State v. Bayer Corp., 2008-CA-01659-SCT.

• Decision Date: 15 April 2010
• Docket Number: No. 2008-CA-01659-SCT.,2008-CA-01659-SCT.
• Citation: 32 So.3d 496
• Court: Mississippi Supreme Court
• Parties: STATE of Mississippi v. BAYER CORPORATION, Bayer Pharmaceuticals Corporation and Bayer Healthcare, LLC.

32 So.3d 496

STATE of Mississippi v. BAYER CORPORATION, Bayer Pharmaceuticals Corporation and Bayer Healthcare, LLC.

No. 2008-CA-01659-SCT.

Supreme Court of Mississippi.

April 15, 2010.

D. Ronnie Musgrove, J. Leray McNamara, Frank Kolb, Ridgeland, George W. Neville, Jackson, Wilson Daniel "Dee" Miles, III, Andy Lowry, Ridgeland, attorneys for appellant.

Michael P. Doss, William F. Goodman, III, Steven D. Orlansky, Jackson, Richard D. Raskin, attorneys for appellees.

EN BANC.

KITCHENS, Justice, for the Court:

¶ 1. The State of Mississippi filed suit in the Chancery Court of the First Judicial District of Hinds County against more than eighty pharmaceutical manufacturers, including Bayer Corporation, Bayer Pharmaceuticals Corporation, and Bayer Healthcare, LLC ("Bayer"). The State alleged that each of the defendants had fraudulently misrepresented the average wholesale prices (AWP) of drugs provided to beneficiaries of the Mississippi Medicaid program, causing the State to overpay drug providers.

¶ 2. After investigating the State's claim, two special masters appointed by the trial court concluded that a 2001 Settlement Agreement between the State and Bayer made Bayer unique among the defendants, and that because the State had failed to plead around the 2001 Settlement Agreement, its claims against Bayer should be dismissed pursuant to Rules 12(b)(6) and 9(b) of the Mississippi Rules of Civil Procedure. Following the special masters' recommendation to dismiss for failure to state a claim upon which relief can be granted, the chancellor dismissed with prejudice the State's claims against Bayer. The State appeals that decision.

FACTS

¶ 3. In 2001, the State of Mississippi and Bayer Corporation entered into a Settlement Agreement after federal officials and forty-seven states had alleged that, during the time period of January 1993 through August 1999, Bayer Corporation had misrepresented the prices at which it had sold certain drugs to the drug providers of those states. In the ensuing Settlement Agreement, Bayer denied that it had engaged in any fraudulent conduct, and noted that it had entered into the settlement agreement in 2001 solely "to avoid the delay, uncertainty, inconvenience and expense of protracted litigation of claims."

¶ 4. The Settlement Agreement was limited to "covered conduct," which related to Bayer's alleged actions regarding qui tam drugs.¹ In exchange for a release of any civil or administrative claims related to the "covered conduct," Bayer paid Mississippi $48,608.09 and agreed to provide the State "with true pricing information that accurately reflects the prices at which actual purchasers buy the drug and biological products sold by Bayer" for a period of five years, commencing on the date of the settlement agreement.

¶ 5. On October 20, 2005, four years after entering into the Settlement Agreement with Bayer, the State filed the complaint in this case against Bayer Corporation, Bayer Pharmaceuticals Corporation, Bayer Healthcare, LLC, and more than eighty other pharmaceutical manufacturers, alleging that each defendant had misrepresented the AWPs of drugs sold to drug providers of Mississippi. Specifically, the State alleged that the AWP is a vital part of the formula used by the State's Medicaid program to establish the amount of reimbursement due from that program to drug providers, and that, as a consequence of the drug manufacturers' misrepresentation of the AWPs, the State had reimbursed the drug providers of Mississippi at a higher rate than necessary, resulting in monetary damages to the State and its taxpayers. The actual causes of action alleged by the State in the first amended complaint are State Medicaid fraud, deceptive trade practices, and common-law fraud.

¶ 6. On June 1, 2006, Bayer moved to dismiss the State's claim against the Bayer defendants pursuant to Mississippi Rule of Civil Procedure 12(b)(6), claiming that the 2001 Settlement Agreement barred the State's claims, and that the State had failed to plead fraud with the particularity required by Mississippi Rule of Civil Procedure 9(b). The special masters recommended granting Bayer's motion and entered Report, Recommendation and Order No. 2 (R & R No. 2) on July 28, 2006. R & R No. 2 is as follows:

First, contrary to the State's assertion, the plain language of the release is not limited to claims based on fraud. Rather, the release covers `any civil or administrative monetary claim, action, suit or proceeding the State has or may have under any source of law for the Covered Conduct.' This language plainly requires the dismissal of all claims for pre-settlement conduct pertaining to the six Qui Tam Drugs. All claims as to those drugs are dismissed with prejudice.

