal nor deprives [the] Court of jurisdiction," pointing out (1) that the FCA specifically says "complaint" and does not refer to amendments when discussing the sealing requirement; (2) "numerous courts have held that [sealing] requirements are not jurisdictional and their violation does not require dismissal of the complaint." Id. (citing 31 U.S.C. § 3730(b)(2)). Another Eastern District of Louisiana court came to the opposite conclusion, albeit with little analysis.
This court prefers the approach of the Ninth Circuit rather than the Sixth Circuit, as it allows for flexibility in cases in which the failure to seal causes no harm. However, in this case the outcome is the same with either standard. Here, Relators asserted new claims on behalf of Colorado, Maryland, North Carolina, Minnesota, and Connecticut when they filed their third amended complaint. The case was no longer under seal by the time Relators filed their third amended complaint, because the waiting period for the United States and all of the states on whose behalf the previous versions of the complaint had been filed had passed and no more extensions had been filed. The United States and each of the other states named in the original through the second amended complaint were given the opportunity to decide whether to intervene before the details of the complaint were made public. The new states were not afforded this same opportunity. Relators contend that they served the new states with all prior complaints and disclosure statement in a timely manner before filing the Third Amended Complaint. Dkt. 131 at 41. It is unclear whether they mean that they actually gave these states sixty days' notice or have some other interpretation of "timely manner," but the court does not consider such extrinsic evidence on a motion to dismiss. It is clear from the record that the complaint was no longer under seal when these new state claims were filed, and the new states deserved just as much opportunity as the states that were already included to consider any potential ongoing state investigations and decide if they wanted to intervene before the claims under the laws of each new state became public. While there is no evidence that the failure to seal the complaint under each of the state statutes at issue was in bad faith, the failure was not a minor technical glitch; instead, Relators appear to have completely disregarded the states' mandates, contained in each of their statutes, that complaints brought on their behalf be kept under seal until the states could review the issues. The court finds the equities weigh in favor of dismissal of these state claims. Accordingly, SPI's motion to dismiss the Colorado, Maryland, North Carolina, Minnesota, and Connecticut state FCA claims is GRANTED and the claims are DISMISSED WITH PREJUDICE.
In Count 34, Relators request that the court award them a percentage share of the damages from the "common fund" for states that do no allow relators to bring qui tam actions. Dkt. 114 at 247-48. Relator's contend that the "Common Fund doctrine preserves the right of the litigant or counsel to an award from the Common Fund generated" so that states that do not have qui tam statutes do not receive windfalls due to the efforts of the relator. Id. at 247. SPI moves for dismissal of count 34, arguing that it should be dismissed because (1) it is not a cause of action; and (2) the court lacks jurisdiction over non-qui-tam states. Dkt. 122 at 39. Additionally, Relators did not address SPI's argument in their initial response, and SPI
The court is not inclined to dismiss this "claim" at this stage in the litigation, under Rule 7.4 or for the other reasons asserted by Solvay. However, the court notes that it appears at this point that Relators will not be entitled to common fund relief from the non-qui tam states, as these states are not parties to this litigation.
Finally, SPI argues that Relators' claims should be dismissed with prejudice because this case was filed in 2003 and Relators have "had five tries and are still unable to state a plausible cause of action." Dkt. 112 at 39. Relators assert that the complaint has only been substantively amended three times, as the current complaint merely redacted doctor names. Dkt. 131 at 45.
Under Federal Rule of Civil Procedure 15(a), leave to amend must be "freely given when justice so requires." "Thus, unless there is a substantial reason to deny leave to amend, the discretion of the district court is not broad enough to permit denial." Dussouy v. Gulf Coast Inv. Corp., 660 F.2d 594, 598 (5th Cir. 1981). Substantial reasons include "undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, and undue prejudice to the opposing party." Id.
In United States ex rel. Dekort v. Integrated Coast Guard Sys., a case upon which SPI relies, the federal district court in the Northern District of Texas granted in part and denied in part a motion to dismiss the fifth amended complaint in a False Claims Act case. 705 F.Supp.2d 519, 559 & n.18 (N.D.Tex.2010). The claims the court dismissed were dismissed with prejudice. Id. The court noted that the relator had already "had the opportunity to amend his complaint five times, and in certain instances in response to arguments in support of dismissal by Defendants." Id. The court concluded that "further amendment would be futile." Id.
