VIRGINIA M. HERNANDEZ COVINGTON, District Judge.
This matter comes before the Court pursuant to Defendants Renier Gobea's Motion to Dismiss the United States' Amended Complaint in Partial Intervention (Doc. # 74) and RS Compounding LLC's Motion to Dismiss the United States' Amended Complaint in Partial Intervention (Doc. # 75), both filed on October 31, 2017. The United States responded on November 21, 2017. (Doc. # 85). For the reasons that follow, the Motions are denied.
Gobea "co-founded RS Compounding . . . with Dr. Stephen Caddick in 2004. . . . Gobea is the current owner and director of RS Compounding." (Doc. # 42 at ¶ 10). RS Compounding is a compounding pharmacy that does business as Zoe Scripts and Westchase Compounding Pharmacy. (
TRICARE is the federal healthcare program that "provides coverage for approximately 9 million active duty military personnel and their families." (
Express Scripts, Inc., is "the TRICARE retail and mail order pharmacy services contractor for all TRICARE beneficiaries." (
The United States alleges that "[f]rom January 1, 2012 to January 31, 2014, the Defendants knowingly submitted, or caused to be submitted, thousands of false claims to TRICARE, which resulted in millions of dollars of reimbursement that would not have been paid but for the Defendants' misconduct." (
"In a break with the traditional use of compounded drugs, Defendants took advantage of the high reimbursement rates for compounded prescriptions by mass-producing these compounds and eliminating, or at least sharply reducing, the individualization of the compounds." (
Indeed, TRICARE "limits the amount it will pay for compound formulations to `the lesser of the usual and customary price or the maximum allowable cost.'" (
Using the pharmacy's "Compounder" software system, RS Compounding "reported the Average Wholesale Price . . . instead of its acquisition cost" in its records. (
In short, the United States alleges that, "[f]rom January 1, 2012 until January 31, 2014, RS Compounding sold the exact same compounds to government and cash payors for drastically different prices." (
The United States also provides charts listing sample claims for drugs with inflated prices that were actually submitted to TRICARE. (
Then, "[e]ffective February 1, 2014, RS Compounding altered its reimbursement scheme to stop offering the same formulations to cash payors and TRICARE." (
According to the United States, the means by which RS Compounding changed its billing practices — i.e. no longer providing the exact same formulations to cash payors and TRICARE, rather than charging TRICARE the lower prices previously charged to cash payors — is meaningful. In the United States' eyes, this decision to continue charging TRICARE high rates confirms that RS Compounding knew "of the unlawfulness of its disparate pricing scheme." (
The United States alleges "Gobea knowingly participated in determining the disparate amounts charged for RS Compounding's products and, as such, the amounts for which Defendants submitted claims to the government" and "knowingly participated in falsely certifying the Usual and Customary price to TRICARE." (
According to the United States, "[f]ew details about Gobea's business were too small to merit his attention." (
Alternatively, the United States alleges that Gobea at least "deliberately ignored and/or recklessly disregarded the falsity of the information RS Compounding submitted to TRICARE" and "the fraudulent practices of his employees." (
On December 16, 2013, Relator Stepe filed her Complaint against RS Compounding and John Doe Corporations 1-10 under seal, alleging violations of the False Claims Act (FCA), 31 U.S.C. § 3729(a), and Florida's state equivalent of the FCA. (Doc. # 1). On April 28, 2017, the Government elected to intervene in part as to the fraudulent pricing allegations, but not as to the "remaining allegations (including [Stepe's] fraudulent marketing and promotional allegations)." (Doc. # 33). The Government filed its Complaint in partial intervention on June 30, 2017, and subsequently filed its Amended Complaint in partial intervention on September 9, 2017, against RS Compounding and Gobea only. (Doc. ## 36, 42). The Amended Complaint in partial intervention asserts claims for various violations of the FCA and for unjust enrichment. (Doc. # 42).
RS Compounding and Gobea filed their Motions to Dismiss the United States' Amended Complaint in Partial Intervention on October 31, 2017. (Doc. ## 74, 75). The United States responded on November 21, 2017. (Doc. # 85). The Motions are ripe for review.
