United States ex rel. Rostholder v. Omnicare, Inc.

• Decision Date: 21 February 2014
• Docket Number: No. 12–2431.,12–2431.
• Citation: 745 F.3d 694
• Parties: UNITED STATES ex rel. Barry ROSTHOLDER; Barry Rostholder, individually, Plaintiffs–Appellants, and State of California; State of Delaware; State of Florida; State of Hawaii; State of Illinois; State of Indiana; State of Louisiana; State of Massachusetts; State of Michigan; State of Montana; State of New Hampshire; State of New Mexico; State of New York; State of Nevada; State of Tennessee; State of Texas; State of Virginia; Cook County, Illinois; District of Columbia; Cities of Chicago and New York; State of Georgia; State of New Jersey; State of Oklahoma; State of Rhode Island; State of Wisconsin, Plaintiffs, v. OMNICARE, INCORPORATED, a Delaware Corporation; Omnicare Distribution Center, LLC, f/k/a Heartland Repack Services, LLC, a Delaware Limited Liability Company, jointly and severally, Defendants–Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

745 F.3d 694

UNITED STATES ex rel. Barry ROSTHOLDER; Barry Rostholder, individually, Plaintiffs–Appellants,

and

State of California; State of Delaware; State of Florida; State of Hawaii; State of Illinois; State of Indiana; State of Louisiana; State of Massachusetts; State of Michigan; State of Montana; State of New Hampshire; State of New Mexico; State of New York; State of Nevada; State of Tennessee; State of Texas; State of Virginia; Cook County, Illinois; District of Columbia; Cities of Chicago and New York; State of Georgia; State of New Jersey; State of Oklahoma; State of Rhode Island; State of Wisconsin, Plaintiffs,

v.OMNICARE, INCORPORATED, a Delaware Corporation; Omnicare Distribution Center, LLC, f/k/a Heartland Repack Services, LLC, a Delaware Limited Liability Company, jointly and severally, Defendants–Appellees.

No. 12–2431.

United States Court of Appeals,Fourth Circuit.

Argued: Dec. 10, 2013.

Decided: Feb. 21, 2014.

ARGUED:Gerald C. Robinson, Gerald Robinson Law Firm PLLC, Minneapolis, Minnesota, for Appellants. James Christopher Martin, Reed Smith LLP, Pittsburgh, Pennsylvania, for Appellees. ON BRIEF:Jay P. Holland, Joseph, Greenwald & Laake, PA, Greenbelt, Maryland, for Appellants. Colin E. Wrabley, Pittsburgh, Pennsylvania, Eric A. Dubelier, Lawrence S. Sher, Katherine J. Seikaly, Reed Smith LLP, Washington, D.C., for Appellees.

Before NIEMEYER, SHEDD, and KEENAN, Circuit Judges.

Affirmed by published opinion. Judge KEENAN wrote the opinion, in which Judge NIEMEYER and Judge SHEDD joined.

BARBARA MILANO KEENAN, Circuit Judge:

Relator Barry Rostholder (relator) filed this qui tam action under the False Claims Act (FCA), 31 U.S.C. §§ 3729 through 3733, against his former employer, Omnicare, Inc., and its affiliated companies. Relator alleged that the defendants violated a series of Food and Drug Administration (FDA) safety regulations requiring that penicillin and non-penicillin drugs be packaged in complete isolation from one another, which violations resulted in a legal presumption of penicillin cross-contamination. According to relator, these contaminated drugs were not eligible for reimbursement by Medicare and Medicaid and, therefore, any claims presented to the government for reimbursement for these drugs were false under the FCA.

The district court granted Omnicare's motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6). Because relator already had filed two amended complaints, the court denied any further leave to amend. Upon our review, we hold that relator's complaint failed to allege that the defendants made a false statement or that they acted with the necessary scienter. We also conclude that the district court did not abuse its discretion in denying relator's request to file a third amended complaint. We therefore affirm the district court's judgment.

I.

Omnicare provides certain pharmaceutical services to senior citizens through its drug repackaging and pharmacy facilities. As alleged in relator's second amended complaint, Omnicare owned Heartland Repack Services, LLC (Heartland), the drug repackaging operation at issue in this case located in Toledo, Ohio (the Toledo building). Heartland repackaged drugs into convenient units for patient use. Omnicare also operated hundreds of pharmacies nationwide, including a pharmacy that shared the Toledo building with Heartland. Such pharmacies “primarily” served nursing homes owned by Omnicare's partner, Health Care Resources.

Although Heartland repackaged non-penicillin drugs for distribution, the Omnicare pharmacy that shared the Toledo building processed penicillin products. The pharmacy and the repackaging operations were located in the Toledo building, and were separated by “rolling” garage-type doors. Within the building, employees of both the repackaging and pharmacy units shared “break” areas, entrances, and exits. The Toledo building also had a single ventilation and heating/cooling system.