Here, Relators are on the fourth amended version of their complaint. However, the first and second amended versions were filed before the case was unsealed and defendants were served. See Dkts. 56-62 (return on service for various Solvay entities, all of which were served in January 2010); Dkt. 75 (order granting unopposed motion to unseal complaints and amended complaints). Defendants filed motions to dismiss the second amended complaint. Dkts. 94, 95. However, the court, rather than addressing the merits of defendants' arguments, granted Relators' alternative motion for leave to amend and denied the motions to dismiss as moot. Dkt. 104. Many of the issues involved in this case, as it relates to SPI's motion, are complex and in some instances unsettled, and the court therefore finds that dismissal of these more complex claims before Relators understand how this court would interpret the pleading requirements inappropriate given the liberal nature of Rule 15(a).
SAI and SNA move to dismiss Relators' 4AC because it does not state with particularity the roles of SAI and SNA in the alleged misconduct as required by Federal Rule of Civil Procedure 9(b), fails to allege any facts showing that SNA and SAI engaged in any misconduct, and does not allege that they exhibited the total control and domination of SPI that would be required for Relators to state a claim against SAI and SNA based on the alleged misconduct of another corporate entity. Dkt. 121 at 3-4. SAI and SNA additionally assert that Relators' claims against them should be dismissed for all the reasons asserted in SPI's motion to dismiss. Id. at 20.
Relators argue first that issues regarding parent-subsidiary relationships are fact-specific inquiries and are inappropriate for resolution on a motion to dismiss. Dkt. 123. However, they also assert that they have pled that SPI was the alter ego of SAI and SNA with particularity, that the prohibition on group pleading should not apply in this case, and that, regardless, the court should not dismiss the alter ego claims without first providing Relators with the opportunity to conduct discovery on the issue. Id. Finally, Relators argue that the court should deny all of the grounds for dismissal raised in SPI's motion for the reasons asserted in their response to that motion.
First, as noted in Part II, supra, the court has granted SPI's motion to dismiss, in part. As further detailed in the Part IV, infra, the claims that the court dismisses with respect to SPI are also DISMISSED with regard to SAI and SNA. The court now turns to the substance of SAI and SNA's motion.
In the Fifth Circuit, a complaint containing "general allegations, which do[es] not state with particularity what representations each defendant made" does not meet the Rule 9(b) particularity requirement. Unimobil 84, Inc. v. Spurney, 797 F.2d 214, 217 (5th Cir.1986). In order to state a claim under Rule 9(b), plaintiffs generally must plead the who, what, where, when, and how of the alleged fraud. Tchuruk, 291 F.3d at 350. General allegations that "defendants" engaged in fraudulent activity skips the first requirement—"who."
The Grubbs court specifically instructed that Rule 9(b) is context specific, and the court therefore considers the specific facts of this case when determining whether Relators have sufficiently pled the "who." First, since Relators have pled a nationwide fraudulent scheme rather than specific individualized fraudulent statements, it is not necessary to link each corporate entity to each individual aspect of the scheme. However, the complaint must plausibly link each corporate entity to the scheme or schemes alleged—in this case, off-label promotion, kickbacks, and ICD-9 code manipulation. Second, even if the complaint does not plausibly link each corporate entity to the scheme or schemes alleged, it may still satisfy the "who" aspect of the Rule 9(b) particularity requirement by plausibly alleging an alter ego relationship.
The allegations with regard to the involvement of the individual corporate defendants in the alleged scheme is scarce. Relators point out two instances in their response that arguably link SAI and SNA to the fraudulent scheme—SAI's involvment
Relators argue, however, that this link is not necessary because SPI's actions can be imputed to SAI and SNA, as SPI is SNA and SAI's alter ego. Dkt. 123 at 11-16. SAI and SNA contend, however, that the 4AC does support Relators' alter ego theory. Dkt. 121 at 13. First, SPI claims that "the concept of piercing the corporate veil does not work across corporate family trees where sister corporations lack control over each other," and, while the 4AC alleges that SAI was SPI's parent company until 2004, it does not allege such a relationship between SNA and SPI. Id. And, as for SAI, SPI asserts that the 4AC does not adequately allege the alter ego factors. Id. at 13-14.