On a motion to dismiss, this Court accepts as true all the allegations in the complaint and construes them in the light most favorable to the plaintiff.
However, the Supreme Court explains that:
Rule 9(b) of the Federal Rules of Civil Procedure imposes more stringent pleading requirements on claims alleging fraud.
Enacted in 1863, the FCA "was originally aimed principally at stopping the massive frauds perpetrated by large contractors during the Civil War."
The FCA may be enforced by the government or by a relator through a qui tam action brought "in the name of the Government." 31 U.S.C. § 3730(b). Here, the United States has intervened for Stepe's disparate pricing allegations and alleges violations of three subsections of the FCA, as well as asserting a claim for unjust enrichment. (Doc. # 42).
Gobea and RS Compounding argue that the Amended Complaint in partial intervention does not satisfy Rule 9(b) because Gobea's personal involvement is not pled with particularity, nor are the RS Compounding employees engaged in the fraud specifically identified. (Doc. ## 74, 75). Additionally, RS Compounding argues the allegations plead a mere breach of contract rather than FCA violations, and no obligation to repay the United States is identified for the "reverse false claims" claim. (Doc. # 75 at 5-7).
The Court will address each claim in turn.
In its first claim, the United States alleges RS Compounding and Gobea violated § 3729(a)(1)(A) of the FCA when they "knowingly presented or caused to be presented false or fraudulent claims for payment or approval." (Doc. # 42 at ¶ 89). "As a result, the United States has suffered damages in the form of millions of dollars in unearned TRICARE payments made to Defendants." (
Section 3729(a)(1)(A) imposes liability on any person who "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval." 31 U.S.C. § 3729(a)(1)(A). The key issue under § 3729(a)(1)(A) is whether the defendant "presented or caused to be presented" a false claim.
"Providing exact billing data — name, date, amount, and services rendered — or attaching a representative sample claim is one way a complaint can establish" presentment of a false claim.
Here, RS Compounding and Gobea argue that the submission of false claims has not been pled with particularity. Specifically, RS Compounding argues the United States "completely fails to allege which RS Compounding employees assertedly violated the [FCA] by breaching the usual and customary pricing clause in TRICARE's contract with Express Scripts." (Doc. # 75 at 4). RS Compounding also argues that the United States has alleged only a contractual breach of its agreement not to charge TRICARE more than other customers because the United States does not allege that "RS Compounding entered into its contract with Express Scripts on behalf of the TRICARE program with the intent to violate the usual and customary price provision." (
The Court disagrees. The names of the specific employees who submitted the false claims are not required to satisfy Rule 9(b). For example, in
Furthermore, the Court finds that the United States has not merely alleged a breach of contract. True, "[t]he [FCA] is not `an all-purpose antifraud statute,' or a vehicle for punishing garden-variety breaches of contract or regulatory violations."
"Strict enforcement of the [FCA's] materiality and scienter requirements" is the best means to "ensure that ordinary breaches of contract are not converted into [FCA] liability."
In sum, the United States has sufficiently pled with particularity that RS Compounding and Gobea knowingly charged TRICARE highly-inflated rates for drugs, despite their representation that they charge TRICARE the same prices paid by cash payors. Here, instead of employee names, the United States has provided numerous sample claims for specific patients. (Doc. # 42 at ¶¶ 58, 65). And, for various compounds sold by RS Compounding, the United States provides calculations comparing the total number of grams that were prescribed to TRICARE and cash payors, the total price of those prescriptions, and the price per gram for those prescriptions. (Doc. # 42 at ¶¶ 54, 61). This is sufficient for the pleading stage.
As for Gobea's argument that there are insufficient allegations about his involvement in the fraud and veil piercing, the Court disagrees. Although the United States has not pled an instance of Gobea personally submitting a false claim or statement, it has pled facts about Gobea's "extensive involvement in RS Compounding's day-to-day operations." (Doc. # 42 at ¶¶ 71-87; Doc. # 85 at 12-15). The Court is mindful that Rule 9(b) is a heightened, but not insurmountable, standard. And the Eleventh Circuit has advised that scienter need not be pled with particularity.
