U.S. ex rel. Fowler v. Caremark Rx, L.L.C.

• Decision Date: 27 July 2007
• Docket Number: No. 06-4419.,06-4419.
• Parties: UNITED STATES ex rel. Michael FOWLER, Peppi Fowler, Victor Cortes, and Danny Nevarez, Plaintiffs-Appellants, v. CAREMARK RX, L.L.C., and Caremark Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

496 F.3d 730

UNITED STATES ex rel. Michael FOWLER, Peppi Fowler, Victor Cortes, and Danny Nevarez, Plaintiffs-Appellants, v. CAREMARK RX, L.L.C., and Caremark Inc., Defendants-Appellees.

No. 06-4419.

United States Court of Appeals, Seventh Circuit.

Argued June 6, 2007.

Decided July 27, 2007.

Rehearing and Suggestion for Rehearing En Banc Denied September 7, 2007.^*

Michael I. Leonard (argued), Meckler, Bulger & Tilson, Chicago, IL, for Plaintiffs-Appellants.

Howard M. Pearl (argued), Peter J. Kocoras, Winston & Strawn, Chicago, IL, for Defendants-Appellees.

Before RIPPLE, KANNE, and EVANS, Circuit Judges.

KANNE, Circuit Judge.

The plaintiff—Relators are employees of Caremark. They filed a qui tam action under the False Claims Act. 31 U.S.C. § 3729 et seq. The district court held that subject matter jurisdiction existed but dismissed the complaint on the merits. On appeal, the Relators argue that the district court erred in dismissing the case while Caremark argues that the case should have been dismissed for want of subject matter jurisdiction. We conclude that subject matter jurisdiction exists and we affirm the judgment of the district court on the merits.

I. HISTORY

The United States government, like many employers, provides health insurance benefits to its employees. The government contracts with various private health insurance plans. Federal employees are able to choose among these private health insurance plans. Both the United States and individual federal employees make premium payments to the plans for the health coverage.

Many health plans provide prescription drug coverage as part of their benefit package for the participating federal employees. In turn, a number of these plans contract with Caremark to provide the prescription drug benefits provided under their respective plans. Caremark ultimately receives payment from the federal government and its employees for the prescription drugs and related services provided under the plans.

The Relators, (we call them Relators, they call themselves Whistleblowers), were employed by Caremark at two of its prescription drug processing facilities. The Relators brought a False Claims Act suit on behalf of the United States alleging that Caremark engaged in six fraudulent schemes: (1) failing to provide a credit for returned prescription drugs; (2) changing prescriptions without proper approval; (3) misrepresenting the savings obtained from its recommendations; (4) failing to substitute a generic version of "Prilosec;" (5) failing to credit for prescriptions lost in the mail; and (6) manipulating the mandatory times for filing prescriptions.

The Relators filed their original complaint under seal in December 2003. An amended complaint was also filed under seal in March 2004. In July 2004, the United States Attorney's Office for the Northern District of Illinois contacted Caremark and asked it to cooperate in an investigation of Caremark's business practices. From October 2004 through January 2006, Caremark disclosed in excess of 113,000 pages of documents to the U.S. Attorney's Office. These documents included Caremark's contracts with the health insurance plans serving federal employees, invoices, quarterly reports, Caremark's internal reports, memoranda and training procedures. In January 2006, the government declined to intervene in this case and the case was unsealed by the district court in February 2006. In April and May 2006, the Relators obtained discovery materials from both Caremark and the U.S. Attorney's Office.

In May 2006, the district court granted Caremark's motion to dismiss the first amended complaint holding that the complaint failed to meet the heightened pleading requirements of Rule 9(b). United States ex rel. Fowler v. Caremark RX, Inc., 03 C 8714, 2006 WL 1519567 (N.D.Ill. May 30, 2006). The Relators were granted leave to file a second amended complaint which they did in June 2006.

Caremark then argued that case should be dismissed pursuant to the jurisdictional bar contained in 31 U.S.C. § 3730(e)(4). Caremark's position was that the Relators' second amended complaint was based on publicly disclosed information and the Relators were not the original source of this information. The district court rejected Caremark's jurisdictional argument and held that the Relators met the requirements of § 3730(e)(4). United States ex rel. Fowler v. Caremark RX, Inc., No. 03 C 8714, 2006 WL 2425331, at *4-6 (N.D.Ill. Aug.21, 2006).