The Fifth Circuit has developed the following "laundry list of factors" for courts to use when determining whether a subsidiary is the alter ego of its parent for the purpose of piercing the corporate veil:
United States v. Jon-T Chems., Inc., 768 F.2d 686, 691-92 (5th Cir.1985). SAI and SNA and Relators agree, to the extent a veil piercing theory is available, that the court should apply the Jon-T Chemicals factors to determine if Relators have plausibly pled that SAI and SNA can be liable as alter egos of SPI for SPI's alleged violations of the federal FCA. SAI and SNA contend, however, that (1) these factors cannot be applied to SNA, which is a sister corporation, not a parent; and (2) regardless, Relators failed to allege these factors. Relators contend first that whether there is an alter-ego relationship is a question of fact that is inappropriate to resolve at the motion to dismiss stage. Relators also claim that sibling corporations, as well as subsidiaries, can be alter egos, and that they have pled enough facts supporting the Jon-T Chemicals factors to survive a motion to dismiss for both SAI and SNA. They additionally assert that, even if they have not, they should be allowed conduct discovery on the alter ego issue before being subjected to dismissal.
The majority of the 4AC refers to all Solvay defendants collectively as "Solvay." However, before discussing jurisdiction and venue, the 4AC contains discussion of the relationship among the various Solvay defendants and the individual Solvay defendants' roles within the larger corporation. See Dkt. 114 at 8-10. According to Relators, Solvay S.A. is a "large multinational group of companies that engage or have engaged in a variety of business activities, including developing, marketing, and selling pharmaceutical products" that is incorporated in Belgium. Dkt. 114 at 3-4. SAI, which is a holding company for the North American subsidiaries of Solvay S.A., is a wholly owned subsidiary of Solvay S.A. Dkt. 114 at 6; Dkt. 121 at 2. Relators also allege that SPI was a wholly-owned subsidiary of SAI from 1986 until late 2004. Id. at 6-7. SNA, which Relators contend oversees and coordinates the activities of Solvay S.A.'s business in the United States, is a wholly owned subsidiary of SAI. Dkt. 114 at 6; Dkt. 121 at 2. Relators claims that SNA "provides financial, legal, lobbying, recruiting, compliance and other services to Solvay S.A.'s businesses in North America." Id.
Relators contend that SPI is the alter ego of SNA, SAI, Solvay Pharmaceuticals SARL and Solvay S.A. because without SPI these other defendants would have been forced to perform SPI's services for themselves. Id. at 7. Relators contend that these entities have common officers and directors, that Solvay S.A.'s executives regularly visit the American subsidiaries, and that Solvay S.A. and SAI have exerted supervision, control, and dominion over SPI's activities, decisions, policies, and practices relating to development, human resources, legal issues, budget, accounting, employee compensation, employee benefits, employee expenses, manufacturing, and public relations. Id. at 8.
Relators contend that various aspects of Solvay's business are centralized in Belgium. For instance, each Solvay subsidiary allegedly submits its annual budget to Solvay S.A., and all Solvay affiliates submit financial data through a database in Belgium so that is can be grouped and placed in a consolidated global annual report. Id. at 7. All affiliates accessed research and development and manufacturing policies through a centralized database. Id. SPI allegedly wrote the global policies relating to research and manufacturing for the entire Solvay Group. Id.
Relators allege that SPI employees had to obtain approval for airline chartering, purchases for club memberships, and season tickets from SAI. Id. at 9. Additionally, the procedure for milage reimbursement for SPI was set by SAI, and SAI allegedly provided insurance coverage to SPI until at least 2002. Id. Relators additionally allege that the funds for health coverage for all Solvay companies was combined and comingled in a Welfare Benefits Plan that provided health care coverage to all those employed by SAI, including those who worked for SPI, and that SAI provided the savings and pension plans offered to SPI employees. Id. Relators also contend that SPI communicated with SAI and Soliay S.A. on business issues, including marketing campaigns for drugs and other business strategies. Id. Relators provide the following example: an executive at SAI allegedly sent a memorandum to executives at SPI describing an audit of the expenses of twenty sales representatives in the Southwest Region. Id. at 9-10 & Exh. 1. The memorandum described the expenses as "questionable." Id. at 10 & Exh. 1. Relators also point out that Solvay S.A. and SAI often appeared on press releases with SPI. Id. at 10. They specifically reference the press release following the Columbine tragedy, which was published and copyrighted by Solvay S.A. Id.