From 1997 until 2006, relator, a licensed pharmacist, was employed at Heartland. Relator's job responsibilities included “overseeing repackaging, quality assurance, regulatory affairs, and wholesale and distribution.” In 2004, Omnicare executive and relator's supervisor, Denis Holmes, suggested that Heartland begin repackaging penicillin products. Relator informed Holmes that any repackaging of penicillin drugs would constitute a violation of FDA regulations requiring the separate processing of penicillin and non-penicillin products.

Relator conducted further research regarding the FDA's penicillin isolation requirements and stated his conclusions in a memorandum that he provided to Holmes. Relator also contacted the pharmacy managerin the Toledo building, who informed relator for the first time that the pharmacy frequently repackaged penicillin, despite sharing the building with Heartland's non-penicillin drug packaging operation (the Heartland facility). At Holmes' request, relator researched and recommended ways in which Heartland could repackage penicillin in compliance with FDA regulations.

In February 2006, relator resigned from Heartland due to his concerns about the facility's quality control efforts. Several months after his resignation, relator notified the FDA of Heartland's “improper repackaging practices.” Based on this information, FDA investigators visited the Heartland facility and were advised by employees that “no penicillin was being repackaged in the Repackaging Division.” Based on these representations, the investigators left the Heartland facility.

Relator later participated in an interview with FDA officials, during which “[h]e described the specific details of the penicillin exposure” at the Heartland facility. In the summer of 2006, the FDA conducted another inspection of the Heartland facility and discovered that penicillin was being repackaged in the Toledo building. Testing “revealed the presence of penicillin throughout the building,” including in the Heartland facility. As a result, the FDA issued a warning letter to Omnicare (the warning letter), outlining numerous violations of FDA regulations, both related and unrelated to Omnicare's practices of handling penicillin. The warning letter explained that Omnicare's failure to adhere to the FDA's Current Good Manufacturing Practice regulations (the CGMPs) caused the drugs to be “adulterated.”

Rather than quarantining and conducting tests on its products, Omnicare disposed of nearly $19 million worth of inventory. According to the complaint, Omnicare at that time had not recalled any of its drugs due to suspected penicillin contamination, nor had Omnicare reimbursed the government for amounts already paid for the contaminated drugs.

In May 2007, relator filed this action under the FCA, 31 U.S.C. § 3729(a)(1), (a)(2), and (a)(7) (2006),¹ and similar state statutes, against Omnicare and its affiliated companies (collectively, Omnicare).² Relator alleged that Omnicare “knowingly and/or recklessly repackaged drugs at [the Toledo building] in violation of applicable laws, including [the CGMPs], which rendered [the drugs] presumptively unsafe under [the CGMPs], and therefore adulterated and misbranded, and therefore not in their FDA-approved form, and thus ineligible for coverage under government programs.” The government declined to intervene in the action.

The district court granted Omnicare's motion to dismiss, holding that relator had failed to allege that Omnicare made a false statement to the government or engaged in fraudulent conduct. The court also held that relator had not adequately alleged the details of any false claims that had been submitted to the government for reimbursement. After the court denied relator's motion for leave to amend his complaint, relator timely appealed.

II.

A.

Before addressing the merits of relator's arguments on appeal, we first consider Omnicare's assertion that the district court lacked subject matter jurisdiction over this action due to the “public disclosure bar” in the FCA. We review this jurisdictional question de novo, and examine the district court's jurisdictional findings of fact for clear error. U.S. ex rel. Vuyyuru v. Jadhav, 555 F.3d 337, 350 (4th Cir.2009); U.S. ex rel. Grayson v. Advanced Mgmt. Tech., Inc., 221 F.3d 580, 582 (4th Cir.2000); see also Gaines Motor Lines, Inc. v. Klaussner Furniture Indus., 734 F.3d 296, 301 (4th Cir.2013) (noting our “obligation to assure ourselves of our jurisdiction”).

The version of the public disclosure bar in place at the time of the relevant events ³ provided:

(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 [General] 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) (2006) (emphasis added). Omnicare argues that the public disclosure bar divested the district court of jurisdiction because relator's complaint is “based upon” the warning letter and Omnicare's “Form 10–Ks” filed with the Securities and Exchange Commission (SEC).⁴ Omnicare also asserts that relator is not an “original source” of the information in the complaint. We disagree with Omnicare's arguments.

Under this Court's precedent, “a qui tam action is based upon publicly disclosed allegations only if the qui tam plaintiff's allegations were actually derived from the public disclosure itself.” U.S. ex rel. Wilson...