Second, the State has pleaded no basis for a claim relating to pre-settlement conduct as to products other than the Qui Tam Drugs. The only mention in the Complaint of any Bayer products occurs in Exhibit B, which refers to AWP data on three products—Koate, Kogenat, and Gamimune—each of which is a Qui Tam Drug covered by the release. Further, the settlement was preceded by a broad based investigation of Bayer led by the federal government and joined by 47 states. Had concerns arisen about price reporting on products other than the six Qui Tam Drugs, we trust that those concerns would have been addressed in the course of the investigation and settlement. In any event, absent any specific allegation of wrongdoing as to Non-Qui Tam Drugs, we find no basis for the State's claims relating to the pre-settlement period to proceed at this point. If at a later date the State has evidence the comprehensive investigation previously made against Bayer that resulted in the settlement should have included other drugs for the time prior to 2001, the State may bring a new action at that time. All claims for Bayer drugs other than the six Qui Tam drugs prior to 2001 are dismissed without prejudice.

Third, and finally, the State has not pleaded a claim with respect to the post-settlement time period. The settlement requires Bayer to report to the State on a quarterly basis the average sales price for every one of its drugs. These reports are designed to provide the State with `true pricing information that accurately reflects the prices at which actual purchasers buy the drug and biological products sold by Bayer.' Absent any allegation that Bayer has not complied with this requirement, the State's claims—to the extent that they are directed at the post-settlement time period—are moot. Those claims are thus dismissed with prejudice.

(Emphasis added.)

¶ 7. On September 5, 2006, the special masters entered Report, Recommendation and Order No. 16 (R & R No. 16), granting the defendants' motion for a more definite statement. R & R No. 16 stated:

Plaintiff, within twenty (20) days of this Order, shall file its amended complaint to comply with Rules 8, 9, and 11 and, at a minimum, shall plead as to each Defendant the specific drug(s) in issue, and if ascertainable, the allegedly fraudulent AWP(s) for each such drug, and the basis for alleging each such AWP was fraudulent.

¶ 8. Rather than objecting to R & R Nos. 2 and 16, the State filed its first amended complaint on October 5, 2006, alleging that Bayer had inflated its AWPs by at least 17%, knowing that the State would rely on the inflated AWP to establish the reimbursement due to drug providers. The State also listed in Exhibit A to the amended complaint thirty-one drugs marketed and sold by Bayer that allegedly had given rise to the State's causes of action.

¶ 9. Notwithstanding the State's amended complaint, the chancery court adopted R & R No. 2 in its entirety on October 10, 2006, dismissing all of the State's claims against Bayer. All claims to post-settlement conduct regarding any drug marketed and sold by Bayer and all claims related to presettlement conduct related to qui tam drugs were dismissed with prejudice, and all claims stemming from presettlement causes of actions regarding drugs other than qui tam drugs were dismissed without prejudice.

¶ 10. On November 13, 2007, Bayer moved to dismiss the amended complaint, contending that, although the State had the right to refile a complaint for claims stemming from presettlement conduct related to drugs other than the qui tam drugs, it had failed to plead fraud with the particularity required by Rule 9(b) of the Mississippi Rules of Civil Procedure. Bayer alleged that the State's amended complaint "merely listed the names of several Bayer drugs, along with a boilerplate allegation—made as to all defendants—that Bayer's AWPs were `at least 17%' above the `true Average Wholesale Price in the marketplace,'" and that the State's "boilerplate allegations of fraud as to Bayer in the Amended Complaint do not suffice to plead around the preclusive effect of Bayer's 2001 Settlement or the Court's prior rulings dismissing the State's claims." Bayer also noted that, because the amended complaint failed to include "specific allegations of wrongdoing as to non-Qui Tam Drugs," and because there was no explanation in the amended complaint for why "the comprehensive investigation previously made against Bayer that resulted in the settlement should have included other drugs for the time prior to 2001," dismissal pursuant to Rules 9(b) and 12(b)(6) was proper.

¶ 11. On February 25, 2008, Aventis Pharmaceuticals, Inc., filed a motion for judgment on the pleadings, pursuant to Mississippi Rule of Civil Procedure 12(c), on behalf of all defendants in the action. In response, the special masters entered Report and Recommendation No. 33 (R & R No. 33) denying the motion by noting that the State's amended complaint had cured any specificity defects that had existed in the State's original complaint, and that additional specificity was not required.

¶ 12. Notwithstanding R & R No. 33, the special masters entered Report and Recommendation No. 35 (R & R No. 35) on ...