The 4AC alleges that SPI and SNA are both wholly owned subsidiaries of SAI and are thus sister corporations. Under the plain language of the text of the Jon-T Chemicals test, the test applies to parents and subsidiaries, not sister companies. However, some courts have applied the alter ego doctrine to sister companies. See, e.g., Dickson Marine Inc. v. Panalpina, Inc., 179 F.3d 331, 338-39 (5th Cir.1999) (applying an alter ego analysis under Hargrave v. Fibreboard Corp., 710 F.2d 1154 (5th Cir.1983) to determine if the contacts of a sibling corporation could be attributed to its sibling for the purpose of establishing minimum contacts, and indicating that since the companies were siblings, rather than parent-subsidiary, a "stronger showing" may be necessary); Nichols v. Pabtex, Inc., 151 F.Supp.2d 772, 780 (E.D.Tex.2001) (noting that courts that have addressed the distinction between parent-subsidiary and sister-sister in alter ego cases "indicate that the distinction . . . is not relevant" and collecting cases). The court, in accordance with these cases, agrees with Relators that, in certain circumstances, sister corporations could be alter egos.
Here, however, the 4AC simply does not contain enough allegations about SNA's relationship to SPI or the alleged fraudulent scheme to plausibly state a claim against SNA on an alter ego theory. The only facts alleged supporting Relators' contention that SPI is SNA's alter ego are (1) SNA provides various services for all Solvay S.A. businesses in North America, which includes SPI; (2) the Chief Executive Officer of SAI served on the boards of both SNA and SPI; (3) all Solvay affiliates had access to the database containing research and development and manufacturing policies and research findings, including some policies written by SPI; and (4) all Solvay affiliates submit financial data to a database in Belgium and that data is grouped in a global annual report. Dkt. 123 at 15-16. These allegations, if taken as true, do not indicate that SNA "totally dominate[d] and control[led] [SPI], operating [SPI] as its own agent or conduit." Jon-T Chems., 768 F.2d at 691. At most, these allegations provide minimal support for three of the Jon-T Chemicals factors. "[T]he alter ego question depends on the totality of the facts," and these alleged facts are not sufficient. Id. at 692. Here, there are no alleged facts that, "if proved, would even arguably permit a court to impose liability on [SNA] for the acts of [SPI] under an alter ego theory." Resolution Trust Corp. v. Driscoll, 985 F.2d 44, 48 (1st Cir.1993). SNA and SAI's motion for summary judgment with regard to claims asserted against SNA is GRANTED.
The 4AC alleges that SAI is SPI's parent corporation, and there are significantly more allegations that support the Jon-T Chemicals factors for SAI. SPI was allegedly a wholly-owned subsidiary of SAI until 2005, the CEO of SAI and the Vice President of Finance for SAI also served on SPI's Board of Directors, SAI provides insurance coverage and is in charge of the savings and pension plans for SPI employees, all Solvay affiliates' financial data is grouped in a global annual report, SAI paid part of the purchase price for SPI, SAI sets mileage reimbursement for SPI employees, SAI approves airline chartering and purchase of any club memberships and season tickets for SPI, SAI sent an audit memorandum to SPI questioning reimbursement
SAI and SNA assert that Georgia law applies to the state law claims because Georgia is SPI's state of incorporation, and Relators do not disagree with this contention. Dkts. 121, 123. SAI and SNA contend that the Georgia standard is similar to the Jon-T Chemicals standard except that Georgia law also requires insolvency as a prerequisite for piercing the corporate veil. Dkt. 121 at 15 n.4. SAI and SNA argue that Relators have not pled that SPI is insolvent and thus request dismissal of all the state law claims against SAI and SNA. Id. Relators argue that insolvency is only one factor Georgia courts consider when deciding whether to pierce the corporate veil. Dkt. 135-1 at 5.
Courts should exercise "great caution" when disregarding the legal entity of a corporation. Amason v. Whitehead, 186 Ga.App. 320, 367 S.E.2d 107, 107 (Ga.Ct. App.1988). "There must be evidence of abuse of the corporate form," and the "plaintiff must show that the defendant `disregarded the separateness of legal entities by commingling on an interchangeable or joint basis or confusing the otherwise separate properties, records or controls.'" Id. (quoting Earnest v. Merck, 183 Ga.App. 271, 358 S.E.2d 661 (1987)). "`To establish the alter ego doctrine it must be shown that the stockholders' disregard of the corporate entity made it a mere instrumentality for the transaction of their own affairs; that there is such unity of interest and ownership that the separate personalities of the corporation and the owners no longer exist; and to adhere to the doctrine of corporate entity would promote injustice or protect fraud.'" Farmers Warehouse of Pelham, Inc. v. Collins, 220 Ga. 141, 137 S.E.2d 619, 625 (1964) (quoting Fletcher Cyclopedia Corporations, vol. 1, § 41.1, p. 169).