Furthermore, the United States' allegations provide an adequate basis for piercing RS Compounding's corporate veil and holding Gobea personally liable for the alleged fraud. The federal common-law test for corporate veil piercing asks whether (1) "there is a unit[y] of interest and ownership among Defendants that makes their separate personalities no longer exist" and (2) "an inequitable result would flow from treating Defendants separately."
The United States also argues that it would be unjust to allow Gobea to escape personal liability because Gobea has removed most ill-gotten gains from RS Compounding such that RS Compounding is unable to pay back the millions paid to it by TRICARE. (Doc. # 85 at 16). Indeed, in the Amended Complaint in partial intervention, the United States alleges that the "salary and distributions Gobea gave himself have significantly impaired RS Compounding's ability to pay its obligations under the [FCA]." (Doc. # 42 at ¶ 85). Thus, at the motion to dismiss stage, the United States' veil piercing allegations suffice.
Next, the United States alleges RS Compounding and Gobea violated 31 U.S.C. § 3729(a)(1)(B) because they "knowingly made, used, or caused to be made or used, false records or statements — i.e., the false certifications of its Usual and Customary Price made or caused to be made by Defendants — material to false or fraudulent claims." (Doc. # 42 at ¶ 92). "As a result, the United States has suffered damages in the form of millions of dollars in unearned TRICARE payments made to Defendants." (
Section 3729(a)(1)(B) creates liability for any person who "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." 31 U.S.C. § 3729(a)(1)(B). Thus, "[t]o prove a claim under § 3729(a)(1)(B), [the United States] must show that: (1) the defendant made (or caused to be made) a false statement, (2) the defendant knew it to be false, and (3) the statement was material to a false claim."
For this provision, the FCA defines "material" as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." 31 U.S.C. § 3729(b)(4). "Under this version of the statute, a relator is not required to allege presentment because the statutory language includes no express presentment requirement."
Defendants argue again that this claim must be dismissed because it also fails to identify which of RS Compounding's employees committed the FCA violation and merely alleges a contractual breach. (Doc. # 75 at 3-5; Doc. # 74 at 5). Additionally, Gobea again argues that the United States has failed to "plead facts sufficient to plausibly demonstrate [] Gobea's active role in causing [FCA] violations" and fails to cite any "facts to support . . . that [] Gobea acted with the necessary scienter." (Doc. # 74 at 4).
Again, the Court disagrees with these arguments for the reasons previously explained. The United States has stated a claim under § 3729(a)(1)(B) with sufficient particularity as to both RS Compounding and Gobea. The United States explains in detail how RS Compounding used its Compounder software to "equalize" the Average Wholesale Price and Usual and Customary Prices that would be reported to TRICARE. (Doc. # 42 at ¶¶ 40-44). Therefore, by changing the Usual and Customary Price from the amount actually charged to cash payors to the higher Average Wholesale Price in their records, Defendants allegedly created false statements that were material to a false claim. The United States alleges these false statements were material because TRICARE would not have reimbursed RS Compounding at the higher Average Wholesale Price, if it knew the Usual and Customary Price was actually much lower. (
Furthermore, the United States alleges Defendants knew their statements about their prices were false — an allegation supported by the fact that an equalizer button was specifically used to increase the apparent Usual and Customary price. (Doc. # 42 at ¶¶ 52, 92). The United States further supports RS Compounding and Gobea's knowledge by alleging that RS Compounding changed its billing in February 2014 so that TRICARE was still billed at inflated prices, but cash payors could no longer purchase the exact compounds provided to TRICARE. (
In its third claim, the United States alleges that RS Compounding and Gobea violated 31 U.S.C. § 3729(a)(1)(G). According to the United States, RS Compounding and Gobea "knowingly made, used, or caused to be made or used, false records or statements — i.e., the false certifications made or caused to be made by Defendants — material to an obligation to pay or transmit money to the government." (Doc. # 42 at ¶ 95). Alternatively, they "knowingly concealed or knowingly and improperly avoided or decreased an obligation to pay or transmit money or property to the government." (
Section 3729(a)(1)(G) creates liability for a person who "knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government," or who "knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government." 31 U.S.C. § 3729(a)(1)(G). "This is known as the `reverse false claim' provision of the FCA because liability results from avoiding the payment of money due to the government, as opposed to submitting to the government a false claim."