However on the merits, the district court held that despite increasing in size, the second amended complaint failed to meet the heightened pleading requirements of Rule 9. The second amended complaint consisted of 514 paragraphs spanning over 178 pages and also had over 1000 pages of attached exhibits. Id. at *3. The district court explained that despite its length, the second amended complaint failed to "identify a single prescription through which Caremark perpetrated the alleged fraud. Nor do they tie a specific fraudulent transaction to an invoice submitted to the government.... [N]otice [sufficient to satisfy Rule 9(b)] is woefully inadequate where, as here, plaintiffs allege only generalized schemes and fail to specify a single false claim." Id. at *6-7.

The Relators were then given an opportunity to seek leave to file a third amended complaint. However, the district court warned the Relators that the case could be dismissed in its entirety if they failed to provide a proposed third amended complaint that complied with the federal rules. The Relators then tendered their proposed third amended complaint and sought leave to file the complaint. The district court rejected the proposed third amended complaint holding that it failed to meet the requirements of Rule 9(b). United States ex rel. Fowler v. Caremark RX, Inc., 03 C 8714, 2006 WL 3469537 (N.D.Ill. Nov.30, 2006). The district court, pursuant to Rule 15(a), denied the Relators' request to file the new amended complaint and entered a judgment dismissing the case in its entirety.

II. ANALYSIS

A. The Jurisdictional Bar of 31 U.S.C. § 3730(e)(4)

Caremark argues that the district court lacked subject matter jurisdiction, pursuant to the jurisdictional bar set forth in § 3730(e)(4), because the Relators' claims are based on publicly disclosed information and the Relators are not the original source of this information. The Supreme Court has recently determined that § 3730(e)(4) is a jurisdictional requirement implicating subject matter jurisdiction and therefore no cross-appeal from Caremark is required. Rockwell Int'l Corp. v. United States, ___ U.S. ___, 127 S.Ct. 1397, 1405-07, 167 L.Ed.2d 190 (2007); see generally Luna v. United States, 454 F.3d 631, 635 (7th Cir.2006) (citing Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 1244, 163 L.Ed.2d 1097 (2006) (noting that a cross-appeal is not required when a party is contesting subject matter jurisdiction)); McCready v. White, 417 F.3d 700, 702 (7th Cir.2005) ("Ensuring the existence of subject matter jurisdiction is the court's first duty in every lawsuit.") (citing Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998)). We note that the Relators' proposed third amended complaint is the controlling document to be considered by this court. "[W]hen a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts look to the amended complaint to determine jurisdiction." Rockwell, 127 S.Ct. at 1409 (citing Wellness Cmty.-Nat'l v. Wellness House, 70 F.3d 46, 49 (7th Cir.1995); Boelens v. Redman Homes, Inc., 759 F.2d 504, 508 (5th Cir.1985)).

Title 31, United States Code, Section 3730(e)(4) states:

(A) No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

(B) For purposes of this paragraph, "original source" means an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing an action under this section which is based on the information.

31 U.S.C. § 3730(e)(4). "The bar is designed to deter parasitic qui tam actions.... [O]nce information becomes public, only the Attorney General and a relator who is an `original source' of the information may represent the United States." United States ex rel. Gear v. Emergency Med. Assoc. of Illinois, Inc., 436 F.3d 726, 728 (7th Cir.2006).

"The inquiry into whether a court may hear a qui tam relator's claim has three parts: (1) Have the allegations made by the plaintiff been `publicly disclosed'? (2) If so, is the lawsuit `based upon' that publicly disclosed information? (3) If so, is the plaintiff an `original source' of the information?" United States ex rel. Mathews v. Bank of Farmington, 166 F.3d 853, 859 (7th Cir.1999) (citing United States ex rel. Cooper v. Blue Cross and Blue Shield of Florida, Inc., 19 F.3d 562, 564 n. 4 (11th Cir.1994)); see also Gear, 436 F.3d at 728; United States ex rel. Feingold v. AdminaStar Fed., Inc., 324 F.3d 492, 495 (7th Cir.2003).

Before we begin the analysis, it should be noted that there are three types of information in the Relators' possession in this case. First is the Relators' "inside" information that they obtained during their work at Caremark. Second is the information disclosed by Caremark directly to the Relators. Third is the information disclosed by Caremark to the U.S. Attorney's Office and then passed from the U.S. Attorney's Office to the Relators.¹

Issue 1: Have the Allegations made by the Plaintiff been "Publicly...