SAI and SNA argue that under Georgia law the alleged alter ego must be insolvent for a court to pierce the corporate veil. Dkt. 128. They cite In re Friedman's Inc., in support of this contention. Friedman's, 385 B.R. 381, 415 (S.D.Ga.), rev'd on other grounds, 394 B.R. 623 (S.D.Ga.2008). In Friedman, the plaintiff, like Relators, argued that insolvency is only one factor to consider when deciding to pierce the corporate veil. Id. The Bankruptcy Court in the Southern District of Georgia disagreed, citing to a 1985 Georgia Supreme Court case, Johnson v. Lipton, in which the Georgia Supreme Court unequivocally stated that insolvency was required to pierce the corporate veil. Id. (citing Johnson v. Lipton, 254 Ga. 326, 328 S.E.2d 533 (1985)). In Johnson, the Georgia Supreme Court considered a case in which an ex-employee of a corporation was attempting to pierce the corporate veil in order to hold a corporation's officers and shareholders liable for bonuses that were never paid. Johnson, 328 S.E.2d at 535. The Georgia Supreme Court, in reviewing a partial summary judgment granted in the defendants' favor by the trial court, noted that "as a precondition to a plaintiff's piercing the corporate veil and holding individual shareholders liable on a corporate claim, . . . there [must] be insolvency on the part of the corporation in the sense that there are insufficient corporate assets to satisfy the plaintiff's claim." Id. at 535.
The court, in applying Georgia law, is bound by the Georgia Supreme Court's requirement in Johnson that insolvency is a precondition to piercing the corporate veil. As such, since Relators, SNA, and SAI all agree that Georgia corporate law should apply to the alter ego allegations for the state FCA claims and there are no specific allegations of insolvency with regard to SNA or SAI in the counts asserting state FCA claims, SNA and SAI's motion to dismiss the state FCA claims is GRANTED, and the state FCA claims asserted against SNA and SAI are DISMISSED.
SAI and SNA move for prejudicial dismissal for the same reasons SPI asserted that the claims against SPI should be dismissed with prejudice. Relators argue that the court should not dismiss the claims against SNA and SPI without first allowing them the opportunity to conduct discovery on the relationships between SNA, SAI, and SPI, Dkt. 123 at 22. Relators claim that depositions of the corporate representatives would help it further investigate the facts. Id. SNA and SPI assert that Relators cannot use discovery to try to backfill insufficiently pled FCA claims. Dkt. 128 at 12.
Relators point out that courts often provide parties with time to conduct discovery on the alter ego issue in lieu of dismissal. In some cases it is appropriate to allow more time to conduct discovery before dismissing alter ego claims. However, as the Fifth Circuit has noted, in the FCA context, a well-pled complaint is a qui tam plaintiff's "ticket to the federal discovery apparatus." Grubbs, 565 F.3d at 185 n. 10, 190 (citing Russell, 193 F.3d at 308).
District courts should "`freely give leave" to amend when "justice so requires." Fed. R.Civ.P. 15(a)(2). "Denial of leave to amend may be warranted for undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies, undue prejudice to the opposing party, or futility of a proposed amendment." Steury, 625 F.3d at 270. Here, the court finds that amendment of the claims that have been dismissed or partially dismissed with prejudice would be futile. However, the court believes that justice requires that it provide Relators with an opportunity to re-plead the claims that it has dismissed without prejudice and only those claims. No additional claims shall be added. Accordingly, the court GRANTS leave to amend.
SNA and SAI's motion to dismiss the federal FCA claims asserted against SAI because there are insufficient allegations that SPI is SAI's alter ego and there are no specific allegations of misconduct by SAI is DENIED.
SNA and SAI's motion to dismiss claims the federal FCA claims asserted against SNA because there are insufficient allegations that SPI is SNA's alter ego and there are no specific allegations of misconduct by SNA is GRANTED. All federal FCA claims asserted against SNA are DISMISSED WITH PREJUDICE.
SNA and SAI's motion to dismiss the state FCA claims asserted against them is GRANTED. The state FCA claims asserted against SNA and SAI are DISMISSED WITH PREJUDICE.
