State v. Apotex Corp.

• Decision Date: 19 June 2012
• Docket Number: No. 20100257.,20100257.
• Parties: STATE of Utah, Plaintiff and Appellant, v. APOTEX CORPORATION, Baxter Healthcare Corporation, Boehringer Ingelheim Corporation, Mallinckrodt Inc., CSL Behring, Forest Laboratories, Inc., Morton Grove Pharmaceuticals, Inc., Mutual Pharmaceutical Company, Inc., Novartis Pharmaceuticals Corporation, Otsuka America, Inc., Pfizer, Inc., Qualitest Pharmaceuticals, Inc., Schering–Plough Corporation, Schwarz Pharma USA Holdings, Inc., Taro Pharmaceuticals USA, Inc., Upsher–Smith, Inc., and Wyeth, Inc., Defendants and Appellees.
• Court: Utah Supreme Court

282 P.3d 66

711 Utah Adv. Rep. 7

2012 UT 36

STATE of Utah, Plaintiff and Appellant,

v.APOTEX CORPORATION, Baxter Healthcare Corporation, Boehringer Ingelheim Corporation, Mallinckrodt Inc., CSL Behring, Forest Laboratories, Inc., Morton Grove Pharmaceuticals, Inc., Mutual Pharmaceutical Company, Inc., Novartis Pharmaceuticals Corporation, Otsuka America, Inc., Pfizer, Inc., Qualitest Pharmaceuticals, Inc., Schering–Plough Corporation, Schwarz Pharma USA Holdings, Inc., Taro Pharmaceuticals USA, Inc., Upsher–Smith, Inc., and Wyeth, Inc., Defendants and Appellees.

No. 20100257.

Supreme Court of Utah.

June 19, 2012.

Mark L. Shurtleff, Att'y Gen., Robert Steed, Asst. Att'y Gen., Roman Shaul, W. Daniel Dee Miles III, H. Clay Barnett III, J. Paul Lynn, Timothy Robert Fielder, Special Asst. Att'ys Gen., David C. Biggs, Joseph W. Steele, Salt Lake City, for plaintiff.

Mathew A. Steward, Robert D. Andersen, Salt Lake City, Frederick R. Ball, David I. Curkovic, Chicago, IL, for Morton Grove Pharmaceuticals, Inc.

George M. Haley, Stephen M. Sansom, Salt Lake City, John C. Dodds, Erica Smith–Klocek, Kathryn E. Potalivo, Scott A. Stempel, Philadelphia, PA, for Pfizer, Inc.

Chief Justice DURHAM, opinion of the Court:

INTRODUCTION

¶ 1 The State of Utah appeals the dismissal of its complaint against seventeen pharmaceutical companies, which the State alleges defrauded Utah's Medicaid program by reporting inflated drug prices. In its complaint, the State pursued two causes of action: violation of the Utah False Claims Act (UFCA) and fraudulent misrepresentation. After allowing the State to amend its complaint, the district court dismissed these claims with prejudice, based on three alternative grounds. It concluded first that the State had not pled its UFCA and fraudulent misrepresentation claims with particularity, as required by rule 9(b) of the Utah Rules of Civil Procedure. Second, the court held that the State's complaint failed to allege critical elements of its claims, warranting dismissal under rule 12(b)(6) of the Utah Rules of Civil Procedure. Finally, the court dismissed the State's UFCA cause of action for claims alleged to have arisen before April 30, 2006, because these claims were barred under a one-year statute of limitations.

¶ 2 We reverse in part and affirm in part the district court's order of dismissal.¹ First, we articulate the appropriate rule 9(b) standard for claims alleging a widespread scheme to commit fraud and submit false claims. Although the State's complaint is insufficiently particular under the standard we adopt today, we conclude that it is in the interest of justice to grant the State leave to amend its complaint under the new standard. Second, we hold that the district court erred in dismissing the State's claims under rule 12(b)(6) because the State alleged all elements of its causes of action. Finally, we affirm the district court's application of the one-year statute of limitations to the State's UFCA cause of action and its dismissal of those claims alleged to have arisen before April 30, 2006. Accordingly, we remand this case to the district court for proceedings consistent with this opinion.

BACKGROUND

¶ 3 “On appeal from a motion to dismiss, we review the facts only as they are alleged in the complaint. We accept the factual allegations as true and draw all reasonable inferences from those facts in a light most favorable to the plaintiff.” Peck v. State, 2008 UT 39, ¶ 2, 191 P.3d 4 (internal quotation marks omitted).

¶ 4 In May 2008, the State of Utah filed a lawsuit against seventeen pharmaceutical companies (Defendants).² The State alleged that the Defendants had violated the UFCA and had committed fraudulent misrepresentation when they engaged in a drug-pricing scheme that resulted in overpayments from the state's Medicaid program.