"Importantly, to establish a reverse false claim cause of action, a relator must show that the defendant owed a definite and clear `obligation to pay money to the United States at the time of the allegedly false statements.'"
RS Compounding and Gobea argue this claim must be dismissed because it "fails to allege the required `clear' obligation to repay money to the TRICARE program." (Doc. # 74 at 6; Doc. # 75 at 6). According to them, "the Government has failed to cite to any contractual repayment provision which forms the basis for the required `clear' repayment obligation." (Doc. # 74 at 6). Furthermore, they argue the United States "fails to adequately allege facts showing RS Compounding [and Gobea were] aware of both a repayment obligation" and their "violation of that obligation." (
These arguments are unavailing. The Court agrees with the United States that an obligation as defined in § 3729(b)(3) need not be a contractual provision. (Doc. # 85 at 9 n.4). And the United States clearly identifies a non-contractual obligation owed by RS Compounding and Gobea: "the `concrete' obligation to repay under § 3729(b)(3) and § 3729(a)(1)(G) was triggered when the defendants knew they had received funds to which they were not entitled and retained the funds instead of returning them." (
The United States also sufficiently alleges that RS Compounding and Gobea were aware of the obligation to remit overpayments. The United States focuses on RS Compounding's policy change in February 2014, of which Gobea was aware. (Doc. # 85 at 11; Doc. # 42 at ¶¶ 47-53). RS Compounding was notified that it was unlawful to charge TRICARE more than it charged cash payors for the same compounds, which it had been doing for years. (Doc. # 42 at ¶ 47). Yet, RS Compounding only prospectively changed its practices — by no longer selling the exact same formulations to cash payors and TRICARE. (
These allegations meet the particularity requirement of Rule 9(b). Furthermore, the Court agrees with the United States that this claim is not duplicative of the § 3729(a)(1)(A) and (B) claims and is properly pled in the alternative. (Doc. # 85 at 10). Therefore, this claim survives the motion to dismiss stage.
In addition to the FCA claims, the United States asserts a claim for unjust enrichment. The United States alleges that, as a result of the alleged fraud, "Defendants were unjustly enriched at the expense of the United States in an amount to be determined which, under the circumstances, in equity and good conscience should be returned to the United States." (Doc. # 42 at ¶ 99).
RS Compounding and Gobea argue the unjust enrichment claim is subject to and fails to meet the Rule 9(b) pleading requirement, based on the same arguments they previously raised. (Doc. # 74 at 4; Doc. # 75 at 3). Indeed, some district courts have held that where an unjust enrichment claim is based on alleged fraud, the Rule 9(b) standard applies.
"A claim for unjust enrichment has three elements: (1) the plaintiff has conferred a benefit on the defendant; (2) the defendant voluntarily accepted and retained that benefit; and (3) the circumstances are such that it would be inequitable for the defendants to retain it without paying the value thereof."
Here, just as the Court held for the FCA claims, the Amended Complaint in Partial Intervention satisfies Rule 9(b)'s particularity requirement as to both RS Compounding and Gobea. The United States alleges RS Compounding, and its sole shareholder Gobea, were paid high reimbursements by TRICARE, which they voluntarily retained. (Doc. # 42 at ¶¶ 66, 83-85, 99). Further, the United States argues it would be inequitable for RS Compounding and Gobea to retain that money — the "ill-gotten gains" — because they allegedly used false statements to induce TRICARE into paying more money than Defendants knew they were truly owed. (
The United States' Amended Complaint in partial intervention sufficiently states claims for unjust enrichment and violation of the FCA. Therefore, RS Compounding's and Gobea's Motions are denied. RS Compounding's and Gobea's answers are due December 15, 2017.
Accordingly, it is now