There are no remaining claims against SNA. The only remaining claims against SAI are the federal FCA claims. SNA and SPI expressly adopted the arguments in SPI's motion to dismiss, though, so, as noted below, some of the federal FCA claims asserted against SAI are also dismissed.
SAI and SNA specifically adopted the arguments in SPI's motion to dismiss, so the court refers to SPI's motion and SAI and SNA's motion collectively as "Solvay's motions." Solvay's motions to dismiss Count 1 and Count 2 for failure to plead with particularity under Rule 9(b) are DENIED with respect to Relators' claims relating to off-label promotion, DENIED with respect to Relators' kickback claims for AndroGel and Aceon, GRANTED with respect to Relators' kickback claim for Luvox, and GRANTED with respect to Relators' claims relating to ICD-9 code manipulation. Relators' kickback claims relating to Luvox are DISMISSED WITHOUT PREJUDICE. Relators' ICD-9 code manipulation claims are DISMISSED WITHOUT PREJUDICE.
Solvay's motions to dismiss Relators' kickback claims under Rule 12(b)(6) because Relators fail to assert that the parties submitting the claims certified compliance with the AKS are GRANTED and
Solvay's motions to dismiss Count III (conspiracy claim) are GRANTED. Count III is DISMISSED WITHOUT PREJUDICE. Solvay's motions to dismiss Count IV (retaliation claim) are also GRANTED. Count IV is DISMISSED WITHOUT PREJUDICE.
Solvay's motions to partially dismiss Count VIII (Massachusetts Claims Act) are GRANTED. All claims relating to alleged violations of the Massachusetts Claims Act occurring before July 1, 2000, are DISMISSED WITH PREJUDICE.
Solvay's motions to dismiss Count X (Delaware False Claims and Reporting Act) because Delaware allegedly did not provide a substantial evidence statement are DENIED. Solvay's motions to partially dismiss Count X based on alleged fraud before the Delaware False Claims and Reporting Act was enacted are GRANTED. Relators' claims relating to alleged violations of the Delaware False Claims and Reporting Act occurring before July 30, 2000 are DISMISSED WITH PREJUDICE.
Solvay's motion to partially dismiss Count XII (Hawaii FCA) are GRANTED. Relators' claims relating to alleged violations of the Hawaii FCA occurring before May 26, 2000 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XV (Virginia Fraud Against the Taxpayer Act) are GRANTED. Relators' claims relating to alleged violations of the Virginia Fraud Against the Taxpayer Act occurring before January 1, 2003 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XVI (Georgia State False Medicaid Claims Act) are GRANTED. Relators' claims relating to alleged violations of the Georgia State False Medicaid Claims Act occurring before May 24, 2007 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XVII (Indiana False Claims and Whistleblower Protection Act) are GRANTED. Relators' claims relating to alleged violations of the Indiana False Claims and Whistleblower Protection Act occurring before July 1, 2005 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XVIII (Michigan Medicaid FCA) are GRANTED. Relators' claims relating to alleged violations of the Michigan Medicaid FCA occurring before July 16, 2002 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XIX (Montana FCA) are GRANTED. Relators' claims relating to alleged violations of the Montana FCA occurring before October 1, 2005 are DISMISSED WITH PREJUDICE.
Solvay's motions to dismiss Count XX (New Hampshire FCA) because Relators allegedly cannot litigate the claims are DENIED. However, Solvay's motions to partially dismiss the New Hampshire FCA claims as they relate to fraud occurring
Solvay's motions to partially dismiss Count XXI (New Jersey FCA) are GRANTED. Relators' claims relating to alleged violations of the New Jersey FCA occurring before March 13, 2008 are DISMISSED WITH PREJUDICE.
Solvay's motions to dismiss Count XXII (New Mexico Medicaid FCA) because Relators have not alleged that New Mexico provided a substantial evidence letter are DENIED. However, Solvay's motions to dismiss the New Mexico Medicaid FCA portion of Count XXII because Relators are not "affected persons" under the statute are GRANTED. Relators' claims under the New Mexico Medicaid FCA are DISMISSED WITH PREJUDICE. Additionally, Solvay's motions to partially dismiss Relators' claims under the New Mexico Fraud Against Taxpayers Act are GRANTED. All claims under this act relating to claims, records or statement, or conspiracies occurring before July 1, 2007 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XXIII (New York FCA) are GRANTED. Relators' claims relating to alleged violations of the New York FCA occurring before January 1, 2007 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XXIV (Oklahoma Medicaid FCA) are GRANTED. Relators' claims relating to alleged violations of the Oklahoma Medicaid FCA occurring before January 1, 2007 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XXV (Rhode Island FCA) are GRANTED. Relators' claims relating to alleged violation of the Rhode Island FCA occurring before July 1, 2007 are DISMISSED WITH PREJUDICE.