¶ 5 According to the State, the Defendants “knowingly, willfully, wantonly, and/or intentionally provided, or caused to be provided, false and inflated” drug-pricing information to third-party reporting services. These reporting services then published price indices for drugs, including their average wholesale prices (AWPs), based on the information the Defendants had provided. Utah Medicaid then used this published information in calculating reimbursements to Medicaid providers, such as pharmacies and physicians, who dispensed the Defendants' drugs. Allegedly, as a result of the Defendants' reporting of inflated drug prices to third-party reporting services, Utah Medicaid significantly overpaid in its reimbursements to providers.³

¶ 6 In the district court, the Defendants moved to dismiss the State's amended complaint, arguing that it had failed to plead its UFCA and fraudulent misrepresentation claims with particularity, as required under rule 9(b) of the Utah Rules of Civil Procedure, and that it had failed to state a claim upon which relief could be granted under rule 12(b)(6). The Defendants asserted that the complaint did not “delineate each individual defendan[t's] alleged misconduct, [did] not elaborate as to which defendant reported which false and inflated prices and [did] not identify which defendant provided such allegedly inflated pricing information to the ‘industry reporting services.’ ”

¶ 7 The district court concluded that the State had failed to plead its fraud and UFCA claims with particularity. Despite this failure, the court granted the State leave to amend its complaint. It required the State to

(1) identify the specific drug at issue; (2) identify the specific defendant involved in that drug's sale, manufacture or for which they provide prices ...; (3) [identify] the allegedly false publication of that specific drug's pricing, to whom that publication was made and when; and (4) [identify] whether the State actually used or relied on the allegedly false pricing information which was reported in setting reimbursement rates.

In addition, with respect to defendant Boehringer Ingelheim Corp. (BIC), the court found that the State's complaint focused on BIC's subsidiaries, which were not named defendants and had not been served with process. It required the State to focus on BIC's “separate corporate existence and identify only those drugs for which BIC, and not its corporate subsidiaries, is legally responsible.”

¶ 8 The State amended its complaint (Second Amended Complaint or Complaint), and the Defendants again moved for dismissal under rules 9(b) and 12(b)(6) of the Utah Rules of Civil Procedure. They argued that the State had ignored the district court's order by failing to particularize its allegations and by failing to allege critical elements of its causes of action. In addition, the Defendants contended that the statute of limitations had run on many of the State's claims under the UFCA. They noted that before April 30, 2007, the statute of limitations for claims under the UFCA was one year. SeeUtah Code § 78–12–29(3) (1998) (providing a one-year limitations period for actions “upon a statute ... for a forfeiture or penalty to the state”). The legislature amended the UFCA to provide an extended limitations period, effective April 30, 2007. However, the Defendants argued that, even if the amended limitations period were retroactive, it could not work to revive claims that had expired under the one-year period.

¶ 9 For its part, BIC argued separately that the State had again lumped it in with its subsidiaries, who had still not been named as defendants or served with process. It noted that the Second Amended Complaint referred to them collectively as the “Boehringer Defendants.”

¶ 10 In response, the State argued that the Complaint “vastly exceed [ed]” notice pleading requirements and that “[t]he Defendants know exactly what is at issue.” The State contended that attached to the Second Amended Complaint was an exhibit listing the specific drugs at issue (Exhibit A). It also defended its use of general allegations against the Defendants because all had engagedin a uniform practice of reporting false and fictitious prices. Alternatively, the State argued that either rule 9(b) should not apply to its UFCA cause of action because it was distinct from fraud, or the district court should apply a relaxed rule 9(b) standard. With respect to the Defendants' statute of limitations argument, the State argued only that the 2007 amendment lengthening the statute of limitations was retroactive and therefore applied to its UFCA cause of action.

¶ 11 The district court granted the Defendants' motion to dismiss the State's Complaint with prejudice on three alternative grounds. It concluded that (1) the State's UFCA and fraudulent misrepresentation claims lacked particularity under rule 9(b); (2) the State had failed to provide critical elements of its claims, as required by rule 12(b)(6); and (3) the State's UFCA cause of action for conduct before April 30, 2006, was barred by the one-year statute of limitations.

¶ 12 With respect to rule 9(b), the court concluded that the rule applies to UFCA claims and that a relaxed standard was not warranted. It also found that the State had “failed to identify each defendant's allegedly fraudulent misrepresentations and [UFCA] violations with particularity” but instead offered only “broad conjecture” of alleged false or fraudulent statements that the Defendants made as a group. The court further rejected Exhibit A as being too general and for failing to identify “the allegedly false publication of each specific drug's pricing, to whom that publication was made and when.”

¶ 13 The district court alternatively dismissed the Second Amended Complaint under rule 12(b)(6), concluding that the State not only failed to plead its claims with particularity, but that it “also failed to allege fundamental elements of ... fraudulent misrepresentation and for relief under the Utah False Claims Act.”

¶ 14 On the statute of limitations issue, the court concluded that before the 2007 amendments to the UFCA,...