Solvay's motions to dismiss Count XXVI (Texas FCA) because Relators cannot litigate on behalf of Texas are DENIED. However, Solvay's motions to partially dismiss Count XXVI under the Texas FCA statute of limitations are GRANTED. Relators' claims for alleged violations of the Texas FCA occurring before June 10, 1999 are DISMISSED WITH PREJUDICE.
Solvay's motions to partially dismiss Count XXVII (Wisconsin FCA) are GRANTED. Relators' claims for alleged violations of the Wisconsin FCA occurring before November 10, 1999 are DISMISSED WITH PREJUDICE.
Solvay's motions to dismiss Count XXVII (Colorado FCA) for failure to seal the complaint are GRANTED and the claims based on the Colorado FCA are DISMISSED WITH PREJUDICE. Solvay's motions to partially dismiss Count XXVII based on the statute of limitations and the date of enactment are DENIED.
Solvay's motions to dismiss Count XXIX (Connecticut FCA) for failure to file under seal are GRANTED. Count XXIX is therefore DISMISSED WITH PREJUDICE. Moreover, even if it were inappropriate to dismiss these claims based on the failure to seal, the claims for violations of the statute occurring before it was enacted would not be valid. Thus, alternatively, the claims under the Connecticut FCA relating to violations occurring before October 5, 2009 are DISMISSED WITH PREJUDICE. Solvay's motions to dismiss Count XXIX due to limitations are DENIED.
Solvay's motions to dismiss Count XXX (Maryland FCA) because Relators failed to seal the complaint are GRANTED as are Solvay's motions to dismiss Count XXX because the court was required to dismiss
Solvay's motions to dismiss Count XXXI (Minnesota FCA) because Relators failed to file the claim under seal are GRANTED. Count XXXI is DISMISSED WITH PREJUDICE. Moreover, even if dismissal for failure to seal were not appropriate, Count XXXI would be partially dismissed because some of the claims arose before the statute was enacted. Thus, alternatively, Relators' claims relating to alleged violations of the Minnesota FCA occurring before July 1, 2010 are DISMISSED WITH PREJUDICE.
Solvay's motions to dismiss Count XXXII (North Carolina FCA) because Relators failed to file the claim under seal are GRANTED. Count XXXII is DISMISSED WITH PREJUDICE. Moreover, even if dismissal for failure to seal were not appropriate, Count XXXII would be partially dismissed because some of the claims would be barred by the statute of limitations. Thus, alternatively, Relators' claims relating to alleged violations of the North Carolina FCA occurring before September 16, 2004 are DISMISSED WITH PREJUDICE.
Relators do not contest dismissal of the Count XXXIII. Therefore, Solvay's motions to dismiss Count XXXIII (City of Chicago) are GRANTED, and Count XXXIII is DISMISSED WITH PREJUDICE.
Solvay's motions to dismiss Count XXXIV are DENIED.
The court hereby GRANTS leave to amend the 4AC to remedy the inadequacies identified herein. Relators may not add new claims.
The study was published in The Lancet in 2001, and the "interpretation" section of the study states: "Combination therapy with peridopril and indapamide produced larger blood reductions and larger risk reductions than did single drug therapy with perindopril alone. Treatment with these two agents should now be considered routinely for patients with a history of stroke or transient ischaemic attack, irrespective of their blood pressure." Dkt. 114, Exh. 32 (PROGRESS Collaborative Group, Randomised Trial of a Perindopril-Based Blood-Pressure Lowering Regimen Among 6105 Individuals with Previous Stroke or Transient Ischaemic Attack, 358 Lancet 1033 (2001)).
According to Relators, the DRUGDEX entry for Aceon cites the PROGRESS study, noting that Aceon may be used for patients with strokes. Dkt. 114 at 62. Relators claim that DRUGDEX originally listed Aceon as a treatment for the prevention of secondary stroke in the "most supportive category." It was later "downgraded . . . into a middle range" category, which recommended its use for prevention of secondary stroke only "in some cases." Id.
